2015.02.19

SoberLook.com

Let’s start with Japan where weaker yen is helping the nation with its trade deficit. While lower oil prices reduced the value of imports, it was also the weak domestic demand and higher import prices that pushed imports lower. Exports on the other hand were clearly helped by weaker yen. Trade deficit declined as a result.

Japan’s equity markets love this dynamic of improving export growth and the potential for further yen weakening. The Nikkei 225 hit the highs not seen in decades.

Currency devaluation is becoming the new model for a number of economies, including the Eurozone.

Will China be next?

Speaking of Japan, the net government bond issuance, when accounting for central bank buying, is now negative for major developed economies combined. The supply of “safe” paper used for collateral in the repo markets and elsewhere is declining. Amazing.

Now on to Ukraine where the economic situation is deteriorating by the day. The currency (hryvnia) is falling further – approaching 31 hryvnia per one euro.

Dollar denominated Ukrainian sovereign bonds fell to new lows as the market prepares for a deep restructuring.

The Russian ruble on the other hand rallied sharply as the Russian Finance Ministry announced that it is going to convert $8bn of reserves into rubles.

Deflationary risks are spreading throughout Europe as the French CPI approaches zero. It will be interesting to see how much of this will be transmitted to the core inflation measures.

These days I simply can’t send out the Daily Shot without mentioning Greece at least once. Below is the nation’s austerity program in perspective.

And here is a graphical story of the destruction of the Greek banking system, as bank shares collapse in about 7 years.

Switzerland’s economic expectations collapsed on stronger currency. The recent spike in the Swiss franc is about to take its toll on the nation’s economy.

The UK economy continues to improve as the unemployment rate falls further. This is quite impressive. However, low inflation (discussed yesterday), weak wage growth, and slowing property markets will keep the Bank of England on hold for a while.

Now we turn to the United States where the producer price index (YoY) hit zero. It remains to be seen how much this will feed through to the CPI.

Speaking of labor markets, the US unemployment rate is approaching the so-called long-term “natural” rate of unemployment. This is something the Fed watches closely as it suggests a potential for wage increases (at least in theory).

But so far we haven’t seen substantial wage increases. While some point to rising weekly earning growth for US workers, in reality Americans are just working longer hours.

In the energy markets we have seen the largest weekly spike in US crude oil in storage. This actually may be a record increase, though I don’t have the data prior to 2012.

http://ftalphaville.ft.com/

– Jeb Bush, the frontrunner for the Republican nomination in the next US presidential election, has attacked Barack Obama and talked about a world spinning out of control, in his first major foreign policy speech. The former Florida governor said President Obama had not done enough to stand up to Iran, Russia and Cuba, while accusing him of snubbing Israel.“Everywhere you look, you see the world slipping out of control,” Mr Bush told the Chicago Council on Global Affairs. “Under this administration, we are inconsistent and indecisive. We have lost the trust and confidence of our friends. We definitely no longer inspire fear in our enemies.” (FT)
– Fed still cautious on rates Many Federal Reserve members were inclined in January to keep interest rates low for longer. The minutes of their latest meeting underline the US central bank’s cautious stance towards normalising monetary policy. (FT)
– ECB supports Greek banks A Eur3.3bn increase in emergency loans was approved by the European Central Bank on Wednesday evening to support the Greek banking system. With the political and budget crisis, deposits across the country’s four systemic banks are down Eur20bn since December to Eur145bn , according to people familiar with the outflows. (FT)

Fast FT

– The Bank of England’s policymakers once again voted unanimously to hold interest rates unchanged at the meeting held earlier this month, after falling inflation declawed two previously hawkish officials.
– Swiss investor confidence knocked by peg removal
– US homebuilding has sluggish start to 2015

– Lew urges Varoufakis to find Greek debt deal
– Ukrainian industrial production shrivels in Jan
– Fed minutes: officials hit cautious note on rates
– Mexico cuts GDP outlook as low oil prices bite
– ECB increases emergency lending to Greek banks
– Japan records 31st straight trade deficit
– Emerging-market currencies sent higher by Fed
– Dovish Fed minutes bolster gold
– Oil slump accelerates as crude stockpiles build

http://blogs.wsj.com/economics/
– Key Passages in the Fed’s January Meeting Minutes
Federal Reserve officials remain optimistic about the U.S. economic outlook
Many Officials Worried About Raising Rates Too Soon
Strong Dollar Seen as ‘Persistent’ Restraint on Exports
Keen Focus on Overseas Risks
Core Inflation a Worry, But Still Confident in 2% Target
– IMF Shinohara Says More BOJ Easing May Be Needed

http://lukasdaalder.com/

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