2015.02.10 News


Let’s start with a quick note on Greece. The nation’s new government will need a bridge loan soon. A massive one.

Realizing that obtaining such a loan is a toll order, Syriza now claims Germany owes Greece 162 billion euros in World War II reparations. And Greece has a “moral obligation” to “claim the [WW II] occupation loan and reparations”. This was in reference to Germany’s 4-year occupation of Greece during WW II and a loan that the Nazis forcibly took from the Greek central bank – which did not end well for Greece at the time.

German reaction? There is “zero” chance they will pay (via Daily Mail).

In spite of this mess with Greece – which could turn ugly when these debt payments are not made, investor sentiment in the Eurozone continues to improve.

The Turkish lira has been under pressure again, hitting new lows against the dollar. Investors’ view is that the central bank is not independent and Erdoğan will continue pressuring it to cut interest rates.

Economic conditions in Russia continue to deteriorate. Inflation just hit 15% as the ruble’s devaluation takes its toll.

With the situation worsening, Putin’s apparatus successfully convinced the Russian people that their struggles are the result of some punishment inflicted by the US. Of course trade volumes between Russia and the US had been relatively small – so the sanctions could not have caused much damage. Nevertheless, the amount of hatred for the US in Russia is rising quickly.

When I discussed this issue a couple of months back, a number of Russians made sure to let me know that I was a victim of US propaganda and there is no ill will for Western nations in Russia. I wonder if they believe this survey published by VOX is also part of some US conspiracy.

Now on to China where both the CPI and the PPI figures came in lower than consensus today. Risks of deflation in China are becoming quite real. With nominal rates remaining elevated, real rates are spiking. Monetary conditions are tightening in spite of the PBoC’s recent cut to RRR.

In fact real rates have jumped across Asia-ex-Japan (AXJ) as a result of falling inflation. Many Asian central banks just don’t have much experience with such low inflation measures and are behind the curve in lowering nominal rates. This tight monetary policy is pressuring economic growth.

In Japan, longer dated government bond yields suddenly rose in recent days. It’s not entirely clear what’s causing this other than the recent move by major Japanese insurance firms to exit the longer dated JGB market (focusing on corporate debt instead). Also corporate issuance has been strong.

Singapore’s foreign reserves declined sharply in recent months on weaker exports and the government’s efforts to defend the currency.

So far the efforts to stabilize the Singapore dollar seem to have been unsuccessful as the declines continue (chart below shows USD appreciating against SGD).

Canadian housing starts beat expectations again. What could possibly go wrong?

In the United States we can see the first signs of what could go wrong in the energy sector. Here is the number of energy industry layoffs announced in January.

Over 37% of announced layoffs were in Texas.

And it will be some time before we see real reductions in US crude output – in spite of oil rig closures. That’s because of continuous improvements in oil rig efficiency. More job cuts are coming …

Apparently more Americans now feel that their household incomes are on the rise.

Expected sales growth for the S&P 500 companies is approaching zero. Part of this trend is the decline in energy and other commodity prices. It is concerning nevertheless.


– HSBC could be hit by fresh legal action in the UK and the US after the leak of secret files exposing widespread tax avoidance at its Swiss operation. (FT)
The scandal raises the risk of criminal investigation in Britain. The US Department of Justice could also revisit a deferred prosecution agreement over money laundering allegations. Meanwhile, Herve Falciani, the former HSBC engineer who leaked the files, has teamed up with far left Spanish party Podemos to advise them on tax policy. (FT)
– Obama open to arming Ukraine The US president said he had not yet made a decision but confirmed that military aid is being considered. Don’t be fooled by the public show of unity he put on with the German chancellor yesterday: the debate risks creating a fracture between the US and Europe over how to approach the Ukraine crisis. (FT)
– Petrobras scandal spreads overseas Two major Singaporean shipbuilders and three Brazilian companies with Japanese shareholders have been accused of paying bribes to Petrobras officials. This is the first time international investors have been linked to the scandal which is threatening to drive Brazil’s most important company into bankruptcy. (FT)


– Obama readying request to use force against Islamic State | Reuters
– GDP growth in India and China: Catching the dragon | The Economist
– U.S. oil output ‘party’ to last to 2020: IEA | Reuters
– India GDP figures fuel investor suspicion – FT.com
– Australia’s scorching 2013 heat record was ‘virtually impossible’ without global warming – The Washington Post
– The future of the US economy in one chart – Business Insider

– China consumer prices grow less than expected in Jan
– French industrial production improves in December
– Italian industrial output surprises in December
– Opec cuts forecast for rivals’ supply
– Ukrainian central bank cuts hryvnia official rate
– European equities drift on worries over Greece




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