"Russia is Germany’s biggest supplier of gas and oil, providing around 40 per cent of its gas and 34 per cent of its oil supply in 2011. With the government’s decision to stop producing nuclear energy by 2022, German demand for gas will increase in the short and medium term." - Source An Alienated Partnership - Vestnik Kazkaza - 7th of July 2012.
As we indicated in our conversation "Eastern promises" on the 9th of June:
"We think the breakup of the European Union could be triggered by Germany, in similar fashion to the demise of the 15 State-Ruble zone in 1994 which was triggered by Russia, its most powerful member which could lead to a smaller European zone. It has been our thoughts which we previously expressed."
Of course Oil has a stronger relationship with currencies markets rather than with 10 year US Treasuries as displayed in the below Bloomberg graph:
Moving on to the subject of the Credit Molotov Cocktail and its incendiary capacity of the capitalist system, we reminded ourselves of the wise words of Dr Jochen Felsenheimer from asset management XAIA which we quoted back in September 2011 in our conversation "The curious case of the disappearance of the risk-free interest rate and impact on Modern Portfolio Theory and more!":
Of course this is exactly what has happened and which can be ascertained by the meteoric rise in risky asset prices overall which can be illustrated by the significant correlation between the US, High Yield and equities (S&P 500). US investment grade ETF LQD is more sensitive to interest rate risk than its High Yield ETF counterpart HYG - source Bloomberg:
Another illustration of the effect of our "Deus Deceptors" central bankers can be seen in the compression in yields of European 10 year bonds which have, for some made new record lows - graph source Bloomberg:
The CHART OF THE DAY shows the real cost of borrowing for companies, or bank interest rates adjusted for inflation, rose in most euro-area nations in the 12 months through April, the most recent period for which data is available. While the European Central Bank president cut the benchmark rate by half a percentage point over that period, the effect was largely wiped out by stagnant or falling prices and lenders’ reluctance to pass on the reductions.
Draghi announced policies on June 5 including a negative deposit rate and conditional loans to banks to bolster credit and steer the currency bloc away from deflation. Consumer prices rose 0.5 percent last month, down from 1.2 percent in April 2013 and below the ECB’s goal of just under 2 percent.
“Real rates need to ease further, or the ECB might be forced to do more,” said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. “While a short period of low inflation might be supportive of households’ purchasing power, higher real rates for longer would impair the recovery.”
Higher financing costs hurt companies’ willingness to invest, curbing output and employment and in turn weighing on consumer prices. Spanish companies paid an average of 1.2 percentage points more in real terms to borrow money in April compared with a year earlier as the cost of bank loans held steady and inflation slowed. A drop in nominal rates in Italy was overwhelmed by a slump in inflation.
Estonia, the Netherlands and Slovakia were the worst hit. Only Portugal, with the biggest decrease in nominal bank rates, and Germany recorded a decline in real borrowing costs. Data wasn’t available for Greece, Malta and Luxembourg. Latvia wasn’t included as it wasn’t part of the euro area in 2013." - source Bloomberg