Credit Writedowns » Economy

Developments continue to be bullish for Mexico

Win Thin — Wed, 25 Jan 2012 17:30:12 +0000

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

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Not Too Late for Turn Around Tuesday

Marc Chandler — Tue, 24 Jan 2012 12:30:24 +0000

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

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Roubini: we will see a Greece credit event, regardless of deal

Edward Harrison — Fri, 20 Jan 2012 18:00:59 +0000

Roubini said that the "probability of a recession in the United States is lower than 60 percent right now." On Europe, he said that even if an agreement is reached on Greece, "there are going to be so many holdouts that then they’ll have a problem" and "either way you're going to get a credit event." This is my take as well. In Europe, the concern has to be more Italy and Spain and whether the periphery can meet deficit targets given the poor economic outlook in the euro zone

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Jim O’Neill: Chinese GDP numbers are “a blow for the hard landing guys”

Edward Harrison — Tue, 17 Jan 2012 16:30:25 +0000

There has been a lot of discussion about whether China's growth will slow enough to be considered a hard landing and what that would mean for the global economy and investors. Below is an account from Bloomberg featuring Goldman Sachs Chief Economist Jim O'Neill that is more in the soft landing camp. O'Neill also talks about the European sovereign debt crisis and Greece

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The Sovereign Debt Crisis and Confirmation Bias

Edward Harrison — Fri, 13 Jan 2012 16:00:06 +0000

The myth that Greeks are lazy and Germans are industrious and that this has some significance in the sovereign debt crisis is everywhere one turns. It is false. The issues for Greece are not about working longer hours but are ones of productivity, industrial organisation, and demographics. That won't stop people from spinning the tales of lazy Greeks and workaholic Germans

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Protecting wealth in a world of recurring crisis

Edward Harrison — Wed, 11 Jan 2012 16:30:10 +0000

Happy Wednesday. I know the news is 'less good' today than it was when I last wrote you but writing these weeklies always puts me in a more positive frame of mind. Nevertheless, today's topic is about downside risk. My hope is to frame the economic scenario globally and then to offer some strategies of mitigating what I believe is significant downside investment risk

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Can Brazil’s economic boom last?

Edward Harrison — Fri, 06 Jan 2012 13:15:26 +0000

I thought I would flag this video by the BBC because I think we are seeing Brazil slow along with China and India as the three largest emerging economies that people care about

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Code words and dog whistle economics

Edward Harrison — Thu, 08 Dec 2011 15:00:01 +0000

Here are a few code words that you will often see in economic writing followed by their true meaning. The code word is a dog whistle. It acts like an emotional marker only for those attuned to the underlying 'moral' issues inferred by the code. While you may agree with the logical framework behind the code word, the purpose in using the code is to influence emotion instead of logic

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Steve Keen on HARDtalk on the financial crisis and the economy

Edward Harrison — Mon, 28 Nov 2011 02:00:55 +0000

This time it's Steve Keen on the hotseat on HARDtalk. Now, Steve is one of the few economists who actually predicted the global financial crisis. But what about the possibility of another Great Depression? That possibility and how to avoid it were the topics of conversation in this 25-minute interview. Great stuff

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Watch Switzerland on Monday

Marc Chandler — Fri, 04 Nov 2011 18:50:21 +0000

Switzerland reports its October consumer prices on Monday. This could be important. The Swiss National Bank's decision to cap the franc took place on the same day that the August CPI was reported (Sept 6). It showed a 0.3% month-over-month decline after a 0.8% decline in July. There are many observers who expect the SNB to lower its cap for the franc (that is raise the euro floor form CHF1.20 to CHF1.25 or higher) and see the risk of deflation as a potential trigger

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To Forgive is Divine

Marc Chandler — Fri, 28 Oct 2011 02:39:37 +0000

Markets rallied strongly in response to the European developments. Yet it is an exaggeration to think that risk appetites returned as the whole month of October has seen equities, emerging markets, commodities and foreign currencies trend higher, recovering from their neck-breaking, wealth-destroying plunge in September. Still the advance on Thursday was impressive, helping propel the euro and the S&P 500 through the 200-day moving average, allowing sterling to test its similar moving average and pushed the dollar to yet another marginal new record low against the Japanese yen. We think the market is getting ahead of itself, but the technical momentum and positioning may allow for an extension of the move. Medium term investors may need to be patient, but the fundamentals will likely reassert themselves shortly

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Another Bear Market Trap

Comstock Partners — Fri, 28 Oct 2011 01:15:37 +0000

The sharp rally off the October 4th intraday low of the S&P 500 is a result of the assumed prospect of a real plan to save the Euro and slightly improved U.S. economic numbers indicating that we may not be in a recession right now. In addition the market was probably oversold after its rapid plunge below the 1260-1370 trading zone. We think the market will soon be disappointed on both counts

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Was the IMF programme in Iceland successful?

Guest Author — Thu, 27 Oct 2011 02:20:36 +0000

According to the IMF, Iceland has graduated from its Fund-supported programme with unqualified success. This column begs to differ

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The euro zone is coming apart at the seams now, redux

Edward Harrison — Tue, 25 Oct 2011 14:00:23 +0000

This is an update of a post I wrote at the beginning of September about European political dysfunction

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Fedex predicts record holiday shipping volume

Edward Harrison — Tue, 25 Oct 2011 00:41:30 +0000

Fedex is a bellwether stock in the US because it handles so much cargo that it can be seen as a proxy for business activity. The company announced today that it expects record holiday shipping, albeit in its least-profitable residential service area. Nevertheless, this is a good sign for an economy in which recession looms and in which container imports declined in the third quarter due to high inventory levels

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Argentina Reelects Fernandez, Unorthodox Policies And Peso Weakness To Continue

Win Thin — Mon, 24 Oct 2011 19:20:19 +0000

Fernandez will try to maintain the unorthodox mix of policies for as long as she can, and has shown little willingness to more towards orthodoxy during her first term. Troubles will come both internally and externally, with the growing fear that the exchange rate will bear the brunt of adjustment in the coming months

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Turkey: On restoring central bank credibility and EM vulnerability

Win Thin — Thu, 20 Oct 2011 18:00:50 +0000

The Turkish central bank took a turn back to orthodox policy today despite leaving the benchmark 1-week repo rate unchanged at 5.75%. It dropped the language from several previous meetings about potential easing. The bank did hike the overnight lending rate from 9% to 12.5% and the late liquidity borrowing rate from 12% to 15.5%. These hikes are meant to tighten liquidity by raising the cost of borrowing from the central bank, but we do not think it is enough to change the outlook for the lira yet. What’s needed to restore central bank credibility is a more pronounced tightening in monetary policy, and yet policy-makers are not ready to do this due to slowdown fears

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France Back In The Spotlight

Win Thin — Tue, 18 Oct 2011 15:15:54 +0000

Euro zone stresses are back in the spotlight with a report on France that was issued by Moody’s late in the North American afternoon. It was not a rating action but rather an annual update on the state of the country. The agency noted that France’s financial strength has weakened from the impact of the financial crisis, and that its debt metrics are “now among the weakest of France’s Aaa peers.” While Moody’s said that France’s financial strength remains “very high”, it notes serious challenges in the coming months due to the likely the need to provide additional support to other euro zone sovereigns (EFSF contributions) or to its own banking system. The punch line is that “The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government's Aaa debt rating.” Moody’s added that it will monitor and assess the stable outlook over the next three months

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Is it Over Yet?

Claus Vistesen — Sun, 16 Oct 2011 23:26:27 +0000

It was telling that, just as the ECRI and other notable research outfits decided to push the recession button on the US economy, the data flow became notably more positive. This could be a sign of the times, that the cycle is just too volatile for even capable analysts to call or it could simply be a blip in otherwise fundamental economic weakness that is here to stay for now. I have been working with and building economic models for a while and all I can say is that they are seldom 100% right and the margin of error is always there when analysts make calls. The key is your ability to make calls which are transparent and add value for decision makers when they are made

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Chart of the day: what is the high yield bond spread telling us?

Edward Harrison — Wed, 12 Oct 2011 18:27:16 +0000

I see this as a macro call. High yield is attractive if you think that the economy will rebound. if not, the extremely low high yield default rate will rise considerably, as will yields

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China Notes from the Yum! Brands Earnings Call

Global Macro Monitor — Thu, 06 Oct 2011 14:14:25 +0000

Today’s Yum! Brands’ earnings conference call was dominated by China. Management talked a lot about commodity inflation running around 8 percent and 20% labor inflation, which they do not yet see abating. This doesn’t square with the August official inflation rate of 6.2 percent. A China hard landing scenario is now on traders’ radar and needs to be closely monitored. The stock closed down 2.7 percent

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BRICs to the rescue

Michael Pettis — Thu, 06 Oct 2011 13:00:08 +0000

Turning to foreign sources of capital will only aggravate the problem from which Europe already suffers. Even assuming that developing countries are willing to take on risks that Europeans find prohibitive, their help will not improve prospects for Europe. On the contrary, it will hurt growth prospects and make the ultimate resolution of the debt crisis more difficult than ever. BRICs should be exporting more demand, not more capital. It is important that the desperate short-term funding needs of certain governments do not lead to an overall worse outcome for Europe. If Europeans do not want to fund credit-impaired European governments, they should not ask foreigners to do so. Slower growth and foreign debt will not help resolve the problem of insolvency

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China Bill: Huff, Puff and Bluff

Marc Chandler — Wed, 05 Oct 2011 19:00:55 +0000

US national elections are 13 months away and not coincidentally, the Congress is looking at a new measures to encourage China to re-value the yuan. While there is little doubt that the yuan in under-valued, though reasonable people may differ on the magnitude, politics more than economics appears to be the driving force

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Russian Currency Outlook Negative Due To Falling Oil Prices

Win Thin — Tue, 04 Oct 2011 23:00:43 +0000

This fiscal uncertainty may be enough to prevent any ratings upgrades ahead, but we do not think the situation will worsen enough to lead to downgrades. Our sovereign rating model has Russia as a very solid BBB+/Baa1/BBB+ credit compared to actual ratings of BBB/Baa1/BBB. The political situation leaves a lot to be desired, with the return of Putin to the presidency next year unlikely to change the status quo. Yes, there is stability, but there is a sense that Russia is basically treading water and relying on high commodity prices rather than making much-needed structural reforms to the economy to boost competitiveness and entrepreneurship

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China will retaliate if US imposes sanctions

Edward Harrison — Mon, 03 Oct 2011 13:54:01 +0000

Professor Professor Xiang Songzuo from the Centre for International Monetary Research at Renmin University in Beijing told the BBC yesterday there would definitely be retaliation if the US moves to sanctions against China. If this scenario occurs, wouldn’t this be similar to the trade dynamic from the 1930s

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It’s Going to Get Worse

Edward Harrison — Sat, 01 Oct 2011 13:00:34 +0000

ECRI has predicted a recession in the US. In the videos below, Lakshman Achuthan talks with Yahoo Finance and the Wall Street Journal about ECRI’s new recession call

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Japan: Yen upside risk on deflation threat

Marc Chandler — Thu, 29 Sep 2011 14:30:35 +0000

More broadly, the recovery from the March tragedy appears to be running out of steam. Retail sales which surged in the April-June period fell in both July and August and deflation appears to be threatening again. The year-over-year pace of national CPI is expected to slip back to 0.1% in August, when reported in early Tokyo on Friday. The Sept readings for Tokyo are expected to be -0.2% year-over-year

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Hugh Hendry on the economy and the sovereign debt crisis

Edward Harrison — Tue, 27 Sep 2011 17:43:33 +0000

We’ve reached a very rare moment in economic history where the problem is greater than the ability of the politicians to respond

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A few thoughts on economic nationalism

Edward Harrison — Mon, 26 Sep 2011 19:40:28 +0000

I want to talk a little about the political economy. A few months ago I added the topic tag “nationalism” to the topics this blog covers because I believe this is an issue which becomes relevant during global economic crises

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Don’t Forget the Pain in Spain Because of the Dance in France

Marc Chandler — Fri, 23 Sep 2011 18:00:47 +0000

Spain appears to have dropped off radar screens. In part, a disorderly outcome of the Greek crisis continues to be threatened. Italian bond yields and CDS prices have risen above Spain's. Yet, ironically, earlier this week, Spain's central bank warned that its banking problems are bound to get worse

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Ireland: Is austerity enough or will we see haircuts?

Edward Hugh — Mon, 12 Sep 2011 12:54:02 +0000

It is high time politicians in Berlin to started to recognise that fiscal austerity is not the be all and end all of the policy issues they now face. Ireland is applying fiscal austerity, but this alone may well not be enough. A better distribution of the pain needs to be found. As the IMF itself notes in its latest staff report: ”there is a strong sense that burden-sharing between taxpayers and creditors for the cost of supporting the banks has been unfair”

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Is Fiscal Austerity Being Rewarded? 1 Jul 2010

Is the Euro Zone Debt Crisis Sapping Economic Growth?

Marc Chandler — Tue, 30 Aug 2011 12:00:35 +0000

Dollar firmer across the board amid month end repositioning; US futures suggest modest decline. Markets likely to remain sensitive to DM economic data; Case-Shiller & FOMC minutes are key today. EM continues trade directionless for now as investors remain in wait and see mode to assess outlook

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Is the Euro Zone Debt Crisis Sapping Economic Growth? originally appeared on Credit Writedowns

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On Sweden and Capital Preservation

Marc Chandler — Mon, 22 Aug 2011 16:00:47 +0000

Capital preservation has once again has become mantra. The safety offered by Japan and Switzerland are meeting resistance from policy makers. As the market looks for alternatives, the Swedish krona has much to offer, including a relatively robust economy, low public debt and a current account surplus

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Brazil has more monetary policy space in the event of global crisis

Edward Harrison — Fri, 19 Aug 2011 17:00:00 +0000

Frederick Searby says that Brazil has the opposite problem of the developed economies in that it is dealing with overheating and inflation while the developed economies have a serious deflationary undertow. His view is that if there is a crisis like in 2008, Brazil can cut rates and probably will start doing so. That gives it more policy space than we see in the US where rates are zero percent

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The yen is a safe haven as Japan is the world’s largest creditor

Marc Chandler — Fri, 19 Aug 2011 14:00:00 +0000

The yen is a safe haven. That assertion seems so obvious, that why it is the case is rarely explored. It does not seem to be a function, as some suggest, of its trade surplus, but rather its position as a net international investment surplus country. That means that Japanese investors own more foreign assets than foreign investors own of Japanese assets. In fact, Japan is the world's largest creditor. Last year, it was in surplus by over $3 trillion. China is the world's second largest creditor at about $2.2 trillion and Germany is in third place with a $1.2 trillion surplus. Next are Saudi Arabia and Switzerland

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The yen is a safe haven as Japan is the world’s largest creditor originally appeared on Credit Writedowns

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