Institutions exit the muni market - Felix Salmon
The Crisis & the Euro - New York Review of Books
Consumer Credit in U.S. Declined More Than Forecast - BusinessWeek
Is now the time to experiment with negative interest rates? - FT Economist's Forum
Underfunded Pensions are Red Flag for Investors: Greenberg - CNBC Strategy Session
Biggest Defaulters on Mortgages Are the Rich - New York Times
Unemployment Extension Standoff, Day 37: Mugged By Deficit Hawks - Huffington Post
Trading Range - For Now
- Long-Term Bullish — "After a 7.2% fall in H1, we expect emerging markets to bounce in the second half of the year. Our forecast is for 20-25% returns for GEMs to the end of 2010, with the best returns being concentrated in Q4."
- Q3 Trading Range — "Several factors, including seasonal trends, suggest that the current trading range will stay in place for some weeks still, with a breakout to a new high for the cycle (12% above current levels) only likely around end-Q3."
- Regions — "We lift EMEA to Neutral, based on better earnings momentum and even lower valuations, and cut Latin America to Underweight, on weaker earnings momentum, low ROEs and rising interest rates. Asia remains an Overweight."
- Countries — "Our top market picks are Russia, Turkey, Korea, Taiwan and Thailand (the latter is upgraded from Neutral). We cut Brazil to Neutral and India to Underweight. We raise South Africa, Poland, Egypt and Malaysia to Neutral. China and Mexico remain Neutrals."
- Sectors — "Our sector views have a slight beta bias, with Overweights in Materials, IT and Industrials. We are Underweight in some classic defensive sectors – Healthcare, Consumer and Telecoms – all of which outperformed in Q2. We are Neutral in Financials and Energy."
- No ‘Double-Dip’ — "Fears of a ‘double-dip’ are overdone, in our view. We expect recovery to continue, albeit unevenly. Emerging markets (at 6.8% forecast GDP growth in 2010) should remain the strongest part of the global recovery story. China may slow to 8% growth by Q4, but this is far from a ‘hard landing.’"
- Downgrade Risk — "However, markets must navigate the peaking-out of GDP and earnings growth forecasts. Despite forecast EPS growth of as high as 37% in emerging markets in 2010, 12-month forward forecasts are now rolling over and our upgrades/downgrades ratio is eroding."
- Liquidity and Valuation Support — "Through this process, equity markets should be supported by ‘lower interest rates for longer’ in many parts of the world and by attractive valuations. GEMs now trade at 10.8x forward earnings (a 9% discount to their long-term average) and cheap to emerging market bonds. Attractive valuations provide leeway for equity markets in the event of earnings downgrades."
Citigroup Global Emerging Markets Strategist 20100708
- Q3 Trading Range — "Several factors, including seasonal trends, suggest that the current trading range will stay in place for some weeks still, with a breakout to a new high for the cycle (12% above current levels) only likely around end-Q3."
- Regions — "We lift EMEA to Neutral, based on better earnings momentum and even lower valuations, and cut Latin America to Underweight, on weaker earnings momentum, low ROEs and rising interest rates. Asia remains an Overweight."
- Countries — "Our top market picks are Russia, Turkey, Korea, Taiwan and Thailand (the latter is upgraded from Neutral). We cut Brazil to Neutral and India to Underweight. We raise South Africa, Poland, Egypt and Malaysia to Neutral. China and Mexico remain Neutrals."
- Sectors — "Our sector views have a slight beta bias, with Overweights in Materials, IT and Industrials. We are Underweight in some classic defensive sectors – Healthcare, Consumer and Telecoms – all of which outperformed in Q2. We are Neutral in Financials and Energy."
- No ‘Double-Dip’ — "Fears of a ‘double-dip’ are overdone, in our view. We expect recovery to continue, albeit unevenly. Emerging markets (at 6.8% forecast GDP growth in 2010) should remain the strongest part of the global recovery story. China may slow to 8% growth by Q4, but this is far from a ‘hard landing.’"
- Downgrade Risk — "However, markets must navigate the peaking-out of GDP and earnings growth forecasts. Despite forecast EPS growth of as high as 37% in emerging markets in 2010, 12-month forward forecasts are now rolling over and our upgrades/downgrades ratio is eroding."
- Liquidity and Valuation Support — "Through this process, equity markets should be supported by ‘lower interest rates for longer’ in many parts of the world and by attractive valuations. GEMs now trade at 10.8x forward earnings (a 9% discount to their long-term average) and cheap to emerging market bonds. Attractive valuations provide leeway for equity markets in the event of earnings downgrades."
Citigroup Global Emerging Markets Strategist 20100708
EMU Haircuts – Just a Trim Please!
- Overview: "While the recent rally has left longer-dated US rates looking rich on our fair value measure, the same is not true for Europe. This lends support to our short US versus Europe view and also suggests that EUR curvature may be too low."
- Euro Rates Strategy: "While the sovereign haircut component of EU bank stress tests remains unclear, there is potential for this to promote further near-term volatility in EMU and Bund ASW spreads. Taking a medium-term perspective, we find current spread levels unattractive for maintaining long Bund ASW positions. Our base case scenario sees 10yr Bund spreads potentially returning to single digits during the second half of this year."
- Sterling Rates Strategy: "We examine the threat to gilts from inflation, explain our preference to position for fiscal progress via swap spreads rather than cross market or outright risk, and argue the case for selling 5yr swap spreads instead of 10years."
- Global Inflation Strategy: "Rising deflation fears and higher issuance are likely to weigh on TIPS break-evens in the coming months. In the euro market, we look at dislocations between 10s30s inflation curves."
- Volatility: "3m2y GBP straddles still look rich, both outright and vs 3m5y. Selling short-dated EUR volatility looks attractive, either versus 3m2y in USD or versus both 1m5y and 1m10y volatility in EUR."
Citigroup International Interest Rate Strategist 20100708
- Euro Rates Strategy: "While the sovereign haircut component of EU bank stress tests remains unclear, there is potential for this to promote further near-term volatility in EMU and Bund ASW spreads. Taking a medium-term perspective, we find current spread levels unattractive for maintaining long Bund ASW positions. Our base case scenario sees 10yr Bund spreads potentially returning to single digits during the second half of this year."
- Sterling Rates Strategy: "We examine the threat to gilts from inflation, explain our preference to position for fiscal progress via swap spreads rather than cross market or outright risk, and argue the case for selling 5yr swap spreads instead of 10years."
- Global Inflation Strategy: "Rising deflation fears and higher issuance are likely to weigh on TIPS break-evens in the coming months. In the euro market, we look at dislocations between 10s30s inflation curves."
- Volatility: "3m2y GBP straddles still look rich, both outright and vs 3m5y. Selling short-dated EUR volatility looks attractive, either versus 3m2y in USD or versus both 1m5y and 1m10y volatility in EUR."
Citigroup International Interest Rate Strategist 20100708
Weekly Focus: Global growth slowing down
- "The US data release calendar is quite full. Most notable of the US figures will be the retail sales report for June."
- "In the euro area, the German ZEW expectations index will get the most attention. The bank stress tests to be published on 23 July will also attract a lot of attention.
- In the UK, the minutes from the 8 July Monetary Policy meeting at the Bank of England will be released on 21 July."
- "In Asia, the main focus next week will be China, where GDP for Q2 is due to be released."
- "In Japan, focus will be on the Upper House election on 11 July."
- "In Sweden, we are particularly looking forward to delving into the apparent tensions within the Riksbank board."
- "This week the IMF adjusted its forecast for global growth upwards for 2010, but at the same time emphasised that downside risks have increased."
- "Data from the US was mixed, but nevertheless helped to reduce concerns about a sharp decline in US growth."
- "In Europe, ECB president Trichet did not seem concerned about the latest increases in money market rates."
- "Global growth to slow – but by how much?"
- "Prospects of a double-dip scenario?"
DenDanske Weekly Focus 20100709
- "In the euro area, the German ZEW expectations index will get the most attention. The bank stress tests to be published on 23 July will also attract a lot of attention.
- In the UK, the minutes from the 8 July Monetary Policy meeting at the Bank of England will be released on 21 July."
- "In Asia, the main focus next week will be China, where GDP for Q2 is due to be released."
- "In Japan, focus will be on the Upper House election on 11 July."
- "In Sweden, we are particularly looking forward to delving into the apparent tensions within the Riksbank board."
- "This week the IMF adjusted its forecast for global growth upwards for 2010, but at the same time emphasised that downside risks have increased."
- "Data from the US was mixed, but nevertheless helped to reduce concerns about a sharp decline in US growth."
- "In Europe, ECB president Trichet did not seem concerned about the latest increases in money market rates."
- "Global growth to slow – but by how much?"
- "Prospects of a double-dip scenario?"
DenDanske Weekly Focus 20100709
EMEA Weekly: Will the summer calm hold?
- Market movers ahead: Inflation across the CEE and Turkish rate decision "Even though Turkish inflation continues to be well-above the Turkish central bank’s (TCMB) official inflation target of 6.5% and the recovery in the Turkish economy appears to be quite robust, the TCMB continues to keep its relatively dovish stance. Hence, the Turkish central bank will keep its wait-and-see stance in monetary policy keeping rates unchanged next week with the key policy rate at 6.5% at its next week’s MPC meeting. Inflation for June is due for release across the CEE region. See page 7, where we take closer look at the inflation outlook in the EMEA region."
- FX Outlook: Will the summer calm hold... likely not "The total score in the Scorecard – adding up the individual score for all of the currencies in the Scorecard – has during this week been the most negative since February 2009 – and it is of course well-known that that indication correctly forecast a major sell-off in the EMEA currencies in Q1 09. Hence, the fact that the overall score is now so negative is a clear signal to us that that investors should take off risk in the EMEA FX markets and we would be looking for some kind of overall correction to hit the EMEA FX markets sooner rather than later. The South African rand remains the lowest scoring currency in the EMEA FX Scorecard. It is notable that the rand not only scores poorly overall, but that all the sub scores look quite weak. Therefore we continue to recommend investors to be short in this currency."
- Scorecard-based trade of the week Buy RON/ZAR "Last week we recommend buying CZK/ZAR based on our EMEA FX Scorecard. That trade is up marginally over the week. This week the rand is still the lowest scoring currency in the EMEA FX Scorecard, while the Romanian leu is now the highest scoring currency in the Scorecard. We therefore recommend buying RON/ZAR going into next week."
DenDanske EMEA Weekly 20100709
- FX Outlook: Will the summer calm hold... likely not "The total score in the Scorecard – adding up the individual score for all of the currencies in the Scorecard – has during this week been the most negative since February 2009 – and it is of course well-known that that indication correctly forecast a major sell-off in the EMEA currencies in Q1 09. Hence, the fact that the overall score is now so negative is a clear signal to us that that investors should take off risk in the EMEA FX markets and we would be looking for some kind of overall correction to hit the EMEA FX markets sooner rather than later. The South African rand remains the lowest scoring currency in the EMEA FX Scorecard. It is notable that the rand not only scores poorly overall, but that all the sub scores look quite weak. Therefore we continue to recommend investors to be short in this currency."
- Scorecard-based trade of the week Buy RON/ZAR "Last week we recommend buying CZK/ZAR based on our EMEA FX Scorecard. That trade is up marginally over the week. This week the rand is still the lowest scoring currency in the EMEA FX Scorecard, while the Romanian leu is now the highest scoring currency in the Scorecard. We therefore recommend buying RON/ZAR going into next week."
DenDanske EMEA Weekly 20100709
Weekly Credit Update
- "Credit indices have traded tighter during the week"
- "Strong activity in the primary market despite the holiday season"
DenDanske Weekly Credit Update 20100709
- "Strong activity in the primary market despite the holiday season"
DenDanske Weekly Credit Update 20100709
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