Premier Wen complains again; Moody's downgrades two French banks

The rest of the week will see plenty of economic data reported, but Moody's and the Chinese Premier Minister Wen have seen to it that we have action right now. Moody's has downgraded the French banks Societe Generale and Credit Agricole while Chinese Premier Wen repeated his semi-annual cry that the world should not rely on China to fix everybody's problems.



Wen complains again of Western reliance on China: The Chinese touted their horns again overnight as Premier Wen reiterated what seems to become a semi-annual tradition, namely the call for Western countries to not expect China to rescue everybody. But while we will not argue with Wen's concerns over the excessive amount of debt taken on by the major Western countries in recent years (decades even), we will take exception to Wen's weird idea that everybody is dependent on the firm guiding hand of China and its ability to finance the world's consumption.
The problem for Wen is that China is as much - if not even more so - reliant on the trade deficit countries as they are on China as long as the latter continus to pursue a merchantilist strategy based on net exports to drive economic growth. Wen should be quite pleased that the U.S. is capable of running a deficit large enough to help the Chinese in their quest for GDP growth. Note also that this implies that despite Wen's complaints about the debt run-up in the US which "forces" China to buy US Treasuries, it is actually in reverse. China needs to buy Treasuries as long as it remains a net exporter (of course China can buy other sovereign bonds than those of the US or other US assets, but that does not change the outcome).
Regardless of whether Wen truly belives that "[c]ounries must frist put their own houses in order" as he said in his speech at the World Economic Forum in China overnight does not change the fact that China is at least as happy with the current setup as the US.

Credit Agricole, Societe Generale downgraded by Moody's: The second and third largest banks in France in terms of assets were downgraded by Moody's today to Aa2 (from Aa1) and Aa3 (from Aa2), respectively, but the rating agency did not downgrade another company whose stock has been in freefall lately, BNP Paribas. While the latter is deemed to "[have] a sufficient level of profitability and capital that it can absorb potential losses it is likely to incur over time on its Greek government bonds", Moody's was less kind to Credit Agricole stating that the Aa2 rating(s) "are more consistent with the bank's sizable exposures to the Greek economy." Of course, these downgrades should be a surprise to no-one following the markets lately, but the reaction is easily felt nevertheless with the CAC40 futures currently down 2 percent while other futures are down roughly 1 percent.

Retail Sales, PPI head economic calendar: Given the news above, today's data is bound to take a more protracted role with only PPI and Retail Sales from the U.S. having some potential for moving markets. We commented briefly (http://www.tradingfloor.com/blogs/macro-update/uk-cpi-elevated-us-small-businesses-struggle-most-in-a-year-2141853949) on PPI yesterday as the index correlates well with Import Prices, which dropped 0.4 percent in August according to a report yesterday, and in that light it is understandable why consensus targets unchanged prices in PPI. Retail Sales are more interesting given the weakness displayed by consumers in the 1Q-2Q GDP reports. Consensus only looks for a 0.2 percent gain as Vehicle Sales dropped 0.8 percent in August. In addition, keep an eye out for revisions to the 'hard data' for July was generally much better than the survey data and hence there is still the risk that the former will be revised down (this is also something to be aware of when Industrial Production - tomorrow - and Durable Goods Orders - late in the month - are released as they too were strong in July).