2015.02.24 News


Brazilian real continues to deteriorate

Brazil business confidence

Singapore inflation rate

Existing home sales (US)

Mexican peso under pressure again

Dallas Fed survey of Texas manufacturing. Is the hit to the energy sector taking its toll?

Ireland 10-yr government bond yield near all-time lows

The yuan remains at the weaker end of the trading band

Canadian short-term government yields collapse on BoC rate cut expectations

Canadian government yield curve inverted in the front end on lower rate expectations

Someone made good money spreading the “emergency OPEC meeting” rumor

PBoC is having a tough time keeping rates stable, as interbank rates spike again ==> tight monetary policy


– BHP Billiton, the world’s largest miner by market capitalisation, reported that its interim profits had fallen by almost half as prices for its most important commodities, which include oil and iron ore, slumped. (FT)
– Greek reform plans Eurozone finance ministers are expected toweigh up Greece’s proposed reform plans today – the last hold-up to deciding whether to extend Greece’s EU programme beyond Saturday. If the list proves unacceptable, the ministers will be summoned to Brussels to resolve differences in person. (FT)
– UK: no country for young men Young adults’ living standards have been on the slide, pushed down faster by the recession, while pensioners have enjoyed a rapid rise up the income table. (FT)

Fast FT
– Bank of Israel cuts interest rates
– US home sales fall to nine-month low
– Dallas manufacturing disappoints – report
– Eurozone FM’s to hold call on Greek reform plans
– New Zealand’s inflation expectations lowest since 1999
– Japanese SME confidence remains in doldrums
– Eurozone inflation confirmed at minus 0.6%
– Oil whiplashed on Opec emergency meeting hope
– Fast Asia Open: Markets await Yellen
– Greek stocks jump 7 per cent on bailout hopes
– Greek reforms “sufficiently comprehensive” – EC


– Made-in-Japan Electronics Regain Competitiveness, Index Shows

– Australia’s Frothy House Prices Make Another Cut Unlikely–At Least for Now
– Why Do Budget Forecasters Keep Getting It So Wrong?



2015.02.20 News


Let’s begin with the FOMC minutes released yesterday. As I discussed before, the Federal Reserve, particularly with Stanley Fischer’s influence, is increasingly focused on the global macro situation.

FOMC: – … the increase in the foreign exchange value of the dollar was expected to be a persistent source of restraint on U.S. net exports, and a few participants pointed to the risk that the dollar could appreciate further. In addition, the slowdown of growth in China was noted as a factor restraining economic expansion in a number of countries, and several continuing risks to the international economic outlook were cited, including global disinflationary pressure, tensions in the Middle East and Ukraine, and financial uncertainty in Greece.

With concerns about the dollar strength, increased global economic uncertainty, and collapsing inflation, one would think a rate hike this year is unlikely. Yet the futures market points to liftoff around the end of Q3 or the beginning of Q4 of this year.

The only way a hike will be possible later this year is if we see a substantial pickup in wage growth in the US. As I discussed yesterday, we haven’t seen compelling evidence of that so far.

Continuing with the US economy, the first quarter definitely feels softer than economists have been forecasting. GDP growth of around 2 – 2.5% is probably where we will end up – perfectly fine in the current macro environment. The prolonged West Coast port workers’ “strike” is not helping.

The National Association of Realtors points out that US homes are rapidly aging. And that will increasingly require spending for renovations prior to selling.

That’s why we see shares of Home Depot (blue) outperform the S&P500 (red) by almost 30% over the past year.

The current oversupply of oil in the US is staggering. Crude oil in storage is now at the highest level in more than 80 years. It’s just a matter of time before Cushing, OK runs out of storage capacity or storage prices make the contango arb unprofitable.

Speaking of energy, stronger US dollar has helped a number of exporters by softening the declines in crude oil priced in domestic currencies.

In the Eurozone the consumer seems to be unfazed by the situation in Greece thus far. Consumer confidence has risen sharply. This is a positive development because the Eurozone will need all the help it can get if Greece defaults/exits.

The Russian central bank reserves continue to decline. While there is plenty here to support the ruble if need be, the appetite to spend more to defend the currency is no longer there.

Brazil continues to let its currency fall (chart below shows USD appreciating against BRL). Brazil’s inflation is already elevated and could rise further if currency weakness persists. But Brazil is in a currency war with Australia, Indonesia, etc. and there is little appetite to stem the devaluation.

Here is an interesting fact. Some 90% of the world’s developed economies (weighted by GDP) now operate near or below zero policy interest rates.

It’s interesting to see how Japan’s growth slowed down as the working-age population in that nation declined. Once again this points to the need for a more supportive immigration policy for nations that face aging populations – including the US.

In fact, Greece is having this problem, as the deep recession has been exacerbated by shrinking working age population.


– Athens’ chances of finding itself without an EU financial backstop in one week will come down to a bitter face-off in Brussels today between the Greek and German finance ministers, after Berlin rejected Greece’s request to extend its €172bn rescue by six months. The German rebuff came just hours after Yanis Varoufakis, the Greek finance minister, reversed his government’s long-held promise to kill the current bailout in a letter to his fellow ministers. But the letter, obtained by the Financial Times, had clauses that Berlin told counterparts amounted to “a Trojan horse” designed by Athens to change the conditions it must meet to receive €7.2bn in aid available for finishing the bailout. (FT)
– Pentagon warns on Isis attack The Pentagon has taken the unusual step of disclosing plans for an Iraqi-led attempt to retake Mosul , Iraq’s second-largest city, from Islamist militants in a spring offensive. About 20,000 Iraqi and Kurdish soldiers are being prepared for the battle. The Pentagon said there was no decision yet on any US participation. (FT)
– Ukraine freeze on gas A new faultline has opened up between Ukraine and Russia over natural gas, after pro-Russian rebels in east Ukraine accused Kiev of cutting off supplies amid sub-zero temperatures. Russia said it had started supplying gas, while Kiev said the problem was pipelines being damaged by heavy fighting. (FT)
– French no-confidence vote France’s socialist government has survived a no-confidence vote in parliament. It fell well short of the 289 votes needed and means the survival of an economic reform package that President Francois Hollande argues is vital for restoring growth. (FT)
– Greenspan on oil shift The fall in the oil price has led to a marked change in the economic and geopolitical landscape, with the US and its allies the main beneficiaries, argues Alan Greenspan, former chairman of the US Federal Reserve. Opec is having to deal with shale oil output that can expand and contract with demand more rapidly than conventional wells. (FT)

Fast FT

– UK mortgage lending declines, trade body says
– Eurozone finance ministers to discuss Greek aid
– White House identifies risks to US recovery
The accelerating US recovery risks being slowed by weak income growth, inequality and depressed rates of labour force participation, according to the White House.
– UK factory orders surge in February, CBI says
– ECB’s first minutes: “large majority” backed QE
– Germany rejects Greek bailout extension request
– Japanese manufacturing slows, exports still grow
– Eurozone manufacturing still near stagnation levels
– Investor flows into junk debt funds near $10bn

– Investors pour $5.8bn into European equities

– The U.S. Economy According to the White House in 10 Charts

– Bundesbank President Adds to Criticism of Greeks’ Request
– Who’s Most Likely to Default on Student Loans?

– In Fed Survey Ahead of January FOMC, Big Banks Expected Summer Rate Rise
– Bank of Japan Should Relax Inflation Target, Says Ex-Official


“And in fact, it looks like that might be happening. In a new analysis out today, EPI finds that while wages have continued to sink for people at most income levels through the economic recovery, since 2012, they have actually risen for the bottom 10 percent



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.


– 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

– 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


2015.02.18 News


Once again we start with Greece where apparently the new government is ready to play ball – at least in the nearterm. Greece will be asking for a bridge loan as prescribed by the Eurogroup.

Why all of a sudden? It was the Austrian Finance Minister Hans-Joerg Schelling who, on behalf of the Eurogroup, drove the following point home.

It’s easy to see how taking this hardline makes political sense for many in the Eurozone. Some of this pushback on Greece is not originating from Germany. Instead it’s nations such as Slovenia who have been quite angry with Greece.

The Slovenia Times: – “Given such an exposure Slovenia has toward Greece and such solidarity we provided, Greece has said it plans to raise pensions, raise pay, make employments in the public sector and demand an extra cut in its liabilities to Slovenia, while in Slovenia we are slashing pay and economising in all areas,” [Slovenia’s Finance Minister Dušan] Mramor said.

Elsewhere in the Eurozone, the area’s economic sentiment indicator (ZEW) came in above expectations.

It’s interesting to see that the euro, helped by economic tailwinds, remains fairly resilient in the face of the Greece standoff.

In the UK producer prices are falling sharply. The massive declines in the wholesale input prices are feeding through to the output prices.

And this decrease in the PPI is flowing through to the consumer prices, as the nation’s CPI hit the lowest level on record.

The sad story of Ukraine’s collapsing economy continues to unfold. The GDP fell 15% on a year-over-year basis.

Now on to China where pressure is building on the yuan. Given the ongoing growth slowdown, the PBoC desperately wants to ease policy but is afraid that the credit bubble in the corporate sector (some of which was helped by the explosion of “wealth management products”) will worsen as a result of lower policy rates. Allowing the yuan to weaken may be a better option to help stimulate growth. After all, everyone else is doing it.

The yuan now trades at the weaker end of the permissible range.

One of the reasons for the downward pressure on the yuan is the short-term profile of China’s cross-border debt. We are seeing some capital outflows.

Investors remain uneasy with massive amounts of dollar denominated debt outside of the United States. As a number of currencies depreciate against the dollar (such as the Indonesia example above), these dollar liabilities will become increasingly more difficult to repay. Combine that with weak commodity prices (with many of these loans used to fund raw materials and energy projects) and we’ve got a series of defaults on the way.

The chart below is a bit dated but bloggers love to show it and discuss the sad state of the US economy. This is what I call “extrapolating the bubble”. Using the 2005-2007 range to project potential GDP is absolute nonsense. That growth trajectory was only possible with massive amounts of credit and those days are over. Get used to it – this is the new normal.


– Eurozone countries have given Athens a final deadline of Wednesday to extend its EUR172bn rescue programme, after talks in Brussels broke down in acrimonylast night. The Greek finance minister said he was confident an agreement could be reached based on earlier proposals for a four-month extension. Without a backstop, officials fear renewed market turmoil and a bank run in Greece. (FT)The irony is that the reforms in Greece – like those imposed on Portugal and Ireland, which have stood firm with their creditors – were beginning to bear fruit. Syriza may have “knocked over the apple cart when it was just about to reap the reward of its people’s sacrifices”.
– Ukraine ceasefire already crumbling Just 48 hours after the ceasefire took effect, the battle for Debaltseve intensified and Kiev refused to surrender a strategic railway hub where thousands of government troops were surrounded and faced attack by Russia-backed separatists. (FT)
– US spyware spotted Kaspersky Labs, the Moscow based cyber security company, said it had uncovered sophisticated hacking tools in personal computers in 30 countries including Iran, Pakistan, Russia and China. It suggested they were devised by the US. (FT)
– Transocean’s dividend slash One of the world’s largest offshore drilling contractors is cutting its dividend 80 per cent – another sign of oil prices battering the industry. The company said the reduced payout would help it retain an investment grade credit rating. (FT)


– Fed’s Plosser joins criticism of “audit” calls
– Bank of Japan maintains policy; no surprises
– UK unemployment falls, wages grow healthily
– S&P 500 hits new record high
– Nikkei 225 rises to new 7 1/2 year high
– Aussie stocks on path for 6 1/2 year high
– Aussie, Japanese, Indonesian shares all jump
– Greek bonds trade calmly amid debt talk hopes
– European stockmarkets rise on Greek bailout hopes
– Sterling strengthens on strong UK employment data


2015.02.15 News


Let’s start with the situation in Ukraine where it seems we’ve reached another ceasefire “deal”. There are two remaining problems however:

1. The Russian government has no incentives to stabilize the situation. Putin would like to show the world how the West has failed by supporting the new government in Kiev. And the best way to achieve that is via the “proxy” war (inflicting pain on Western nations via Ukraine). Moscow can sign all the agreements and then deny any control over the situation in eastern Ukraine. People forget that Putin is a lawyer by training.

The photo below shows the pro-Russian separatists in eastern Ukraine (outside of Horlivka) with high tech T-72BA tanks. They must have manufactured these in their garage.

2. Ukraine’s government is about to default. And the “peace agreement” will do little to prevent that. That’s why the Ukrainian currency (hryvnia) breached 30 to one euro today – another record low. Unless we see a massive bailout soon, this is not going to end well.

In the Eurozone we see further signs of deflationary pressure as German CPI moves deeper in the red (and lower than consensus).

Let me point out once again that with all of this in the background and in spite of Greece, the Eurozone’s economy is poised to surprise to the upside.

We can already see investors moving in.

Sweden’s central bank (Riksbank) followed the ECB today by setting the benchmark rate below zero and announcing quantitative easing.

But so far Sweden’s announced QE is dwarfed by programs other central banks have implemented. Here is what it looks like as a percentage of the starting monetary base as well as percentage of the GDP.

But Sweden has been in deflation for quite some time and will probably need a more aggressive bond buying program to have much of an impact.

Now on to Japan where some central bankers at the BOJ are becoming uneasy with weakening the yen further. They fear that while weaker yen helps the nation’s exporters, it is hurting the consumer by making imported goods more expensive. With wage growth inadequate, higher food and electricity prices have been painful. Will the BoJ abandon it’s 2% inflation target?

WSJ: – Some Bank of Japan officials have grown more concerned about the drawbacks of a weak yen, making them increasingly cautious about the central bank undertaking additional quantitative easing, according to people familiar with their thinking.

These officials are worried that a further sharp decline in the currency could hurt Japan’s fragile economic recovery by damping consumer spending, which accounts for around 60% of gross domestic product, the people said.

JGBs continued to sell off as a result, with the 10-year moving above 40bp. As a comparison, the German 10-year yield is 33bp.

Nigerian currency (naira) continues to fall as the nation comes under pressure from the collapse in oil prices as well as Boko Haram’s attacks. Political instability related to the elections is not helping.

Speaking of crude oil, the WTI futures curve remains steep (contango).

This is encouraging market participants to store more crude: buy spot, sell forward, store (Profit = Forward Price – Spot Price – Storage Costs – Financing Costs). As long as the arb makes sense there will be more storage demand.

The question remains: is there enough storage? According to Bloomberg’s projection, Cushing Oklahoma (where WTI futures are settled) will run out of storage sometime in Q2.

As a result we are likely to see even more floating storage. Of course with so much oil in storage it will be hard for oil to rally significantly in the nearterm.

Speaking of energy, here is a chart that shows the staying power of Saudi Arabia in the face of lower oil prices. The Saudis are not worried.

In the United States the retail sales report was considerably worse than expected.

This tells us that the US Q1 economic growth has been on a softer side. Once again it’s hard to see the Fed doing much if this persists.

Interestingly, retailers’s shares are unaffected as they continue to outperform – hitting new highs.
Red = S&P Retail, Blue = S&P500


– The European Central Bank extended another EUR5bn in emergency loans to banks in Greece after fears that a spate of bank withdrawals could dry up funding. (FT)

Meanwhile at an EU summit in Brussels, Greek prime minister Alexis Tsipras argued for a new bailout agreement with fewer austerity demands but the impervious – and sleepless – Angela Merkel stuck to her guns.

Greece will start technical negotiations with the European Commission, the ECB and the IMF today, to determine which parts of the current bailout the Tsipras government will agree to continue. (FT)

– Minsk 2 After 16 hours of talks the leaders of Germany, France, Ukraine and Russia agreed to a ceasefire starting on Saturday but European leaders and analysts are sceptical. Some warned that Vladimir Putin appears to have come out on top. (FT)
– Extreme central banking The Swedish Riksbank became the firstcentral bank to set a negative main policy interest rate – evidence of ever more radical means to prevent deflation strengthening its grip over European economies. (FT)
– JPMorgan executives “pushed out” Two senior executivesconnected to an investigation into the bank’s hiring practices in Asia will leave the firm. US prosecutors and regulators are investigating whether the bank gave jobs to Chinese government officials’ children in return for lucrative investment banking mandates. (WSJ$)


– UK CPI to fall below zero but BoE warns on rates
“The central bank stressed that if pay rises moderated in response to low inflation, they might need to loosen monetary policy further.”
– Bank of England forecasts falling prices: reaction
“The BoE also said markets were mistaken in predicting no interest rate rise until mid-2016.”
– US retail sales disappoint with and without gas
“The sluggish 0.2 per cent increase (without car and gas sales) suggest the first quarter hasn’t begun with much momentum. Despite the limp showing in December and January, economists remain optimistic that a buoyant labour market and still rising house prices will be enough to keep Americans spending.”
– ECB extends a further €5bn to Greek lenders
– French GDP was 0.4% in 2014
– German GDP powers ahead of expectations
– Dutch GDP comes in well ahead of forecast
– Spanish prices tumble 2.2% in January
– Italy latest eurozone nation to beat GDP forecast
– Portuguese fourth quarter surprises on the upside
– ECB QE offsets Greece for equity investors
– Nasdaq leads rally in US stocks
– Investors pour $3bn into junk bonds
– Fast Asia Open: return to risk on?
– Greek bonds recover after banking sector reprieve
– Germany’s Dax index surges above 11,000
– Greek bank stocks surge following ECB move

– Retail Sales Mystery: Where Are Americans’ Gas Savings Going?
“With lower gasoline prices leaving households with more to spend on other goods and services, the labor market on fire and consumer confidence back at its pre-recession level, we had hoped to see a much stronger performance from underlying retail sales. The personal saving rate jumped in December to 4.9% from 4.3% in November, the Commerce Department estimated in a separate report.”
– WSJ Survey: Economists Trim Forecasts of Fed Rate Rises
“We think the Fed has the leeway to wait until September, on the premise that seeing a bottom in core inflation is important”
– Winter Snow Weighs on First-Quarter GDP


2015.02.12 News


We start with a surprising story that hit the wires this afternoon.

Wow! A quick deal for Greece would potentially save the new government from running out of funds. I wonder who was the CNBC’s source …

But the euphoria didn’t last very long and we got this headline.

Reuters: – “We had an intense discussion, constructive, covering a lot of ground, also making progress, but not enough progress yet to come to joint conclusions,” Jeroen Dijsselbloem, the chairman of Eurogroup finance ministers, told a midnight news conference.

“We didn’t actually go into detailed proposals, we didn’t enter into negotiations on content of the program or a program, we simply tried to work next steps over the next couple days. We were unable to do that.”

It wasn’t even close. Meanwhile Greece has a new slogan: “Bankrupt but Free”. It’s all fun and games until pensioners line up at the soup kitchen and move into the homeless shelter because they can’t get their retirement checks. Greeks are playing with fire – it’s not going to end well.

Here is the Greek stock market ETF after the CNBC “news” and then – reality hit. CNBC needs to start checking their sources – someone is going to get fired over this.

And here is how the euro responded (by the way the S&P500 futures reacted in a similar fashion).

Greek bond yields remain elevated and will probably rise from here.

One other quick note on the Eurozone. Deflationary pressures continue to be a major concern. That’s why the ECB had little choice in taking such an aggressive monetary easing action. Italy’s inflation rate is not only negative, but it’s now the lowest on record.

Denmark’s 5-year yield continues to move deeper in the red. People ask why anyone would buy negative-yield paper. If one anticipates deflation that is worse than the yield, the real rate would actually be positive. Or if someone wants to take their money out of the Eurozone badly enough, they are willing to pay to have their money parked in Denmark. Amazing.

In fact the bulk of the Denmark’s yield curve is now in negative territory (similar to Switzerland).

UK’s massive housing rally is coming to an end. The RICS (The Royal Institution of Chartered Surveyors) House Price Balance is approaching zero. It measures “the percentage of surveyors reporting a house price increase in their designated area”. The BOE is going to be on hold for a long time now.

The Ukrainian hryvnia takes another leg down vs. the euro. With such currency devaluation Ukraine’s inflation will likely rival Argentina’s in the coming months –

Now on to Japan where the BoJ is losing its fight against deflation. Japan CGPI (PPI equivalent) came in massively below consensus.

Australian jobless rate report came in worse than consensus. The nation’s unemployment rate is now at the highest level since 2002.

Clearly the collapse in industrial commodities is taking its toll. Here is the CRB BLS Raw Industrial Commodity Index. And people wonder why the Baltic Dry index is hitting new lows.

The headlines are already rolling in…

Brazil’s economy continues to struggle. Retail sales massively missed economists’ expectations.. The recent drought conditions are making the situation worse.

US crude oil supply in storage is out of control. Oil in storage hit another record and the “days of supply” measure is rising way beyond last year’s level. It’s very hard to see oil prices strengthening until this situation is stabilized. Rig count reductions have had no visible effect thus far.

The US dollar is pushing higher again as some Fed officials threaten to hike rates this year.

Appalachian coal (March contract) has bounced off the lows as storms in the Northeast increased demand for power (among other reasons).

The world now has nearly $300 trillion in financial assets. Here is what they look like.

– Greek bailout talks broke down in recriminations after six hours. Eurozone finance ministers trying to hammer out a solution in Brussels were not even able to agree a way to take negotiations forward.

It is looking ever more likely that, come expiry in March, Athens will be without any bailout assistance for the first time in nearly five years. Many fear that outcome could spark turmoil and domestic bank runs. The euro weakened on news of the collapsed talks. (FT)

– The social security network Facebook is launching a social network for cyber security professionals to share information andleads on cyber attacks. The world’s largest social network has teamed up with other tech companies including Yahoo and Pinterest to step up its cyber security work. (FT)
– Obama wants greater military power The US president asked Congress for new powers to wage military operations against Isis. This has kicked off a debate over the limitations of presidential war power. (WSJ$)
– Glencore spins off Lonmin stake The miner is to divest its 24 per cent stake in the troubled South African platinum producer just as it slashes spending on its mines over the next year. (FT)


– Eurozone talks fail to agree way forward on Greece
– Japanese PPI: deflation ogre stalks policymakers
– Aussie credit card spending at record high in Dec
– Ukraine signs new $17.5bn IMF bailout deal
– Australia jobs market worse than expected in January
– Greek bonds sold off after bailout talk breakdown


2015.02.11 News


Today let’s start with the US where job openings rose above 5 million, the highest since January 2001.

With labor markets continuing to improve, some Fed officials are talking rate hikes again – in spite of falling inflation and the risks associated with a much stronger dollar.

This type of talk makes bond markets nervous – pushing the 10-year treasury yield back above 2%. The fed funds futures market still points to September as the most likely time for the first hike.

This quickly spilled over into emerging markets as some of the vulnerable currencies got hammered. “Taper tantrum” version 2 could get just as ugly.:

1. The Turkish lira is trading near record lows.

2. The Brazilian real – multi-year lows.

3. The Nigerian naira now trades at 200 per dollar – also a record low.

The standoff with Greece continues (more on this later). The euro implied volatility index (the CBOE EuroCurrency Volatility Index) remains elevated as a result.

Driven by weak demand and falling prices for industrial commodities such as iron ore, the cost of shipping continues to decline. The Baltic Dry index just hit a new low.

Here is the April-2015 iron ore futures contract (based on price index in China).

Speaking of China, local government debt continues to rise – now some 31.5% of the GDP. Given the declines in revenues from land sales for municipalities, this could quickly become Beijing’s problem. Municipal bailouts on the way?

Moreover, China’s overall debt as percent of GDP is at record levels and growing. This is why the PBoC is loathe to aggressively ease monetary conditions in spite of high real rates and slowing growth.

Switzerland is feeling the impact of stronger currency as the import price index falls by 3.6% in January. The nation’s CPI is now negative 0.5% with deflation setting in.

– It’s a big day forEurope The leaders of Germany, France, Ukraine and Russia meet to try and hammer out a peace agreementwhile eurozone finance ministers gather in hopes of hatching a new deal for Greece. (Bloomberg)Barack Obama warned Vladimir Putin last night that he must negotiate a diplomatic resolution to the conflict in Ukraine or risk the consequences. He had confirmed on Monday that he was considering supplying lethal weapons to Ukraine.(FT)
If you’re trying to keep track of what’s going on in Greece and wondering how it got to this stage, the Peterson Institute for International Economics explains the Greek tragedy in six charts. (PIIE video)
– Tesla Elon Musk presents fourth-quarter earnings and is reportedly preparing to fire overseas executives after weak sales of its electric cars in China. Tesla’s growth there has been tepid – it has exported around 3,500 cars to China,missing its goal for 5,000 or 30 per cent of its global target. (Reuters, NYT$)
– The former head of the International Monetary Fund said he rarely attended sex parties because he was “saving the world”. (FT) 😀

– Chinese hackers attack blue-chip groups via Forbes website – FT.com
– Greece’s ‘Bridge’ to Nowhere? – Real Time Brussels – WSJ
– Crude drop sours Nigeria’s credit rating – S&P
– Australian consumer confidence at highest in a year
– Aussie home lending continues apace in December
– European stocks reverse course on Greece hopes
– US stocks bounce on hopes for Greek deal
– Dovish BoC official sends Loonie lower
– Oil drop quickens on production gloom
– Greek optimism propels US stocks
– Markets underwhelm as Aussie miners fall (Business conditions remain weak and the likelihood of further rate cuts is growing, as inflation and growth fall and unemployment starts to rise.)
– Greek bank shares sink ahead of bailout showdown

– Small Businesses Are Still Confident—and Hiring

– News Coverage of Global Economy Turns Negative (My comment – Interesting Index)

– Job Openings at 14-Year High as Hiring Returns to Pre-Recession Levels

– As The Rupee Stands Tall, India Fears Losing the Devaluation Game