Credit Writedowns

Brazilian central bank’s highly accommodative policy in the past year and the recent weakness in the Brazilian real has helped boost growth.

Quick post here to continue the theme of Christine Lagarde doing a complete makeover of the IMF. Yesterday, the Financial Times reported on an IMF staff paper that accepted capital controls as a necessary evil in specific cases, a sharp contrast to the liberalisation dogmatism that characterised IMF policy views during the 1990s. The paper does speak to the need [...]

After embarking on a third round of easing last year that only involved extending the length of its zero rate policy and changing the Fed’s Treasury portfolio duration mix, the Fed has recently started QE3 with an even more aggressive tone. It is now targeting the unemployment rate, communicating its commitment to accommodation even after the US economy has picked [...]

The following is the text of a speech Federal Reserve Board Chairman Ben Bernanke delivered at a high-level seminar sponsored by the International Monetary Fund on Sunday. Thank you. It is a pleasure to be here. This morning I will first briefly review the U.S. and global economic outlook. I will then discuss the basic rationale underlying the Federal Reserve’s [...]

Why is the global economy hamstrung by heavy debts and weak banks? Or put another way, why doesn’t deleveraging happen, and the weight of debt reduce, and why doesn’t the economy expand so the weak banks can once more become robust and healthy ones?

Short answer, it’s the demand side stupid! The longer version was offered by Paul Krugman when he asked the ironic question, “To which planet are we all going to export?”

The data today were pretty mixed. Brazil is showing more signs of slowing as industrial production there dropped for the third month in a row. What’s more is that this puts Brazil back to numbers from 2009 when we were recovering from a global recession. To me the numbers are a clear sign that Brazil is feeling the economic weakness elsewhere. The rest of the data outside the US also looks weak, particularly in Italy. The US is the bright spot.

The latest economic data suggest that the slowdown in growth continues to build across many different economies globally. In the UK, revised data from Q4 2011 show that Britain;s recession has been deeper than was previously believed. Moreover, the Bank of England expects the situation to get worse in light of the euro zone crisis. In terms of coincident economic [...]

This is a quick note here on Latin American economies where currency issues are the main story. Argentina has been most often in the news, but the slowdown in Brazil should be top on the radar. I also note that some European banks are pulling the plug on their Latin American investments, ostensibly to raise capital. But this could be in reaction to recent nationalisations in Bolivia and Argentina and the threat that more could be coming.

Today’s big news was the bond auction in Spain. Spain’s auction went off without a hitch but at a cost. Spain sold 2.5 bln euros ($3.3 billion USD). The Spanish Treasury sold a 1.1 bln euro bond maturing 31 Oct 2014 (average yield: 3.463%, bid-to-cover: 3.3 vs 2.0 at previous auction in October). The Treasury also sold 1.4 bln euros [...]

The dollar is weaker against most major and EM currencies with Greece still the major focus. The euro broke above 1.32 against the dollar in the European morning as it becomes evident that the Greek PSI deal will likely go through, as we had expected. The Brazilian central bank cut by 75 bp last night, surprising some market participants but in line with where expectations were moving towards in the last few days.

Spanish 10-years yields continue to rise above those of Italy, and suggest that Spain may be the next country in the hot seat. Data released today confirms that the contraction in Spanish industrial production is still ongoing, with January IP falling -4.2% y/y compared with a decline of -3.5% in December. The spread between the two country’s bonds are now at 13 bp, a level not seen since August 2011, and up from a low of -202 bp in at the start of the year. In other news, ADP data today may offer some clues about Friday’s jobs report, but we suspect both reports will be overshadowed by euro zone concerns.

This is a gold level post. I want to flag this as an issue since no one seems to be talking about it. Brazil’s economy has slowed very sharply of late and along with slowdowns in India and China, it says that the global economy will get less incremental lift from emerging markers.