Was the IMF programme in Iceland successful?

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

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

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

Fedex predicts record holiday shipping volume

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

Argentina Reelects Fernandez, Unorthodox Policies And Peso Weakness To Continue

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

Turkey: On restoring central bank credibility and EM vulnerability

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

France Back In The Spotlight

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

Is it Over Yet?

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

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

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

China Notes from the Yum! Brands Earnings Call

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

BRICs to the rescue

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

China Bill: Huff, Puff and Bluff

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

Russian Currency Outlook Negative Due To Falling Oil Prices

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