Mish's Global Economic Trend Analysis

Yields Creep Up in Spain, Italy, France (Actual and Also Relative to Germany)
China Acts to Calm Markets; Stock Market Rebounds From 6% Plunge After Central Bank Pledges More Liquidity; Wet Nurse Action
Immigration Bill Incentivizes Employers To Fire Americans and Hire Amnestied Immigrants; Immigration and Obamacare’s Employer Mandate

Yields Creep Up in Spain, Italy, France (Actual and Also Relative to Germany)

Posted: 25 Jun 2013 12:54 PM PDT

Curve Watchers Anonymous has its eye on global interest rates that are heading North practically everywhere.

Spain 10-Year Bond Yields

After hitting a low of just above 4% earlier this year, the yield is now back above 5%.

Italy 10-Year Bond Yields

After falling as low as 4.68% today, the yield close up slightly at 4.86%. The April low was 3.76%.

Germany 10-Year Bond Yields

The yield on the Germany 10-Year government bond is 1.80, up from a year-low of 1.17%.

Thus sovereign rates are up 63 basis points in Germany, but over 100 basis points (a full percentage point) in Spain and Italy.

France 10-Year Bond Yields

Even France is up relative to Germany, from 1.66% to 2.46%, a rise of 80 basis points.

In theory, all sovereign debt in the eurozone should trade at the same yield. Clearly theory is one thing, and practice another. And the divergences are getting worse.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

China Acts to Calm Markets; Stock Market Rebounds From 6% Plunge After Central Bank Pledges More Liquidity; Wet Nurse Action

Posted: 25 Jun 2013 10:51 AM PDT

In the past few week, China intraday lending rates as measured by SHIBOR got as high as 25% (See China Cash Crunch: 1-Day Interest Rate Spikes to Record High 25%).

With rates spiking, global stock markets plunged.

On Monday China insisted banks had significant liquidity sending a message that banks need to manage their own risks.

A translated message by the People's Bank of China on liquidity states "Commercial banks should concentrate storage for taxes and statutory reserve deposit and other factors impact on liquidity in advance to arrange sufficient positions to maintain adequate levels of reserve ratio, to ensure the normal settlement" while warning "expansion of credit and other assets too fast may lead to liquidity risk".

That message sent the Shanghai stock market index down about 6% as shown in the following chart.

Shanghai Composite Intraday Chart

The horizontal line represents a split shift when the stock market is open.

$SSEC Shanghai Daily Chart

Since the beginning of June, the Shanghai stock index is down about 15%. Since the February high of 2443, the market is down nearly 20%. Intraday, the market was down over 25% from the year's high.

Mid-day, Tuesday, the China central bank decided it could take no more, and that's when the market rally took place, erasing nearly all of the 6% intraday drop shown in the first chart.

China Acts to Calm Markets

The Financial Times reports China in fresh effort to calm shaken markets.

China has pledged to backstop banks suffering from cash shortfalls, giving rattled investors hope the country's money squeeze could be nearing an end.

The statement by the People's Bank of China on Tuesday was the clearest attempt yet by the government to calm the turmoil that has shaken global markets over the past week and fuelled concerns that the world's second-biggest economy could be on the verge of a credit crisis.

"If banks have temporary shortages in their planned funding, the central bank will give them liquidity support," it said in the statement. "If institutions have problems in managing their liquidity, the central bank will apply appropriate measures under the circumstances to maintain the overall stability of money markets."

In its latest statement, the central bank said money markets were already on the mend after interbank rates spiked to double digits last week. It noted that the overnight bond repurchase rate had fallen to 5.83 per cent, more than half what they were last week, though still about twice as high as normal.

"Several strong banks have already started to play an important role in providing funds to the market and stabilising interest rates," it said.

A commentary earlier on Tuesday in the People's Daily, official newspaper of the Communist party, called on authorities to continue an unyielding stance.

"The central bank is not a wet nurse to the stock market. If it saves the stock market, it will in fact be harming it," the paper wrote.

Wet Nurse Action

The central bank efforts to provide liquidity are highly unlikely to work. The structural problems are immense:

China's shadow banking system is a mess
Property bubbles are immense
Infrastructure malinvestment is unprecedented
Rolling over of loans of State Owned Enterprises (SOEs) is going to be very problematic with any increase in interest rates

For further reading, please see ...

In theory the central bank could paper over this mess with massive amounts of liquidity, but in practice, such action will either further fuel China's immense structural problems, or more likely, the credit bubble in China has gotten as big as it is going to get, no matter what the Central bank does.

The world is not remotely prepared for a major slowdown in China. Yet, China's credit bubble has popped, and growth going forward will plunge as China rebalances.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Immigration Bill Incentivizes Employers To Fire Americans and Hire Amnestied Immigrants; Immigration and Obamacare’s Employer Mandate

Posted: 24 Jun 2013 11:57 PM PDT

Obamacare is bad enough in and of itself. An immigration bill in the Senate is about to compound the problem.

Brietbart reports Senate Bill Incentivizes Employers To Fire Americans and Hire Amnestied Immigrants.

Under the Gang of 8's backroom immigration deal with Senators Schumer, Corker and Hoeven, formerly illegal immigrants who are amnestied will be eligible to work, but will not be eligible for ObamaCare. Employers who would be required to pay as much as a $3,000 penalty for most employees who receive an ObamaCare healthcare "exchange" subsidy, would not have to pay the penalty if they hire amnestied immigrants.

Consequently, employers would have a significant incentive to hire or retain amnestied immigrants, rather than current citizens, including those who have recently achieved citizenship via the current naturalization process.

Following a link from the above article, Phil Klein at the Washington Examiner explains further in Immigration and Obamacare's employer mandate

As the implementation of Obamacare approaches, there have been many news reports about companies considering cutting back full-time workers to part-time, or taking other actions to get around the mandate penalties. The immigration bill would offer employers another way out –hiring fewer American citizens and more immigrants with provisional legal status.

It's not surprising that this unintended consequence hasn't yet been resolved, because there's no easy fix. One way of eliminating the problem would be to get rid of the employer mandate in Obamacare altogether – which would be a non-starter for Democrats. The other way would be to give noncitizen immigrants with provisional status access to Obamacare's benefits – which would destroy any hopes of garnering Republican votes.

The issue was never addressed in any of the more than 200 amendments proposed when the immigration legislation made its way through the Senate Judiciary Committee.

And so here we are. Obamacare encourages hiring part-time workers over full-time workers and an immigration bill, if passed as it currently sits, would encourage hiring of amnestied immigrants over US citizens.

For more Obamacare absurdities, please see

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Tuesday, June 25, 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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