A.M. Observations

Last night (Thursday for China) made the 3rd consecutive refusal of the PBoC to inject liquidity in to the system as is usual on Tuesdays and Thursdays, as a result the Shibor rate shot up 59 basis points, the 7-day repo rate which is the important (widely used) jumped 63 basis points and is now 4.68%.

It seems clear now that China is engaging in monetary tightening and no matter what the F_E_D is going, this isn't "good" for the global economy.

China's Flash Manufacturing PMI came in better than expected at 50.9 (under 50 signals contraction), however the same can't be said for Europe where things were uglier almost completely across the board.

The biggies were the French, which missed both the Manufacturing Index at 49.4 vs 50.1 consensus, (down from 49.8) and Services came in at 50.2 vs 51.0 consensus, (down from 51.0). Germany missed in Services @ 52.3 vs 53.7 consensus which is unchanged from  September, they barely beat in Manufacturing at 51.5 vs 51.4 consensus, up from 51.1 last.  As a Composite/blended basis the 6 month ride up just ended, Composite Flash PMI fell from 52.2 to 51.5 (Cons: 52.4). It seems the composite deterioration was largely driven by the service sector.

Almost laughably because the Japanese monetary machine must have studied Bernie's posture, the economic minister came out this morning and said the "Wealth Effect " from rising stock prices which have stumbled, has effected consumption in Japan (sound familiar ?).

I'm not even going to address US Initial claims due to California's data glitch still being a problem for accurate numbers and the number of Federal Employees that filed after being laid off, the data series in my view is just a flash in the pan and of no use whatsoever this week (or really ever).

Interestingly futures were up quite a bit more last night until all this data started rolling in, but we expected a bump today so it's not of great concern. Gold had a nice overnight run, I'd like to take a closer look at that as you know where I stood on the longer term play in gold from yesterday.

I think I'll start off my morning with a review of futures, especially single currency futures. The real question and the real issue I think is just how far is China going to go to drive out inflationary hot money flows from the US and Japan and what venom they'll be spitting at the US next (there have been some interesting ones on reserve currency over the weekend) and how far the escalation with Japan goes over the Islands, or rather hot money flows. It's like clock work, every time Japan is sending hot money in to China. Remember the last time the Chinese government condoned trashing of anything Japanese retail like Toyota dealerships, well that all came from Abe-enomics, Hot money flows and inflation in to China from Japan, a fight over the Islands as is always the first step and then Japanese exports being punished in China.