Pro rings the death knell for crude oil rally

The days of triple-digit prices for U.S. crude are “numbered” as the “crazy bull market” for oil continues to run out of gas, argued Citigroup analyst Seth Kleinman on Tuesday, even as West Texas Intermediate traded near its one-month high of $97 a barrel.

WTI shook off early weakness but still lost 13 cents to trade below $97 a barrel, while Brent crude for May delivery slid 70 cents to $110.38 a barrel. U.S. gasoline futures posted the biggest percentage drop in the oil futures complex, pushing below the 50-day moving average of $3.0477 a gallon, a technical level closely monitored by chart watching traders and analysts.

Kleinman, though, sees several reasons why crude oil could continue to fall in the near future.

The supply-demand dynamic, for example, has changed over the last few years, said Kleinman, head of energy strategy at Citigroup. A few years ago, demand for oil spiked, but OPEC controlled most of the supply and refused to ramp up production. The United States now produces a sizable amount of oil, helping send WTI lower, he said.

The process of refining also has changed, Kleinman said. Before, there simply wasn`t enough refining capacity to keep up with demand.

“There was genuine, real fundamental tightness, especially on the refining side, and that`s what ultimately drives the market because you`re not out there buying oil to put into your SUV. You`re buying gasoline or if you`re in Europe, diesel or jet fuel if you`re an airline,” he said.

From railways to pipeline, it`s now easier to get oil in and out of Cushing, Okla., a global storage center for crude stockpiles in the U.S., Kleinman added. That wasn`t the case a few years ago, so prices rose, he said.

Meanwhile, he said, markets have opted for alternative energy over oil.

“You`re seeing this substitution of natural gas for oil in a big part of the various sectors of the global oil market across the world,” Kleinman said. “There is enough to actually see oil demand start to top out as soon as the end of this decade.”

From the New York Mercantile Exchange , professional trader Anthony Grisanti took a slightly more bullish view on crude, especially as the U.S. is the world`s biggest oil consumer and the economy seems to be improving. He added that demand for crude tends to rise in the summer, when more Americans take to the road.

Grisanti said the technicals for WTI suggest a range-bound market, though, finding a low of $91 a barrel and a high of $97 a barrel.

“Until it breaks one way or another, I`m just going to play these ranges,” said Grisanti on CNBC`s “ Futures Now ,” adding that he plans to sell the May crude oil futures contract at $96.90 with a target of $94.10 and a stop of $98.

Pro trader Jim Iuorio in the Chicago Mercantile Exchange agreed but said he wouldn`t short WTI until it takes out Tuesday`s intraday low of $95.94 a barrel.

– By CNBC`s Drew Sandholm with Reuters

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Copyright 2011

India’s Chidambaram sees 8% growth by 2015

Annual growth of 8 percent may seem like a distant memory in India, whose economy has suffered a sharp deceleration over the past year, however, the country`s finance minister P. Chidambaram believes Asia`s third largest economy can return to such levels by 2015.

“In 2013-14 we`ll climb back to 6 percent plus and in 2014-15 I think we`ll get back to 7-8 percent growth… we think we can grow at that rate for the next 20-25 years,” Chidambaram told CNBC on Tuesday during a visit to Tokyo to promote India as an investment destination.

Gross domestic product (GDP) growth in India slumped to 4.5 percent during the fourth quarter of 2012 – its slowest pace in 15 quarters – a far cry from the stellar 8-9 percent growth rates seen last decade.

As a result, Chidambaram, who returned as finance minister in July last year, has taken several steps to boost investor confidence, from opening up sectors to foreign investment, to cutting subsidies to rein in the fiscal deficit.

Chidambaram added that monetary easing by the central bank, which has cut interest rates twice so far this year, is beginning to feed into increased economy activity. The Reserve Bank of India (RBI) is expected to lower borrowing rates further in 2013.

“I think at this time, there is perhaps still room for cutting rates, but that is a call the [RBI] governor has to take,” he said.

“We see the beginnings of green shoots. There are more inquiries for loans, more project proposals. Stalled projects are being revived,” he said. The government has also set a target of $1 trillion dollars for investments in infrastructure over the next five years.

In addition to efforts by the government and central bank to drive growth, he pointed to the country`s robust savings rate as a major support for the economy. A higher savings rate translates into a larger pool of funds available for investment, which is positive for growth.

“In 2007-8 our savings were 36 percent of GDP. In the worst year, 2011-12, savings declined to 30 percent of GDP. 30 percent is not a number that can be dismissed easily – it`s a very high level of savings,” he said. In 2007-08, the economy expanded at a rate of 9 percent.

Managing the Deficit

Faced with a hefty current account deficit, which hit a record 6.7 percent of GDP in the three months to December, he said the country has to “redouble efforts” to attract foreign direct investment (FDI). “India can easily absorb $50 billion a year in FDI alone. Last year, we nearly had $46 billion of FDI,” he said.

Chidambaram, however, said he is unlikely to further target gold consumption through additional import duties this year. Gold is India`s second largest import after oil and has contributed to the expansion of the country`s current account deficit. In January, the government increased the tax on its import to 6 percent, from an earlier 4 percent to curb demand.

He said taxes on the import of the yellow metal are at an optimal level at the moment. “Evidence points out that if you raise tariffs too much it will increase smuggling.”

Copyright 2011

Dow hits another new high, but can it keep going?

The Dow Jones Industrial Average closed at another record high on Tuesday for the eleventh time in the last twenty trading sessions. After posting its best first quarter since 1998, up 11.25 percent, what`s next for the Dow?

Since 1950, there have been 12 other instances when the index was up more than 8 percent in the first quarter. In eight of those times, the Dow finished the second quarter with a gain of at least 1 percent.

In fact, there were five occasions when it rose more than 4 percent in the second quarter following a strong first quarter (1995, 1987, 1986, 1975 and 1954).

April, for example, has been the best month of the year, posting an average monthly increase of 2.7 percent in the last 20 years and 1.97 percent in the past 63 years.

While there are bumps along the way, most of the time, the Dow tends to build up on its gains following a strong first quarter. Historically, a strong first quarter also correlates with strong gains for the full year.

-By CNBC`s Giovanny Moreano (Follow Giovanny on Twitter: @GiovannyMoreano)

Copyright 2011

Why S&P rally has another 100 points to go: Chartist

On March 11 this year the SandP 500 (INDEX: .SPX) index moved above 1,550. The index remained above 1,550 for most of March. This breakout is very important because it is a move above the long term double top pattern seen on a monthly chart of the index. The 1,550 resistance level is near the peak high of the SandP index in October 2007. It was also near the peak high in March 2000. This suggests 1,550 is a very significant resistance level.

Traders watch carefully for the development of any chart pattern which suggests a rapid retreat from 1,550. Rapid retreats happened in 2000 and 2007. There is a danger that the SandP index will temporarily move above 1,550 and then develop a retreat. However the weekly and the daily chart of the SandP Index do not show any trend reversal patterns. This is a bullish environment that suggests the SandP uptrend is strong.

(Read More: Will US Jobs Report Keep the Bulls Running? )

The uptrend behavior also does not include any chart patterns which help to set upside targets. Analysis of the long term pattern of support and resistance shows the SandP index moves in wide trading bands. Each of these bands is around 140 index points wide. The recent rally is a rebound rally from a support/resistance level at 1,410. The width of the trading bands provides the next upside target for this uptrend. It is near 1,550 and this is also the long term resistance level.

The market has developed a small consolidation near 1,550. This is a very strong bullish feature. This consolidation may be followed by a rapid breakout above this resistance level and 1,550. This rally breakout would confirm a very strong uptrend. The upside target for this type of breakout is near 1,690. This target is calculated by projecting the width of the trading bands above 1,550.

The strength of the uptrend is also shown by the Guppy Multiple Moving Average (GMMA) indicator. This indicator has two groups of averages. The long term group captures the thinking of investors. Wide separation shows strong investor support for the trend. The short term group shows the thinking of traders.

For the past there months the index is clustered near the upper edge of the short term GMMA. This behavior is very bullish. This confirms the strong and stable uptrend starting in October 2012. The uptrend is well defined using the GMMA. The SandP shows rally and retreat behavior with the lower edge of the long term GMMA tested in June 2012 and again in November 2012. For each test of the lower edge of the long term GMMA investors have come into the market as buyers because they believe the SandP can go higher. This is a bullish result and confirms the strength of the uptrend.

There is a high probability this uptrend will continue to 1,690. Investors will buy when the index retreats towards the lower edge of the short term GMMA.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – . He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at We welcome all questions, comments and requests.

NBC assumes no responsibility for any losses, damages or liability whatsoever suffered or incurred by any person, resulting from or attributable to the use of the information published on this site. User is using this information at his/her sole risk.

Copyright 2011

How do you solve a problem like North Korea?

North Korean leader Kim Jong Un’s brinksmanship is in full bloom. He’s ordered the missiles prepped, dismissed the armistice, and announced plans to bring a nuclear reactor back on line.

The US response – a restrained show of force by fighter jets and warships, along with comments that simultaneously decry and downplay the threat –  has not stopped the threats.

Foreign-policy analysts agree the situation is troubling, though there’s a deep difference of opinion on what approach would convince Kim Jong Un to play nice.

Ignore him

The US routine of flexing its muscles whenever Pyongyang lobs another threat is Washington’s way of playing right into Kim Jong Un’s hands, said Doug Bandow, a senior fellow at the Cato Institute. Like many a parenting expert, he believes the White House should react to North Korea’s bad behavior by ignoring it.

The fighter and bomber flyovers meant to show the US means business “just reinforces their behavior,” Bandow said. “It gives them attention, showing how this bankrupt, starving country can get a response from the great superpower.

“We are acting as if we are worried about them. To my mind, the response should be, ‘Who? Oh, THEM.'”

Yes, Kim Jong Un could respond to the cold shoulder by ramping up the provocations to get some kind of response, but he’s already used up so many that “at some point it’s hard to imagine what new threats he could make,” Bandow said.

Photos of Kim Jong Un surveying US-bound missile routes aside, Bandow finds it hard to believe that he’s truly the supreme commander “with the power by himself to careen off into war.”

“There’s nothing to suggest they’re suicidal,” he said of the regime. But “it’s easy to make a mistake” when tensions are escalating fast, he added.

The solution is for the US to disengage. “Why is North Korea our problem?” he said.

Punish him

Ignoring the threats would be a terrible mistake, according to Gordon Chang, author of “Nuclear Showdown: North Korea Takes on the World,” who says the US should be stepping up action against a nuclear-capable North Korea.

He said B-2 bomber and F-22 Raptor overflights should continue, if only to send a message to the South Korean public, which is increasingly losing confidence in America’s ability to defend them and pushing for Seoul to develop its own nuclear program, which would destabilize the region.

The time has come for stepped-up interdiction of North Korean shipping and aircraft movements, to stop them from selling nuclear technology to Iran with the cooperation of China, he said.

And Chang said the Obama Administration should be driving a wedge between North Korea and China, by telling Beijing there will be consequences if it continues cozying up to Kim Jong Un. “North Korea would not be making these threats if they felt like the Chinese were going to clamp down on them,” he said.

Chang does not buy the argument that North Korea doesn’t have many more tricks up his sleeve, noting that he could make good on his threat to shut down the jointly run Kaesong Industrial Region, the main symbol of cooperation with the South.

The US should one-up Kim Jong Un’s declaration that the armistice in place for 60 years has been replaced by a state of war – and agree that the armistice is over, so the US is legally able to use force.

“That would shake up the North Korean regime,” he said. “It would show there’s a new attitude in Washington.”

“What I argue for has very substantial downsides, but they are the least worst solutions,” he added. “Nobody wants to provoke a crisis but it’s that type of thinking that got us into this situation.”

Hug it out

Little more than a year into the job held by his father and his grandfather, Kim Jong Un has managed to paint himself into a corner – and the US needs to give him a way out, says Han Park, a University of Georgia professor who has served as an unofficial negotiator in North Korea.

Because he has not consolidated his power at home, the fledgling leader cannot back off. “There has to be a face-saving device,” Park said.

“Sanctions will not work. They have never worked,” the professor said. “It will aggravate the North Korean leadership even more.”

Now that it has some nuclear capability, Pyongyang will not relinquish it unless its security is assured, he said. And the only way to do that is bestowing diplomatic recognition on North Korea and working toward a peace treaty.

Without good-faith talks, Kim Jong Un will stay on a collision course with the US

“Military confrontation would be unthinkable, but unthinkable things can happen,” Park said.

There’s no question North Korea would be on the losing end of a conflict, he said. Regardless, “war is something that we cannot afford.”

Giving North Korea peace? What’s wrong with that?” he said.

More CNBC stories
North Korean Leader Dials Down Hostile Rhetoric
North Korea to Enter ‘State of War’ With South Korea
Chinese Editor Suspended for Article on North Korea

Oil bulls shrug off poor data ahead of payrolls

Benchmark oil prices are likely to extend gains this week, shrugging off data showing manufacturing activity in the world`s two leading economies slowed in March, according to CNBC`s latest oil market poll, but an underwhelming set of US jobs numbers this Friday may undermine confidence.

Although key gauges in China and the US both showed an expansion in factory output in March, with the reading above the 50, which separates expansion from contraction, activity slowed from the previous month or failed to meet market forecasts.

China`s official manufacturing PMI released by the National Bureau of Statistics on Monday rose to an 11-month high of 50.9 in March, above the 50-point level that indicates growth on the month, but below a Reuters poll consensus forecast of 52.

Economic data in the US that misses expectations may simply mean that the Federal Reserve will keep an accommodative stance on monetary policy for longer, which would be positive for equities and riskier assets such as oil, according to some market professionals. The Fed has stood by its policies to keep borrowing costs at record lows, saying the US economy still needs the support to help cut stubbornly high unemployment

“Oil markets have held up well over the last week,” said Tom Weber, senior commodity advisor at Portfolio Managers, Inc. Commodity Futures and Options in Los Angeles. The Fed`s commitment to pump equities could drag oil higher. Look for move to USD 98 to USD 99 area to test resistance. If it fails, [and I think it will], oil should move back down to USD 88 area,” Weber said, referring to US crude futures.

Seven out of 12 respondents, or almost 60 percent, expect prices to gain this week while five called for lower prices, suggesting a degree of caution amongst market participants.

“Oil prices are developing relative strength and are gaining despite a stronger US dollar and weaker equity markets,” wrote Eugen Weinberg, head of commodity research at Commerzbank in a report on March 28. “It remains to be seen whether the oil prices will be able to defy the headwind for any length of time if the US dollar continues to appreciate and the weakness on the equity markets persists.”

Andrew Su, CEO of Compass Global Markets in Sydney remained bearish on oil in the short and medium term. “For now, we no longer have any open positions in WTI [West Texas Intermediate, the crude oil grade for the US crude futures contract] and will only enter the market for intraday shorting opportunities,” Su wrote in a report on Tuesday.

Compass Global is “unlikely to take any further core positions in crude” unless there is a break outside of the USD 94 to USD 98 range. “However, we did manage to get one thing right in the last week and that is the Brent-WTI spread has stopped contracting and we now see the spread trading at just above USD 14. We expect this spread to widen further to above USD 20.”

(See latest quotes on Brent and WTI )

Follow Sri Jegarajah on Twitter: @CNBCSri

More CNBC stories
Decoding Chinese PMI – Watch These Key Thresholds
How the US Oil, Gas Boom Could Shake Up Global Order
Can 10 ‘Wise Men’ Really Save Italy?

Copyright 2011

Can ten ‘wise men’ really save Italy?

As Italy`s president calls the country`s politicians and a group of leading economic figures together to find a solution to political crisis in the country, analysts are questioning whether ten “wise men” can save Italy from new elections later this year.

President Giorgio Napolitano is due to meet with a committee of advisors at the Quirinale Palace in Rome on Tuesday in the latest attempt to find a solution to Italy`s political impasse. The so-called group of ten “wise men,” which includes a central bank official, lawmakers and politicians from the center-left and center-right blocs, has been asked to propose urgent measures that could be backed by all parties to put economic reforms back on track.

The group, which was called together last week, is meeting for the first time on Tuesday and is expected to announce measures such as cutting the cost of the bloated political system and replacing the widely criticized electoral law to avoid a repeat of the deadlock in future elections.

Italy has been effectively leaderless since an inconclusive election in February in which no political party won enough seats to govern independently. Bickering between the country`s leading politicians has prevented any alliances being formed so far, delaying much-needed reforms in Italy.

Italy`s center-left leader, Pier-Luigi Bersani, was asked by Napolitano to see whether he could receive broader political support needed for a mandate to govern, but has been unsuccessful so far. Comic Beppe Grillo , head of the anti-establishment “Five Star Movement,” has refused to form a coalition with Bersani, who has in turn refused to countenance an alliance with the head of the center-right bloc, Silvio Berlusconi.

Analysts at Barclays on Monday said that new elections would have to be held later this year, despite current attempts to resolve the political impasse. “Our baseline case remains that the president will try to form a grand coalition led by an independent candidate with a fairly narrow mandate focusing on electoral law reform,” a research note from Barclays said on Monday. “We do not expect new elections before the third quarter this year, but it is too early to predict whether the electoral system will be reformed as to reduce the risk of another political impasse after the election.”

Though the aim of the meeting is to find shared ground and compromise between the main political parties, there is skepticism over what the “wise men” can achieve. Either a political government is born quickly, Berlusconi ally Maurizio Gasparri said, or “we do what comes naturally in a democracy, return to the polls,” he told Sky TG24 TV on Monday. “Let hope it`s not just a delaying tactic” Gasparri added. Others, such as Emma Bonino, have criticized the absence of women from the panel. “Can you imagine if the president picked 10 women?,” Boninon told Radio Radicale. “Everybody would have said, `There`s something wrong here,`” Bonino added.

More CNBC stories
Only an `Insane Person` Would Want to Run Italy: Bersani
Why Italy Could Be the Next `Bad Boy of Europe`
Euro Zone Factories Suffer, but No Cyprus Impact Yet: Survey

Copyright 2011

Decoding Chinese PMI – Watch key thresholds

If you are looking at China`s monthly manufacturing data to gauge the strength of the recovery in the world`s second largest economy there are three “key thresholds” you should monitor, says one economist.

China`s official Purchasing Manager`s Index (PMI), released on Monday, rose to 50.9 in March, underperforming expectations for a rise to 52. The index rose to 50.1 percent in February. HSBC`s China PMI rose to 51.6, largely in line with a flash reading of 51.7 and up from 50.4 in the previous month. A reading above 50 indicates expanding activity and one below 50 signals contraction.

According to Xianfang Ren, senior economist at financial analysis firm IHS, a good way to look at the data is via key thresholds.  

She tells CNBC that a reading between 50 and 51 points to a “weak rebound” in the broader economy, while between 51 and 53 indicates a “moderate-to-slightly stronger rebound.” Any reading above 53 signals a “very strong rebound.” She added that the index is unlikely to go beyond 53 this year.

The latest official PMI, which is compiled by the government, indicates the rebound has started but is not a very strong one, said Ren. “The PMI is on the borderline of 50 – it`s not quite strong. This is not a cheerful number for us to celebrate.”

March is typically a stronger month for manufacturing activity as it becomes warmer and also because it comes after the Lunar New Year holidays – a two-week period during which many businesses stay shut. In 2012, the official PMI jumped to 53.1 in March from 51 in February.

“The pace of improvement in manufacturing activity is disappointing. From 2005-2012, on average, the PMI rises 3 points in March from February,” said Tommy Xie, economist, Treasury research and strategy at OCBC Bank.

While new export orders rose in March, Xie notes the outlook for the manufacturing sector remains uncertain due to fragility in external demand, given weakness in key export destination Europe. The new export orders index climbed to 50.9 last month from 47.3

In addition, he said improvement in new domestic orders, which rose to 52.3 in March, will hinge on continued strength in property construction, which may come under pressure due to recent cooling measures.

“Property investment may slow because of fresh round of tightening measures, same with infrastructure investment – the government has said it doesn`t want infrastructure to grow too fast – they want to control pace of growth,” he said.

Over the weekend, Beijing and Shanghai vowed to enforce property cooling measures outlined by the central government earlier in March, including a 20 percent capital gains tax and higher down payments for second-home buyers.

“Looking forward we are still facing uncertainty – those drivers that have supported the manufacturing sector are facing uncertainty,” Xie said.

More CNBC stories
China Factory Profits Up 17% as Recovery Picks Up
China`s Urbanization Leaves Migrant Workers in the Cold
China Still the World’s Best Housing Market – Really?

Copyright 2011

Why only Obama can save Europe, now

When US President Barack Obama looks at the dangerous euro wasteland that once was a prosperous region driving nearly one-fifth of the world economy, he probably has flashbacks of repeated rebuffs he got from German Chancellor Angela Merkel when, in late 2011, he asked for more economic growth and less austerity.

Schadenfreude (German word for delight in misfortunes of others) and “I told you so” are probably not even crossing his mind because he suspects that he might soon have to move to save Europe from the resurgence of its old demons.

I hope he does feel that way, because a real sense of urgency should prevail at the time when America`s perhaps only and truly reliable ally is sinking deeper into an intractable recession and politically flammable problems of joblessness and poverty.

Indeed, just four days before the Holy Week came this heartbreaking report from Caritas (one of the world`s largest humanitarian organizations): more than 3 million people in Spain currently live in extreme poverty (families with an income of less than USD 390 per month), and more than one million are barely surviving on charitable donations – an increase of 150 percent from the pre-crisis levels.

Saving Europe From Itself

And there seems to be no end to this, Chancellor Merkel says that at least five more years are needed to put this horrible human suffering behind. But five years sounds like a short time to produce a German euro area. And a more important question is whether that objective can be achieved without tearing apart the social fabric already stretched to the breaking point in France, Italy and Spain – to say nothing of smaller countries like Greece, Portugal, Ireland, Cyprus, Slovenia, etc.

For the US, the euro area chaos is not just an issue of bleak outlook for one-fifth of American exports going to Europe. It is a question of political stability of its key ally and a pillar of the largest and, arguably, the most successful military alliance in history.

It is also a question of the viability of America`s new security doctrine, founded on the concept of sharing with allies the political and military responsibilities for world peace, and freedom of global commerce and finance. Yes, for reasons of its own budgetary problems, Washington wants its allies to do some heavy lifting, too.

But how can Washington square euro area`s deep and continuing budget cuts for basic public services with the requirements of their military and political burden sharing?

Mission impossible, no doubt. America`s new security doctrine is, therefore, just a pipe dream at a time when the world is confronted with serious challenges to peace and stability in the Middle East, Central and East Asia and parts of Africa.

What can the US do? To begin with, President Obama might wish to forget and forgive the uncooperative attitude of the German Chancellor. He would probably get the same answer again in the run-up to German elections next September. But only President Obama can free Europe from being hostage to German politics. As a leader of the Euro-Atlantic community, he should ask for the euro area fiscal consolidation in the context of growing economies and declining unemployment.

Regulate and Supervise, Don`t Confiscate

Such a gesture from President Obama would get an enthusiastic support from French and Spanish leaders, and from whoever will be in charge of the Italian government in the months to come. That would be a formidable coalition.

Probably kicking and screaming, the German, Dutch and Finnish advocates of austerity would have no choice but to go along. Especially since their push for brutal spending cuts, tax hikes and confiscation of bank deposits has hit a dead end and seriously damaged the credibility of the euro area financial system.

The inability of Spain and France to drastically cut budget deficits in a recessionary economy is a clear proof – if one was needed – that the German austerity mantra is nonsense and has always been. These two countries are the “declared” cases of budgetary slippages, but others will follow.

Confiscations of bank deposits are a much more dangerous nonsense. A failure of financial authorities to supervise the banking system is a failure of public policy, a failure of people whose salaries are paid by depositors as taxpayers to provide an essential public good: a sound and a reliable financial system. By reaching into depositors` – taxpayers` – pockets to pay for errors of public policy, the German-Dutch-Finnish disciplinarians are not only violating the rules of public service, but they are also running afoul of basic principles of social equity and justice.

In fact, the whole euro area crisis is a comedy of public policy errors paid for by taxpayers and wasted lives of millions of unemployed. Cyprus is the latest example. The German idea that there could be a water-tight cordon sanitaire around the destruction of a small island economy of one million people is a grave error of judgment in a monetary union whose weak financial system continues to be damaged by a worsening recession and soaring unemployment.

Just like in cases of Greece, Ireland, Portugal, Spain and Italy, Germany failed to lead – or simply could not lead – in a timely and effective manner, allowing again relatively simple and minor problems in the Greek Cypriot state to develop into a crisis of major proportions.

The Euro Crisis Is a Threat to Peace

I hope Washington will take all this very seriously. Surely, some Beltway pundits will probably gloat about German incompetence. And they might also like the fact that the US is benefiting from the flight of capital to its safe, deep and broad financial markets – as shown by the dollar`s 5.3 percent gain against the euro since the Cyprus crisis entered its acute phase in early February.

But that would be wrong and short-sighted. This large capital outflow from euro assets is a sign of major distress that can easily spill over into other markets and damage institutions of systemic importance.

More ominously, recessions, rising unemployment and the difficulty of seeing an early end to all that are leading us back to security problems. The euro area economic fault lines have now become serious political fissures. Resentment of Germany, recent Italian elections run on anti-German themes, vicious invectives, pervasive hate talk and ghosts of the Nazi past are now flying around a continent that was supposed to swim in solidarity and brotherly love of an ever closer European Union.

Here is what the Luxembourg`s Prime Minister Jean-Claude Juncker – the man who accused Germany of playing domestic politics on the back of the euro – told the German magazine Der Spiegel on March 11, 2013: “Anyone who believes that the eternal issue of war and peace in Europe has been permanently laid to rest could be making a monumental error. The demons haven`t been banished; they are merely sleeping … I am chilled by the realization of how similar the circumstances in Europe in 2013 are to those of 100 years ago … In 1913, many people believed that there would never again be a war in Europe. The great European powers were economically so strongly inter-twined that there was a widespread opinion that they could no longer afford to engage in military conflicts. Primarily in Western and Northern Europe, there was a complete sense of complacency based on the assumption that peace had been secured forever.”

The late French President Franois Mitterrand said the same thing more bluntly, and more directly, in his speech to the European Parliament on January 17, 1995: “We have to vanquish our history…nationalisms lead to war! The war is not just part of our past; it could also be part of our future.”

Clearly, a wake-up call for Washington. Or as the astronauts were saying when calling their base: “We have a problem, Houston.”

Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.

More CNBC stories
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Copyright 2011

China’s official factory PMI at 11-month high in March

China’s factory production ran at its fastest in 11 months in March, according to the official manufacturing purchasing managers index published on Monday, though the rise to 50.9 missed market expectations of a bigger headline jump.

The PMI missed market expectations, based on a Reuters poll of analysts, for a solid uptick to 52.0 from February’s five-month low of 50.1, confounding the view of some analysts that the world’s second-biggest economy might be recovering faster than expected from a slowdown in 2012 that dragged growth to a 13-year low of 7.8 percent.

But a rise in the output index to a 10-month high of 52.7, an 11-month high of 52.3 for overall new orders and new export orders also at an 11-month peak 50.9, offered signs that China’s economic recovery is gaining traction.

“The improvement in the index, which changes the downward trend of the first two months of the year, indicates that the economic outlook in general is stabilizing,” Zhang Liqun, an analyst at the Development Research Center, state think-tank, said in a statement accompanying the index.

Manufacturers of cars, electronics, machinery and equipment saw business improve while ferrous metal smelters and petroleum processing and coking activity slowed, the PMI survey found.

February’s drop took the official PMI to within a whisker of the 50-point mark that separates accelerating from slowing growth in China’s giant factory sector.

Investors broadly believe that last month’s reading was mainly the product of a holiday-induced lull in activity and expected March to return to a rising trend. The Lunar New Year fell in February this year and in January last year.

Many Chinese factories closed for at least two weeks in February as millions of migrant workers in towns headed back to their rural homes to celebrate the holiday with their families.

A private sector survey of purchasing managers, sponsored by HSBC and published earlier in March, signaled that activity in China’s industrial sector quickened in March, pointing to solid first-quarter growth across the economy.

An update to that survey – which tracks mainly small and medium-sized firms in the private sector as opposed to the mainly large, state-backed companies in the official survey – is scheduled to be published at 0145 GMT on Monday.

Economists broadly expect the economy to enjoy a steady but gentle recovery in 2013, boosted mainly by internal growth engines such as infrastructure investment and household consumption, as Beijing pushes forward an urbanization program worth an estimated 400 trillion yuan (USD 6.4 trillion) that will help China rebalance its economic structure.

Chinese export data in January and February showed external demand is reviving, a trend widely expected to extend in coming months which could give the economy an extra lift.

But the strength and extent of the economic recovery hinges on when the central bank tightens its grip on monetary policy after easing liquidity and promoting credit expansion through much of 2012 to kick-start the recovery.

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