Category: Markets
European Sovereign Supply and LTRO
The headline story in the Financial Times today is that “Banks set to double crisis loans from the ECB”. The report says that “several” large banks from the euro zone told the FT that they “could double or triple” their takes at the
Chart of the Day: S&P500 Up 4.36% in January
Interesting couple of charts on the S&P500. The top shows the narrowing upward channel in which the index has traded since the beginning of the year relative to the wider medium-term channel. The collapse in volatility was the direct result of the massive liquidity injections of the ECB’s LTRO program, in our opinion
Dollar Heading Lower after Constructive Outcome of EU Summit
Dollar is heading lower after the EU summit saw 25 of the 27 nations endorse the new fiscal compact. EuroStoxx 600 is nearly 1% higher as a result, banks up nearly 1.3%; MSCI Asia Pacific index up 0.7%. Japanese data showed a surge in December production; Germany’s Dec. job boost offset by retail sales
Dollar Pops Back
Dollar is broadly stronger against the majors and EM currencies after Greece rejected calls for direct budget control. Asian stocks fell, with the MSCI Asia Pacific index down 0.9%; EuroStoxx 600 is currently down 0.7%. Economic data saw Spanish Q4 GDP contract, EZ confidence rise less than expected; US personal income
Greek private sector involvement: So what?
The market has been focused on the negotiations over the private sector involvement in reducing Greece’s debt burden. Yet, the PSI is so yesterday. There are many moving parts and the PSI, which has dominated the market’s attention, is being superseded by other developments, even if an agreement is still not in hand
On how Portugal is the next Greece
Portugal appears to be headed down that same road. While we have warned in the past of risks that Portugal would need a second aid package, it is only since S&P joined the other major rating agencies on January 13 that more market participants have come over to this view
Dollar Falls on Fed, Potential Greek Debt Deal
Dollar extended losses overnight and into the European session following the Fed’s dovish policy stance. Global stocks are broadly high off the back of Fed and Greek debt deal; EuroStoxx up 0.6%, banks up 0.7%. Economic data saw German consumer confidence improve; UK’s CBI retails sale retrenched in January
Will the ECB Take a Haircut?
The ECB’s hand though could be forced if there is a credit event, a non-voluntary debt restructuring. Under such conditions, it would be more difficult to show some bond holders (ECB) preferential treatment over other holders of the same bond. This warns of potential knock-on effects of a hard restructuring
Chart of the Day: Gold reacts to FOMC rate easing
The Fed has come out 9-1 in favor of rate easing i.e. capping medium-term treasury rates. The interesting bit is that while the Fed did the exact same thing in August out to two years, this announcement takes permanent zero out to nearly three years. That’s rate easing. Some people call it financial repression. And it’s gold bullish
Developments continue to be bullish for Mexico
Given what we see as a basically hands off policy with regards to the exchange rate when MXN is appreciating, we see more potential upside for MXN compared to, say, BRL, where Brazilian authorities are clearly going to work against further currency strength. Others in Latin America are concerned with currency strength, including Colombia. As such, going long MXN vs. BRL or COP would be a good alternative too. On the other side, Banxico has installed circuit-breakers to help boost peso liquidity during times of stresses as part of an effort to prevent disorderly downside movement in the peso
Dollar Bid
The dollar’s downside momentum has faded since the start of the week and short-term momentum traders have to adjust. There does not seem to be a precipitating factor. The German IFO was mostly better than expected and while the UK Q4 GDP was off 0.2% rather -0.1% may could have been a factor, but sterling is holding in better. Key support is seen for sterling near $1.5520. Initial euro support is seen near $1.2950 now. The Fed meeting will be of interest of course, but it is unlikely to a major factor for the dollar
Not Too Late for Turn Around Tuesday
Many observers will posit the euro’s resilience today to the flash PMI reading for January where both the manufacturing and service sector readings were above expectations. The flash manufacturing diffusion index stood at 48.7 vs 47.3 consensus and 46.9 in December. The service sector index is at 50.5 vs 49.0 consensus and 48.3 in December. Yet in the forward looking components like new orders remain weak