Monday Comment

Good Morning. At 07:58 we executed Trade 3 from our trade shortlist. Prices were Gold (XAU/USD) 1690.74 and S&P500 (ES) 1250.73.

See below for our roundup of the weekend's news, focusing on the regions and products we think are the most tradeable this week.

• Asia-Pacific Equities are up this morning, tracking the strength posted by Europe and US equities last Friday: Japan: +1.6%; Hong Kong: +1.4%; China: -0.5%.
• Japan's Domestic Corporate Goods Price Index (CGPI) rose +0.1% MoM (1.7% YoY) and above market consensus of -0.1% MoM (+1.5% YoY).
• However, we've seen Western risk track lower this morning, with analysts are blaming a weak summit conclusion.
• The UK Sunday Times and the Guardian report that there are growing fears that France could lose its AAA status this week, putting the latest Eurozone rescue plan in jeopardy.
• Moody's on the EU Summit: "In the absence of any decisive policy initiatives that stabilise credit market conditions effectively, our intention as announced in November is to revisit the level and dispersion of ratings during the first quarter of 2012."
• Germany's Bundesbank will seek approval from parliament before authorizing planned EUR45bn in loans to the IMF to assist the euro area bailout (DPA, citing board member Mr Dombret). The UK Telegraph also quotes Mr Dombret as saying Bundesbank cannot take part in any "back door" funding of Eurozone states via loans to the IMF .
• Italian PM will likely have to call a confidence vote in Parliament to win approval for his emergency economic measures. MPs have reportedly made about 800 amendments to Mr. Monti's austerity package, making a confidence vote to push through the plans more likely.
• WSJ-Australia reports that there are growing fears of a eurozone banking system collapse as lenders struggle to obtain funding due to a 'collateral crunch'. Some continental banks have reportedly run out of acceptable collateral, and are being forced to lend out their gold reserves to maintain access to USD funding. (High relevance to Trade 1).
• Bloomberg reports that the eight largest prime U.S. MM mutual funds cut holdings in French banks by 68% - $11.7 (c. EUR8.8bn) billion to $5.56 billion (c. EUR 4.2bn) in November, shifting investments to Swiss, Swedish, Canadian and Japanese banks. Overall, the eight funds have reduced French bank debt by $76.8 billion (EU58bn) in the past 12 months.
• Italy's banking association will oppose new capital requirements set by the European Banking Association "in every way" and is ready to take legal action should it be required .
• The US will not participate in the Eurozone rescue via bilateral loans to the IMF. US Pdt Mr. Obama says "Europe is wealthy enough that there's no reason why they can't solve this problem [and] it's not as if we're talking about some impoverished country that doesn't have any resources."
• The Bank of International Settlement (BIS) is disputing the Bank of England's (BoE) conclusions on the impact of UK quantitative easing programs. The BoE estimates that without quantitative easing, Gilt 5-10yr yields would have been 100bp higher, and that purchases had boosted growth by 1.5 -2%. On the contrary, the BIS assert that the 1st round of UK QEII reduced yields for 5-25yr Gilts by c. 27 bp on average. The BIS study is also more skeptical than the BoE on the ability of further QE lowering yields by similar amounts saying "it may be harder to achieve the same degree of effectiveness as with the initial programs once the surprise or novelty element wanes."