China Central Bank Refuses To Join Global Print Fest

While the entire 'developed' world is now openly engaged in destroying the balance sheet of its assorted central banks - the sole means to devalue local currencies, a liability, by accepting ever more toxic 'assets' as currency collateral - thereby pursuing strategies which until now were strictly relegated to the banana republic playbook, there are some countries who see what is coming over the horizon, and refuse to join the printing frenzy. One such place is China, for whom, as we have repeatedly shown the threat of a fast onset of inflation is far greater (3x more bank deposits as a % of GDP than in the US, means a soaring capital market as a result of inflation will benefit far less while a deposit exodus will cause hyperinflationary havoc in minutes) than any other developed world country. And with the inability to hide "non-core" CPI as a result of food and energy being such a greater portion of overall inflationary bean counting than in the US, it means that despite the demands of Tim Geithner for immediate more easing by China, the PBOC is now stuck waiting to import everyone else's inflation: this includes the Fed, ECB, BOE, BOJ, Korea, Australia and all other bank engaged in adding liquidity, while its own hands are quite tied. Because recall that it was only last year that the NYT said that: "Inflation in China Poses Big Threat to Global Trade." Now we are told that lack of inflation poses the same threat, when in reality what they mean is that with the world tapped out, one more source of marginal liquidity is needed. Judging by overnight comments from the PBOC's head Zhou Xiaochuan that liquidity, suddenly so very needed to keep the game of musical chairs going, is not going to come from China just as we have warned for months on end.

China's central bank governor has warned that quantitative easing policies worldwide could cause inflationary risks, state news agency Xinhua said on Saturday.

The remarks by People's Bank of China (PBOC) Governor Zhou Xiaochuan come even as analysts credit policy easing from G4 central banks - the U.S. Federal Reserve, the European Central Bank (ECB), the Bank of Japan and the Bank of England - in the third quarter of the year as underpinning business confidence.

Ironically, unlike before when the West benefited from Chinese easing during periods of stress such as in the Lehman aftermath, this time around it is China who is sowing the fruits of others' relentless easing tactics. Only last night China reported that its trade surplus came well ahead of expectations, at $27.7 billion versus a consensus of $20.5 billion, with exports coming coming nearly double the expected 5.5%.

Chinese data on Saturday offered a sign that G4 policy easing was being felt in the world's second biggest economy, with trade numbers showing exports grew at roughly twice the rate expected in September while imports returned to the path of expansion.

"The data shows both imports and exports are improving - especially a rebound in export growth reflects a rising confidence after the U.S. and European countries launched further easing policies last month," said Xue Hexiang, an analyst at Guotai Junan Securities in Shanghai, after the trade numbers were released.

In other words, China is now perfectly happy with the status quo, and is delighted that for once it does not have to be marginal provider of global growth impetus. Instead, it will continue resorting to ultra short-term liquidity intervention strategies such as a reverse repos, which it has been doing for the past several months, and will do no RRR or rate cuts for as long as the threat exists that some other bank will do it for them.

Across Asia, central banks are wary about the potential inflationary impact of the Fed's latest quantitative easing, dubbed QE3, as well as policy stimulus unveiled by the ECB.

Central banks "should consider draining excessive liquidity injected into the market and eliminate inflationary pressure in the long-term", Zhou was quoted as saying by Xinhua, which cited the Journal of Public Research, a magazine published by the People's Bank of China.

China's central bank said in September that it would "fine tune" policy to cushion the economy against global risks while closely watching the possible impact from recent policy loosening in the United States and Europe.

The bottom line is that those waiting for China to come in and provide that last bit of momentum to take the S&P to its all time highs, will be waiting, and waiting, as such an intervention will not come. Why? Thank the Chairman, whose open-ended easing has effectively taken out an even great short-term stock market growth driver, China, out of the picture. And judging by the recent market move, in which the entire QE3 jump has now been faded and then some, Bernanke better have some more magic up his sleeve, ironically, magic which will make any additional "developed world" easing that much less likely.

And just as the permabulls were hoping for once they would be right with their 1650 year end S&P forecasts...




Zero Hedge

Japan, U.S. troops consider drill to retake island

TOKYO —

Japan and the United States are mulling a joint military drill to simulate retaking a remote island from foreign forces, reports said Sunday, amid a festering row between Tokyo and Beijing over disputed islets.

The exercise, part of broader joint maneuvers to start in early November, would use an uninhabited island in Okinawa, southernmost Japan, Jiji Press and Kyodo News agencies quoted unidentified sources as saying.

The drill would involve Japanese and US troops making an amphibious and airborne landing to retake the island using boats and helicopters, Kyodo said.

Japan and China have long been at loggerheads over the sovereignty of rocky outcrops in the East China Sea known as the Senkaku Islands in Japan and the Diaoyu Islands in China.

The Tokyo-administered island chain is uninhabited, but is thought to be sitting on top of valuable resources.

The dispute flared in August and September with landings by nationalists from both sides and the subsequent nationalisation of the islands by Tokyo.

The exercise would reportedly use the uninhabited island of Irisunajima. The tiny island, used as a firing range for U.S. forces, is also in the East China Sea but hundreds of kilometres (miles) away from the disputed island chain.

Jiji said some Japanese and U.S. government officials were cautious about holding the drill, fearing a likely angry response from China.

Japan Today

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China's yuan hits record high amid US pressure

AFP - China's currency hit a record high against the US dollar on Friday, in what analysts said could be a response to US political pressure over claims the yuan is vastly undervalued.

The upcoming US presidential election and expectations the US government will soon release its semiannual report on exchange rate policies could have prompted Beijing to guide the yuan higher, analysts said.

The yuan touched an intraday high of nearly 6.2640 to $1.0, according to the China Foreign Exchange Trade System, marking the highest level since 1994 when the country launched its modern foreign exchange market.

"We don't rule out the possibility of China taking pre-emptive action ahead of the US election," Liu Dongliang, an analyst at China Merchants Bank, told AFP.

"But it's more like this move was meant to respond to the upcoming exchange rate report," he said, referring to the US Treasury Department's report on exchange rate policies that will address China, among others.

China's exchange rate is a long-running source of friction with the United States, which accuses Beijing of artificially undervaluing the yuan to boost exports.

But China claims it is moving towards greater flexibility, earlier this year letting the yuan trade against the dollar in a wider band.

US presidential hopeful Mitt Romney has turned China into a campaign issue and on Thursday he renewed his vow to brand China a currency manipulator.

"The president's had the chance year after year to label China a currency manipulator, but he hasn't done so," Romney said of US President Barack Obama.

When the Treasury report was last released in May this year, it stopped short of accusing China of manipulating its exchange rate, but warned its "significantly undervalued" currency was a brake on global growth.

On Friday, China's foreign exchange market operator set the trading midpoint for the yuan at 6.3264 to $1.0, stronger than the previous day level of 6.3391.

At 0830 GMT, the yuan was quoted at 6.2672, according to the market operator, strengthening from Thursday's close of 6.2770.

"There is anticipation the authorities may want to send a signal and lift confidence in the domestic economy by allowing the currency to appreciate," Jiang Shu, a foreign exchange analyst at Industrial Bank, told AFP.

But Chinese officials have previously said the yuan was nearing "equilibrium" amid signs of capital flight on expectations of slowing growth in the world's second largest economy.

FRANCE 24

Spreading Iranian cyber attacks hit Israeli military

A week ago, on Oct. 6, an unmanned Iranian aerial vehicle with stealth attributes breached Israeli air space. By eluding Israel’s radar, the UAV exposed serious gaps in its air defenses. Thursday, Oct. 11, Hizballah’s Hassan Nasrallah admitting the drone had come from Lebanon, promised it would not be the last. He seemed to be mocking Israeli Prime Minister Binyamin Netanyahu and his reliance on strong border fences to keep Israel safe.
A week went by and Saturday, Oct. 13, the Iranian Revolutionary Guards (IRGC) website quoted its chief, Lt. Gen. Ali Jabari as stating that his naval and missile forces are on “strategic deterrent readiness” – a novel term just invented by the Islamic Republic. He spoke Friday at an army base in Khorrasan, during a tour with Supreme Leader Ayatollah Ali Khamenei. The Iranian general hinted that the Iranian-Hizballah drone had been able to come close to Israel’s nuclear reactor in Dimona.

Both admissions that Iran and Hizballah were conducting military cyber warfare on Israel were tinged with contempt, arising from the certainty that Israel would not retaliate for the UAV’s invasion any more than it had responded to the posting of thousands of Iranian elite Al Qods troops just across its Syrian and Lebanese borders.

Shortly after Nasrallah spoke, the US Republican vice presidential candidate Paul Ryan managed to break through VP Joe Biden’s interruptions to reveal the stark fact that Iran already possesses enough fissile material to make five nuclear bombs. The cat was finally out of the bag after years in which American and Israeli leaders contrived to keep this secret dark by verbal acrobatics and blinding showers of impenetrable “facts and figures.”

It was no slip of the tongue: Mitt Romney’s running mate was briefed by the team which is preparing the candidate himself for his second debate against President Barack Obama next Tuesday, Oct. 16.

DEBKAfile’s Washington sources disclose that the team is headed by the former US ambassador to the UN, John Bolton, who is slated for the job of National Security Adviser if Romney wins the Nov. 6 election.
Ryan’s revelation implied that a Romney administration’s Iran policy would take off from the point of its possession of sufficient fissile material for a nuclear arsenal.

Not that this guarantees US military action against Iran’s nuclear program under a new president - or even backing for an Israeli strike - only that now we all know that it is not necessary to destroy the 20 or more Iranian nuclear sites to demolish its program, only to home in on the stockpile of fissile material which took Tehran 20 years to enrich and accumulate.

The Iranians, realizing their secret was out, are certainly not hiding their precious fissile stockpile of approximately one ton at the Fordo nuclear enrichment plant which continues to turn out more enriched uranium. This stock encased in a lead container no bigger than a large kitchen table could be concealed anywhere in the vast 1.6 million-square-kilometer area of the Islamic Republic of Iran.

So a fleet of bombers and array of bunker buster bombs have become dispensable for pre-empting Iran’s nuclear bomb aspirations. All that is needed is one missile – provided of course that the vital core stock can be located.
Also on Thursday, US Defense Secretary Leon Panetta unveiled his “pre-9/11 moment” speech which revealed that for two weeks, hackers had been hammering the websites of big American banks, the Saudi national oil company Aramco and Qatar’s Rasgas.

In a strong comment, he said the US would strike back and consider a preemptive strike against cyber terrorism, without saying how or actually naming Iran.

However in leaks to the American media, former U.S. government officials and cyber-security experts reported that the administration believes Iranian-based hackers were responsible for what Panetta warned could be the first “cyber Pearl Harbor” against America.

The Wall Street Journal pointed to a team of 100 Iranian experts as the perpetrators of the cyber attacks on America and the Gulf oil states.
Tehran appears to be sending a message that if US-led sanctions continue to cut down its oil exports and restrict its banking business, Gulf oil producers and American banks would pay the price.

Panetta’s words may therefore be read as Washington’s final warning to Iran to desist from cyber warfare.

In the days leading up to his speech on cyber-terror, the defense secretary was tireless in cautioning against the menace of the Syrian civil war spreading to neighboring countries and evoking Bashar Assad’s threat to bring out and use his chemical weapons.

Before he turned to the cyber threat, the Syrian war had indeed tipped over into an escalating Turkish-Syrian showdown.
Both these developments mean that the waves of Middle East violence are lapping ever farther afield. All the parties with an interest in stirring up trouble are keeping a weather eye on the Obama-Romney debate next Tuesday to see if the president recovers the momentum he lost to his Republican challenger in the first debate. 

Before or after the debate, each of them - Al Qaeda, Iran, Syria or Hizballah - is capable of taking direct action to show it is a player to be reckoned with. Such action may explicitly target an American interest or stir the pot by going for Israel, Turkey, Jordan, or a Gulf oil nation.
It can no longer be denied that Tehran is already on a cyber offensive against them all. In the absence of any response, Iran may decide to push further against its targets.




DEBKAfile

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