Making China scream

Market players are notoriously knee-jerk in their thinking and the recent wrong action on the clam (versus the euro), which, incidentally, has spilled over into the cocktail party circuit, is macrocosm ascribed to the renewed round of structural fumbling within the European Union, which was triggered by the French non to the European constitution back at the end of May.

This, together with fresh signs of weakness in virtually of the major European economies, impart finally push the ECB--so the epitome goes--to cutting rates; with the Fed, at best on hold, at worst still tightening, this will continue to keep public press on the euro.

[My belief, incidentally, is that the French non really signals a hiatus in the inexorable logic of globalisation, but more on that another time.]

The yen, on the other hand, is hostage to the possibility that china may revalue, delink, change baskets, do something, quite or later, which will give Japanese (and other Asian) exports a boost.

Hence, the yen, despite having emasculated against the dollar, remains relatively strong--indeed, it has gained 7 per cent against the euro since mid-April.

Thus, the argument continues, the dollar isnt strong; its just that the euro is weak. I mean, how can the dollar be strong--remember the twin deficits?

America has been living beyond its means for years and--again, sooner or later--the piper has to be paid, right? Now, a month or so ago, the US deficits had--surprisingly--slipped off the mental cloak of the market.

They came back with a bang last week with the lighting of the most recent round of trade and capital influx figures, which showed--yet again--that capital flows during April were not enough to cover the trade deficit.

With these arguments at one time again in the ascendancy, even though the symphonic rumble of the bears that...

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