A report by Barclays Capital, quoted by newswires, notes the holiday season being over with the arrival of September. The seasonal trends in markets tend to be established in such a way that much of the most significant activity in each year tends to be clustered in the first and fourth quarters. All that points to a pretty active period of time for much of what remains of 2010. We expect a significant rise in volatility to dominate the price picture until governments and central banks are forced, however reluctantly, to intervene once again.

The Euro saw some selling today in response to yet another study, this time by the WSJ, to the effect that banks did not fully disclose their exposure to sovereign debt during the stress test period. It must be unnerving for the ECB that the credibility of the tests are being questioned one month after their completion. In any case, we suspect that the sovereign credit and bank exposure issues will be with us for a much longer time to come, which means that the markets may have to readjust in order to reconsider the overly bullish stance that has been adopted for the moment.

Meanwhile, gold is continuing its measured, controlled run towards 1275, and then 1300. That gold futures barely reacted to the rather significant revisions to the NFP release is remarkable from our point of view, since just about everything else was forced to rebalance subsequent to the bullish data. Gold prices will eventually bubble up to exceed the all-time high of the 80s, so our bullish stance on the metal remains unchanged. Only a change in the monetary policy stance of major nations will lead to a sharp and permanent sell-off in gold, but that seems a distant prospect at the moment.

Finally, the BoJ Governor Shirakawa is being quoted by news agencies to the effect that the Bank of Japan cannot control FX rates. After two very active weeks of continuous verbal intervention by the Japanese the latest statement, coming from such a high level official constitutes an anti-climax to the story. It is clear that the Japanese have capitulated and resigned themselves long ago to a downtrend in USDJPY.

Intervention remains a possibility only because the FX policy of the BoJ is ultimately controlled by the government. Politics can be unpredictable, and politicians are not famous for their accurate assessments of facts, so, even if futile, they might just go ahead with a little JPY selling if only to charm the electorate with some cosmetics. Even that is unlikely, however, since even a small amount of this kind of makeup, while pleasing to Japan's electorate, will have the Americans turning their backs in disgust.

The USDJPY rate went as low as 83.54 today in reaction to Mr. Shirakawa's comments. The all-time low, which is undoubtedly being targeted by JPY bulls over the next six months or so, is at 79.75, touched in April 1995.

Chinese hospitality sees the American delegation snubbed as the Renminbi issue remains untackled

U.S. National Economic Council Director Lawrence Summers, and Deputy National Security Advisor Thomas Donilon are in China today, continuing a visit that will have them meet the Premier and the President of the PBOC at some point in order to discuss the significant issues that trouble the two nations and the region. The Chinese have been doing their best to be constructive, with official after official making comments to the effect that the Renminbi and the trade deficit between the two nations should not be politicized, that China will not bow to pressure. Especially truculent were comments by Jiang Yu, the foreign ministry spokeswoman, who noted that the two countries should "avoid politicizing economic issues", and "Our exchange rate reform cannot be fasttracked through external pressure." Comments by Wen Jiabao, the Premier, were a lot more restrained, but the thrust, and tone of their approach to the Renminbi problem remains clear: "It is our currency, and your problem".

That may well be the case, but for an economy as dependent on the U.S. for economic performance, and at least for now, as diplomatically isolated in spite of the recent improvement in profile, this is clearly not the way out. The Chinese have made major mistakes by cornering themselves into an inextricable situation on the Taiwan, and South China Sea issues, while successfully dealing with their border issues with India. With each passing day, the Yuan issue looks more and more likely to become another of their blunders, although there is still time before U.S. politicians take the fin al steps act to punish China with severe tariffs.

The PBOC is continuing is series of lower fixes for the USDCNY rate today, possibly as a welcome gift to the visiting U.S. delegation, as they are wont to do. The central rate was fixed at 6.7799.

This is an active day, with political as much as economic factors having a role in determining market sentiment. Now is still early September, however, and a large number of issues continue to fester in the background. This winter may prove to be hotter than usual.