Category: Markets
Spain has replaced Greece and Portugal as the chief source of market anxiety
Rising tensions in Europe continues to be a dominant force in the foreign exchange market, with the euro briefly dipping below the $1.30 level for the first time since mid-February
Six Takeaways from Fed Speak or The Real Troika
The debate over another round of asset purchases seems to be getting less play than the debate over guidance, and the real Troika of BYD (Bernanke, Yellen and Dudley) are reading from the same song book. They are maintaining the view of late 2014, while some regional presidents have expressed leanings for an earlier (2013) move
Kashkari: PIMCO doesn’t expect margin pressure
I thought I should present the somewhat bullish view of the margin issue we have been discussing here. PIMCO’s Neel Kashkaari is out with a note that underscores what the bulls are thinking about the issue
China Disappointment Buoys Dollar
China’s Q1 GDP disappointed expectations and market rumors and is the chief driver of the capital markets today. The official measure of growth was 8.1%. The consensus was 8.4% before yesterday’s rumors of a 9% rise made the rounds and helped lift sentiment–seeing equities rally, gains in the dollar bloc currencies and a weaker dollar. All that is in reverse now
LTRO operation is pushing Spanish banking system closer to collapse
I thought I’d point out that the already severely undercapitalised Spanish banking system is being crushed by the spike in Spanish sovereign yields. I continue to expect Europe to continue the extend and pretend approach, creating volatility and crisis. But in the end the issue will always be the same as to who writes the check
Testing the Swiss National Bank’s Resolve
Thus far the SNB has successfully blocked the Swiss franc’s appreciation relatively cheaply. Compare the bang it got from about CHF18 bln intervention last year with the record operations by Japanese officials. The SNB has various ways it can lean against the market and we expect it to do so. We would rather go with the SNB that fight it
When Virtuous Cycles Turn Vicious
The LTRO’s provided more than 1 trillion euros of liquidity. An under-appreciated aspect of the virtuous cycle, was the bank balance sheets improved not just because of cheaper cost of capital, but because there was a significant rally in the banks’ assets–ie sovereign bonds. Now things are in reverse and the virtuous cycle is becoming vicious
Chart of the Day: Flight to safety – German Bunds edition
The German 2-year note has dropped below Japan’s for the first time ever, with the German 2-year note yielding 0.109%, a record low. Japan’s 2-year note yield is 0.111%. Meanwhile, the 10-year bund is at 1.638%, nearing the record low of 1.636% from September
Dollar and Yen Bounce Back as Periphery Concerns Mount
As full liquidity returns to the markets for the first time in nearly a week, the US dollar and Japanese yen have rallied. First though weak short euros and long yen cross positions were squeezed in early Asia, but by the time Europe entered the fray, the moves were well under way, with the euro and sterling coming off and the yen rallying
Chart of the Day: Earnings Growth
This chart from the Wall Street Journal explains visually what worries me about the supercharged run up in the S&P500. While the index is increasing, earnings growth is not
Why Valuation Doesn’t Insure Against A Significant Market Decline
Given a clearly overbought market, the re-emergence of Europe’s sovereign debt problem and the Fed reducing the imminence of QE3, even the bulls concede that a correction is likely. Overall, however, investors remain optimistic, and are looking forward to any correction as a buying opportunity, maintaining that the economy is too strong and the market too cheap to decline very much. As we have written about in recent comments, we do not think the economy is anywhere as strong as many believe. Moreover, we do not accept the conventional wisdom that the market, at current levels is undervalued, a point we want to make in this comment
Chart of the Day: Price Divergence between Oil and Natural Gas
Take a look at the long-term charts of crude oil and natural gas. The historical oil-to-gas price ratio had ranged from 6:1 to 10:1 before the economic crisis. Since one barrel of oil contains the energy equivalent of the 5.825 million BTU of natural gas, an implied BTU arbitrage kept this relationship in check