“China’s stocks fell, dragging the benchmark index down the most in more than three months, after Premier Wen Jiabao said home prices are still far from reasonable levels.

The Shanghai Composite Index (SHCOMP) slumped 2.6 percent at the close, reversing an earlier 0.8 percent gain. A relaxation of curbs on the property market would lead to “chaos,” Wen said at a press conference in Beijing today. A gauge tracking property stocks sank 3.7 percent, led by Poly Real Estate Group Co., while Anhui Conch Cement Co. paced losses by building- material companies.

“Wen’s speech has raised concern that property curbs may be kept in place for longer than previously expected,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “Property accounts for a significant part of the economy.”

The Shanghai Composite had rallied 12 percent in 2012 through yesterday following two years of losses on speculation the central bank would add to a Feb. 18 cut in lenders’ reserve requirements to bolster economic growth. The government’s two- year effort to control the property market helped spur a 26 percent drop in home sales in the first two months of the year.

The Shanghai stock gauge closed 64.57 points lower at 2,391.23, the biggest loss since Nov. 30. The CSI 300 Index (SHSZ300) retreated 2.8 percent to 2,605.11. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 2.1 percent in New York yesterday…”

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“BRUSSELS (AP) — The United States, the European Union and Japan filed complaints Tuesday with the World Trade Organization charging that China is limiting its export of rare earths, minerals that are vital to the production of technology components.

China produces almost all of the world’s supply of rare earths but has limited exports in recent years. That worried countries with large technology industries as rare earths are used in a variety of sectors to make hard drives, car parts, electronics, fiber optics — and every smartphone in use today.

EU Trade Commissioner Karel De Gucht said China’s export quotas and export duties give Chinese companies an unfair competitive advantage, and must be removed.

“These measures hurt our producers and consumers in the EU and across the world,” De Gucht said.

The three separate but coordinated filings with the WTO formally request dispute settlement consultation, which is the first step in a WTO complaint. If no resolution is found, the dispute can be transmitted to a WTO Panel for a ruling.

Earlier Tuesday, anticipating the complaints, China defended curbs on production of rare earths as an environmental measure.

Global manufacturers that depend on Chinese supplies were alarmed by Beijing’s decision in 2009 to limit exports while it built up an industry to produce lightweight magnets and other goods that use them. China has about 30 percent of rare earths deposits but accounts for 97 percent of the world’s production…”

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Yields are rising….

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Source

“A lack of demand for China’s factory goods could be triggered by a slowdown in demand, particularly from EU countries. That almost certainly would hurt GDP growth in the People’s Republic. Chinese authorities likely would push more money into the economy, which has happened in the past month. What has not been discussed often is that, if China’s economy slows considerably, the problems created by lack of demand for its exports could cause a recession in the United States.

S&P recently put out a list of potential problems for the U.S. credit markets and economy. Among those are the usual risks, including the housing market and contagion for a collapse of one of more of the European economies. Also included among the threats is that China’s gross domestic product could drop to 5%.

S&P reports that a Chinese GDP collapse is entirely possible:

As Europe’s leaders grapple with a debt crisis and recession, and the Obama administration looks for ways to bolster the U.S. economy, world growth in 2012 will rely heavily on China. After real GDP growth in China slowed slightly to 9.2% in 2011, our base-case economic scenario calls for about 8% GDP growth this year from double-digit expansion in recent years.

We view the risk of only 5% GDP growth in China as plausible, although a stable one at this point. If such a scenario were to materialize, its negative effect on the U.S. and global economies could be substantial, particularly in the commodities and materials markets, where China is a large source of demand.

The normal position of the tables would be turned. China could become a less potent market for U.S. exports. And American GDP would be badly battered by a drop in demand for its agricultural products and manufactured inventories for expensive items such as airplanes. Just as bad would be a slowing of demand for U.S. intellectual property, which runs from software to services.

It is sometimes forgotten, particularly when trade numbers show that China’s export machine has hurt the U.S. trade balance, that the People’s Republic is one of the largest countries for U.S. exports. It would be ironic, but a Chinese recession could spread to America and sink GDP here as well.”

Douglas A. McIntyre

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“BEIJING (Reuters) – China’s trade balance plunged $31.5 billion into the red in February as imports swamped exports to leave the largest deficit in at least a decade and fuel doubts about the extent to which frail foreign demand or seasonal distortion drove the drop.

Import growth of 39.6 percent on the year in February was the strongest in a year, well ahead of the 27 percent expected and more than twice the rate of export growth of 18.4 percent that was barely more than half the pace forecast — albeit at a six month high.

“It’s a very mixed picture,” said Zhang Zhiwei, chief China economist at Nomura in Hong Kong, who cautioned against reading too much into the data given the underlying volatility caused by the Chinese Lunar New Year holiday that saw a week-long factory shut down in January 2012 and February last year.

By Zhang’s calculations that adjust for days worked and exclude the volatility of the 2008/09 financial crisis, exports appear to have posted one of their lowest month-on-month growth rates since the mid 1990s….”

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Markets are not convinced at this point that the problems have been taken care of in Europe. Yes water has been thrown onto the flames, but the underlying debt problem still smolders putting yields at their highest point in eight weeks.

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“You say to Iran all options are on the table. Leave them there until they rot. The time of arrogance and colonialism has passed, and the era of your unreasonableness passes too.”

 

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Israel’s Iron Dome

via & photo via

The Iron Dome system intercepted about 90 percent of the rockets fired at Be’er Sheva, Ashdod and Ashkelon, including three on Sunday morning.

Despite the rocket barrage, Israel kept open the Erez Crossing for passengers and employees of international organizations operating in Gaza. Kerem Shalom was open for the delivery of 200 truckloads to Gaza residents.

Its deployment this past weekend appears to have defeated Hamas, at least for the time being. The terrorist organization has been talking with the new regime in Egypt for another ceasefire after failing to inflict mass casualties or property damage on Israel.

The problem with the Iron Dome is its cost and the lack of enough systems to defend all of Israel. The United States is providing funds to Israel to buy more of the made-in-Israel systems, each one of which costs more than $100 million.

The Iron Dome has been able to defend Israel’s three most populous southern cities, but if Hamas unleashes longer-range missiles that can reach Rehovot, Kiryat Gat and Kiryat Malachi, closer to metropolitan Tel Aviv, the IDF would lack enough systems to cover everyone. Defense Minister Ehud Barak said Sunday morning that expanding the system should be a national emergency project.

In addition to the defensive action of deploying the Iron Dome, the IDF also has taken the offensive against terrorists.

It targeted two members of the Popular Resistance Committee terror organization on Friday. The squad was responsible for planning a combined terror attack that was to take place via the Sinai Peninsula and the Israel-Egypt border.

In response to the ensuing rocket and missile bombardment from Gaza, the Israel Air Force targeted several weapons manufacturing facilitates and terrorist cells preparing to launch missiles.

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But hey, if the other nations don’t like that, they are welcome to try financing their own budgets on their individual credit ratings…

ATHENS (Reuters) – Euro zone countries with a top credit rating might have a bigger say in talks to replace Jean-Claude Juncker as chairman of the bloc’s finance ministers, a Greek newspaper quoted German Finance Minister Wolfgang Schaeuble as saying on Saturday.

Asked in an interview in weekly To Vima whether Juncker’s successor would have to come from a triple-A country, Schaeuble said: “Member states that observe the euro zone’s fiscal rules and are rewarded for this by the rating agencies and the market will possibly have better chance to promote their candidates for the post.”

Schaeuble declined, however, to make further comments, saying he did “not want to talk publicly about possible candidates” or “make speculations on the issue”.

Four out of the euro zone’s 17 countries currently have a top credit rating: Germany, Finland, Luxembourg and the Netherlands.

Juncker’s term as head of the so-called Eurogroup expires in June and he has said he does not want to keep the job.

Schaeuble reiterated in the interview that there is no guarantee that a second bailout plan for Greece, due to be approved by euro zone finance ministers next week, will work. “No-one can’t rule out that Greece won’t need at some point by then (2020) a third package,” he told To Vima.

He also dismissed any notions that Germany was using the euro zone crisis to dominate Europe.

“Drawing the conclusion that we want to dominate Europe is really, just foolish”, he said. “I can assure you that Germany has neither the intention nor the power to impose such a dominance”.

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How behavior effects the markets…

Cheers on your weekend !

[youtube://http://www.youtube.com/watch?v=c4VPRYuPNE4 450 300]

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Despite the easing of inflation a bit in China Lau does expect easing, but it will be a cautious approach….

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Seems a bit early, but with a ballooning balance sheet Draghi is preparing to fight inflation and end stimulus for the sovereign debt crisis….

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The real question is will this be the last time?

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[youtube://http://www.youtube.com/watch?v=9D05ej8u-gU 450 300]

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The problem with the latest hare-brained scheme in Europe, namely to organize Greek bondholders among the various institutions that for 2 years did everything in their power to dump said Greek bonds in the open market, is that said institutions end up having no Greek bonds in inventory just at the time when they are supposed to have Greek bonds, 24 hours ahead of the Greek PSI deadline. As a reminder, participation in the PSI has to be 75%, with a CAC threshold of 66%,  and according to some interpretations even 50% of Greek bondholders voting for the PSI will be sufficient. Which means that with the PSI conclusion just around the corner, or 8 pm Athens time time tomorrow, the IIF, which is the consortium of entities that have every interest in perpetuating the status quo (i.e., do not have Europe ransom demands) and more than happy to “volunteer” for a 70%+ haircut, the IIF only has…

• IIF SAYS MEMBERS PLEDGING SECURITIES EQUAL TO 39% OF EU206 BLN
• IIF SAYS MEMBERS AMOUNTING TO EU81 BLN TO TAKE PART IN SWAP

So according to the IIF itself, 24 hours ahead of the deadline, it does not even have a majority of bondholders accounted for, let alone the plurailty needed for CAC trigger activation. Where are the other €145 billion in Greek bondholders? Why just call up Jeff Sabin at Bingham at 212.705.7747 and find out first hand….”

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“Italy’s bonds rose for the first time in three days as Societe Generale SA joined companies saying they would take part in Greece’s debt swap.

Spanish government securities also advanced after European Union Economic and Monetary Commissioner Olli Rehn was said to be confident that enough private investors will sign up to the bond exchange. German 10-year yields were within three basis points of a seven-week low after factory orders unexpectedly declined in January. Germany sold 3.3 billion euros ($4.33 billion) of five-year notes.

“The news related to the Greek deal isn’t fantastic but there’s nothing that looks like it might be derailing the whole thing,” which is helping higher-yielding assets, said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “The German factory orders don’t make for great reading, there’s a loss of momentum and that means there are a lot of people who are a little bit wary, so trading will be choppy.”

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WASHINGTON (AP) — Congress was moving Tuesday to overturn a court decision and reaffirm that the government has the right to impose higher tariffs on goods from China and other countries that subsidize their exports to the United States.

The House was expected to pass the bill Tuesday and send it to President Barack Obama for his signature. The Senate approved it Monday on a voice vote with no debate.

The speedy and bipartisan congressional action came after a federal appellate court ruled in December that the Commerce Department did not have the authority to levy the punitive tariffs because Congress had never explicitly given the agency that right.

The Commerce Department has been applying these “countervailing” duties since 2007. The legislation ensures that 24 existing higher tariff orders and six pending investigations against imports from China and Vietnam will continue to be valid.

The duties are allowed under World Trade Organization rules to counteract unfair subsidies used by countries, such as China and Vietnam, that have yet to fully adopt market economies.

Senate Finance Committee Chairman Max Baucus, a Democrat, said that since 2007 countervailing duties have protected some 80,000 jobs across the country. “China doesn’t get a free pass to violate the rules at the expense of American jobs,” he said.

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