2015.02.06 News


Once again I’d like to start with the Eurozone where we see little progress in the standoff between Greece and its creditors. Germany’s Wolfgang Schaeuble was dismissive of any substantive compromise. Greece’s debt numbers do indeed look daunting, totalling €320bn.

And here is the maturity structure to the rest of Europe over time. This does not include what the Bank of Greece owes the Eurosystem via Target2. That debt would only become an issue if Greece were to exit the Eurozone and Bank of Greece had to be “divorced” from the the Eurosystem.

As an aside, this is not new for Greece. Apparently the nation has spent 90 of the last 192 years in “financial crisis”.

Unfortunately this mess comes at a time when the Eurozone is showing real progress on the economy. Among all the doom and gloom we have visible improvements in the region – something the financial media is not covering well. Positive economic developments just don’t generate enough clicks, but ignoring them creates a skewed view of reality. Here is the latest:

1. The Eurozone credit conditions have stabilized: demand is up while credit standards ease. Some have asked why do we need the ECB stimulus. The answer is to fight deflation which could put these improved credit flows in jeopardy. The report below includes corporate loans as well as residential mortgages.

2. Europe’s corporate bond markets are taking off with huge new investor interest and rapid issuance. A number of firms in the Eurozone are direct beneficiaries.

3. German factory orders beat consensus by a wide margin – momentum is building.

4. Ireland’s economy is taking off.

Ukraine is in trouble – a truly desperate situation.
1. The nation is running out of foreign exchange reserves after defending the currency in the face of significant capital flight. Exports have collapsed, with Russia being the key export market.

Desperate to stabilize the currency without wasting more of the reserves, the central bank hiked interest rates to 19.5%. Domestic credit markets are now shut.

But at this point the central bank is fairly helpless as the Ukrainian currency (hryvnia) plummeted 36% against the euro in a single day.

Default or debt restructuring is now inevitable. And we are talking in the next few months or sooner. Quite sad.

With disinflationary pressures spreading, more easing is expected from a large (and growing) number of central banks. Impressive.

In the United States the dollar strength is starting to show up in more economic data.

1. Trade deficit increased more than expected. A big part of this had been stronger than expected imports, but exports definitely weakened with dollar strength.

2. US manufacturers’ new orders for consumer goods weakened sharply – also in part due to dollar strength.


– Angela Merkel and Francois Hollande will head to Moscow to attempt to break the diplomatic deadlock over Ukraine. They flew into Kiev yesterday to discuss the new plan with Ukrainian president Petro Poroshenko before heading to Russia. (FT)

The push follows Washington’s shift to consider arming Ukraine – a move that both Merkel and Hollande oppose – and alarm at the surge in fighting in eastern Ukraine.

– US jobs Analysts expect the US non-farm payrolls report to show a net gain of 234,000 positions in January and for the unemployment rate to hold at 5.6 per cent. (FT)


– Jordan military jets pound Islamic State as king comforts pilot’s family | Reuters
– Australian PM to face leadership vote after party-room revolt | Reuters
– Greece in the penalty box — Bull Market — Medium
– Why Oil-Hungry China Isn’t Reaping Benefits From Low Prices – China Real Time Report – WSJ
– Australia Stock Rally Set for Record Run Amid Stimulus Optimism – Bloomberg Business

ECONOMY RBA lowers growth, inflation forecasts

MARKETS US stocks jump as crude oil rallies
MARKETS Investor zeal for junk debt heats up
MARKETS Japanese stocks rise, Chinese equities fizzle
MARKETS Asia Pacific markets begin session on upbeat note