Key News

  • The Japanese economy entered its first recession in seven years, as growth declined for the second quarter running by a wider margin than expected, raising fears the situation could deteriorate amid the global downturn. (FT)
  • Mining companies ‐‐ which couldn't dig minerals out of the earth fast enough just a few months ago ‐‐ now are struggling to climb out of a very deep hole. On Friday, the world's biggest miner, BHP Billiton, said major Chinese customers are trying to delay purchases of iron ore as China's building boom slows sharply. (WSJ)
  • Australian retail sales rose in the third quarter by less than economists forecast. (Bloomberg)
  • Key Reports (WSJ):
           8:30a.m. Nov NY Fed Manufacturing Index: Expected: -27. Previous: -24.6.
           9:15a.m. Sep Industrial Production: Expected: +0.4%. Previous: -2.8%.
           9:15a.m. Sep Capacity Utilization: Expected: 76.7. Previous: 76.4.

Quotable

“It is fascinating to watch politicians come up with ‘solutions’ to problems that are a direct result of their previous solutions. In many cases, the most efficient thing to do would be to repeal their previous solutions and stop being so gung‐ho for creating new solutions in the future. But, politically, that is the last thing they will do.”    Thomas Sowell

FX Trading – G‐20: No new structures—maybe a reality bite!

No major new global frameworks were hashed out by the G‐20. Dollar is giving back some gains from that late blow‐off move very late in the day on Friday. The pound is staging a nice‐sized bounce.

Crude oil, the global growth thermometer, continues to move lower and lower. We would have expected a bounce in crude if the market expected anything said by the G‐ 20 would help. There seems a sinking realization that global recession will continue to get worse before better. And maybe the simple goal of G‐20 at this stage is to avert global depression, instead of the run of the mill recession, now that there is growing panic about Chinese growth. Or maybe too soon to say panic, but growing concern China isn’t going to be the market white knight riding to the rescue with its FX reserves.

And if you consider the haircut oil producers have taken on the price of their product, not to mention their Sovereign Wealth Fund equity investments, one wonders where all their extra funds will flow from, those that are supposed to be lumped together with China’s to save the world economy.

Maybe those oil traders rumored to be buying $30 put options know something. Next chart support, on a weekly basis, comes in at $49.90.

chart 4

Maybe the G‐20 got a wakeup call this weekend. There are no white knights left out there. And now is no time to rejigger the global financial system to create a one‐off quick fix and return of risk taking. Maybe it’s time to get out of the way and let the market decide who swims upstream and who doesn’t.

With news of Ecuador may default, with the fall in oil prices playing a big part, we think Mr. Market may start to really kick it into gear in the emerging world. Emerging market contagion takes a direct route into the European banking system. This might keep Mr. Sarkozy busy instead of allowing him time to dream up new global financial structures with more government control over everything related to money—a dream near and dear to hearts of progressives everywhere.