As expected, weekend's meetings and announcements did not send strong messages on intervention or forex. This leads to an environement where each central bank has to fend for itself, in return solidifying the race to the bottom of curbs, controls, and devaluations.

Our opinion is that as we reach the end of the present period, which is characterized by China's adamancy, the freedom of capital movements will be curbed further around the world, and protectionism, as well as political extremism will make a return to the spotlight. This trend is in line with the general stream of events since August 2007, but its momentum is being increased by the inability of the major actors to find a common ground, or to adopt a credible stance against the main problems of our time. Nor should this be regarded as a surprise, as ad-hoc measures, aimed at satisfying the markets and the electorate, instead of a principled stance that focuses on long-term benefit has been the main theme driving policy action since day one of the economic downturn. But perhaps this shouldn't be surprising, since a democratic system cannot be any more wiser than the collective will of its constituents.

Some of the more important pieces of news today include the rumors about a 15% tax on fixed income gains of foreign investors in Thailand, with talks of similar measures being implemented in Korea and Taiwan towards the general goal of curbing speculative appetite. With the, admittedly unsurprising failure of the weekend meeting of G-7 leaders to come up with anything material on the issue of curreny devaluations, it looks like national entities will be focusing on delivering the most powerful of the available measures to maintain the edge against competitors.

Gold has continued to hold near the 1350 mark, obviously consolidating its gains, before it makes a move towards 1400, possibly, in the near term. 3-month Euribor rates have risen again today reaching 0.977 vs. Friday's 0.972, but ECB council member Ives Mersch was on the wires downplaying the rise, and we will be interested in tomorrow's regular refinancing operation to see if the ECB takes any special action to increase the liquidity of the interbank market once again, at least for the immediate term. In other developments, we note the comments by a Henan based PBOC training institute professor that Chinese exporters can only cope with an appreciation of 3-5%, suggesting that the government should cap appreciation at 3% for the entire year. Zhou XiaoQuan also made some statements about the undesirability of fast appreciation on Sunday according to the Xinhua news agency, yet the Yuan issue is mostly a matter of political will, so we do not attach a lot of significance to either official. Certainly, beyond their disagreements with the U.S., the position of the Chinese is more favorable than it was two months ago, since now many more central banks are intervening in the markets, and seeking ways to control the appreciation of their currencies. The favored method of the Chinese in combating inflation and speculative excess continues to be the reserve ratio, and today's rise of 50 basis points in the deposit reserve ratio of the 6 dometic big banks shows that they hope to able to manage the overheating/inflation issues without tampering too much with the exchange rate. .

Today is not a very active day because of the holidays in Japan and the U.S., and the tone of activity is subdued. The lack of decision and action from IMF and G-7 on the FX issues gives China more leeway to extend the lifetime of the status quo, but arguably the next months heavy transpacific traffic will be more meaningful in terms of the viability of China's policies, and we'll continue to keep eye on the subject.