Within the Fed, Worries of Deflation - New York Times
The job machine grinds to a halt - Washington Post
Volatility Trade Buffett Embraced Backfires for Wall Street... - Bloomberg
The low-growth threshold - Free Exchange
The Volt Jolt: Electric cars like Chevy's new Volt are too expensive today... - Slate
Don’t hold your breath waiting for electric cars - Smart Planet
Top Hedge Funds That Dodged Crash, Rode Market Back Turn Gloomy - Bloomberg
BIS gold swaps mystery is unravelled - Financial Times
Cities threaten to cut 500,000 jobs - CNN Money
Anatomy of Lehman's Failure - Economics of Contempt
Russia economy: Privatisation with a twist - ViewsWire
The rising power of the Chinese worker - Economist
Whatever happened to the rebalancing act? - Telegraph
The New Abnormal - BusinessWeek
What I Told Obama’s Fiscal Commission About Social Security - IBD
The deficit terrorists have found a new hero. Not!- Billy Blog
De-stressing
- Overview: "The results of the bank stress tests may be insufficient to quell fears about the European banking system but markets breathed a sigh of relief and reacted strongly. If bank stocks and CDS levels continue to trade well, that should give more confidence to the sector than any stress test ever could."
- US Rates Strategy: "We examine the Fed’s options to provide further monetary stimulus should growth disappoint and the likely effect on the curve: lowering interest on reserves primarily affects the 2yr point but a commitment to keep rates unchanged for a specified period should have the largest curve effect."
- Euro Rates Strategy: "EMU spreads are tightening in a more benign risk environment. However, we advise being selective with non-core longs as some peripheral markets already look extended on fundamentals. Cross market box trades offer some interesting alternatives to outright spread exposures."
- Sterling Rates Strategy: "The long-end of the gilt curve looks too steep. We suggest looking to scale into 10s-30s gilt flatteners post this week’s supply pressures. Alternatively, the 10s-30s gilt-Bund box has reached even more attractive entry levels week."
- Global Inflation Strategy: "The 30yr IL gilt syndication met with strong demand. We see value in 30yr UK real yields versus 30yr TIPS. Euro break-evens have bounced strongly from their lows, but we remain neutral. BTPei41 offers value."
- APAC Rates Strategy: "We like buying 10yr JGBs on dips. Large depreciation of AUDJPY may trigger 30y receiving. We recommend hedging 10yr JGB longs with 10s30s flatteners in swaps."
- Global Flow Analysis: "Strong and increasing demand for European government bonds and duration. Any worries about higher yields seem to be absent in both Europe and the US."
- August European Supply Outlook: "The strong support for Europe from the excess of coupons and redemptions over issuance in July disappears in August when supply is very light. We expect downward pressure on Italian yields and upward pressure on German yields from changes in their respective NCRs."
- Relative Value: "We suggest switches on the German, French, and Dutch curves."
Citigroup International Interest Rate Strategist 20100729
- US Rates Strategy: "We examine the Fed’s options to provide further monetary stimulus should growth disappoint and the likely effect on the curve: lowering interest on reserves primarily affects the 2yr point but a commitment to keep rates unchanged for a specified period should have the largest curve effect."
- Euro Rates Strategy: "EMU spreads are tightening in a more benign risk environment. However, we advise being selective with non-core longs as some peripheral markets already look extended on fundamentals. Cross market box trades offer some interesting alternatives to outright spread exposures."
- Sterling Rates Strategy: "The long-end of the gilt curve looks too steep. We suggest looking to scale into 10s-30s gilt flatteners post this week’s supply pressures. Alternatively, the 10s-30s gilt-Bund box has reached even more attractive entry levels week."
- Global Inflation Strategy: "The 30yr IL gilt syndication met with strong demand. We see value in 30yr UK real yields versus 30yr TIPS. Euro break-evens have bounced strongly from their lows, but we remain neutral. BTPei41 offers value."
- APAC Rates Strategy: "We like buying 10yr JGBs on dips. Large depreciation of AUDJPY may trigger 30y receiving. We recommend hedging 10yr JGB longs with 10s30s flatteners in swaps."
- Global Flow Analysis: "Strong and increasing demand for European government bonds and duration. Any worries about higher yields seem to be absent in both Europe and the US."
- August European Supply Outlook: "The strong support for Europe from the excess of coupons and redemptions over issuance in July disappears in August when supply is very light. We expect downward pressure on Italian yields and upward pressure on German yields from changes in their respective NCRs."
- Relative Value: "We suggest switches on the German, French, and Dutch curves."
Citigroup International Interest Rate Strategist 20100729
Pan-European:Campeones - UK:Pension Problems Haven’t Gone Away
- Pan-European — Campeones
• Quality — We expect quality will continue to outperform over the medium-term due to growth and balance sheet advantages.
• World champions — We look for world leaders in Europe, where the domicile has impacted the rating. Antofagasta, Inditex, Nestle and Novo Nordisk feature.
- UK — Pension Problems Haven’t Gone Away
• Valuation & Accounting — We feature Sarah Deans’, our new Valuation and Accounting analyst, note on UK pensions in our UK note.
• Potential positives — Proposed changes to pension indexation may reduce liabilities significantly. Many companies have also reduced benefits.
Citigroup European Portfolio Strategist 20100729
• Quality — We expect quality will continue to outperform over the medium-term due to growth and balance sheet advantages.
• World champions — We look for world leaders in Europe, where the domicile has impacted the rating. Antofagasta, Inditex, Nestle and Novo Nordisk feature.
- UK — Pension Problems Haven’t Gone Away
• Valuation & Accounting — We feature Sarah Deans’, our new Valuation and Accounting analyst, note on UK pensions in our UK note.
• Potential positives — Proposed changes to pension indexation may reduce liabilities significantly. Many companies have also reduced benefits.
Citigroup European Portfolio Strategist 20100729
Diverging labor market trends
- US. "It is primarily the weak labor market that is causing Americans to worry and fueling the fear of a double-dip recession. 8½ million people lost their job during the "Great Recession". And a growing population means a further 2½ million entered the labor market (cf. chart below)."
- Vicious circle. "The economic recovery created only a few new jobs, and above all few permanent jobs. Government and temporary-help agencies are responsible for most of the new jobs. And the further weakening of the dynamic in the economy as a whole means that the current development will continue to lag behind earlier labor market cycles for some time to come. This is slowing growth, which in turn is hurting hiring plans."
- Increase. "On top of that, there is the structural change that is making it increasingly difficult for those seeking employment. Jobs in the producing sector are disappearing forever. Job openings will be almost exclusively in the services sector. The prospects for inflexible and poorly-educated applicants are virtually non existent. There is the threat of permanently
higher long-term and core unemployment (pages 2-5)."
- Germany. "The perception is, in contrast, quite different in Germany. Some are even talking about the job miracle. In July, unemployment fell for the 13th consecutive month to the level prior to the Lehman collapse. Even during the crisis, unemployment was with 3¼ mn much lower than had been feared (5 mn) since management and labor agreed on shorter
working hours and the government promoted short-time work massively.
- Forecast. In the short term, the prospects remain favorable. Nevertheless, too many hopes should not be pinned on the creation of new, permanent jobs. In fact, employees will work longer hours again. And companies are focusing more on temporary staff in any case (page 14)."
Unicredit Friday Notes 20100730
- Vicious circle. "The economic recovery created only a few new jobs, and above all few permanent jobs. Government and temporary-help agencies are responsible for most of the new jobs. And the further weakening of the dynamic in the economy as a whole means that the current development will continue to lag behind earlier labor market cycles for some time to come. This is slowing growth, which in turn is hurting hiring plans."
- Increase. "On top of that, there is the structural change that is making it increasingly difficult for those seeking employment. Jobs in the producing sector are disappearing forever. Job openings will be almost exclusively in the services sector. The prospects for inflexible and poorly-educated applicants are virtually non existent. There is the threat of permanently
higher long-term and core unemployment (pages 2-5)."
- Germany. "The perception is, in contrast, quite different in Germany. Some are even talking about the job miracle. In July, unemployment fell for the 13th consecutive month to the level prior to the Lehman collapse. Even during the crisis, unemployment was with 3¼ mn much lower than had been feared (5 mn) since management and labor agreed on shorter
working hours and the government promoted short-time work massively.
- Forecast. In the short term, the prospects remain favorable. Nevertheless, too many hopes should not be pinned on the creation of new, permanent jobs. In fact, employees will work longer hours again. And companies are focusing more on temporary staff in any case (page 14)."
Unicredit Friday Notes 20100730
Japan: Some upside risk to our 2Q real GDP growth forecast
- Some upside risk to our 2Q real GDP growth forecast
• 2Q real GDP growth could possibly reach mid-2% qoq annualized (our current estimate is +0.9%)
• The main factor that could push up real GDP growth is net exports, which grew more strongly than anticipated, as suggested by monthly trade data
• On the outlook for exports, we remain cautiously optimistic over the medium term, as we expect Asian economies will continue to grow
• Yet, we are not confident of a robust positive feedback effect on domestic demand, as the level of economic activity is unlikely to recover enough to promote business fixed investment
- Nominal trade suplus dropped in April-June for the first time in five quarters
• Nominal trade surplus dropped in April-June for the first time in five quarters on the decline in exports
• Prices in transportation, real estate services, etc. continued to fall on weak domestic demand and the cautious stance among corporations for increasing capex spending.
- Demand for loans remains weak
According to the Senior Loan Officer Opinion Survey on Bank Lending Practice in July, the DI for demand for loans among firms worsened 7pts from the previous survey to -17
CreditSuisse Japan Economics Weekly 20100729
• 2Q real GDP growth could possibly reach mid-2% qoq annualized (our current estimate is +0.9%)
• The main factor that could push up real GDP growth is net exports, which grew more strongly than anticipated, as suggested by monthly trade data
• On the outlook for exports, we remain cautiously optimistic over the medium term, as we expect Asian economies will continue to grow
• Yet, we are not confident of a robust positive feedback effect on domestic demand, as the level of economic activity is unlikely to recover enough to promote business fixed investment
- Nominal trade suplus dropped in April-June for the first time in five quarters
• Nominal trade surplus dropped in April-June for the first time in five quarters on the decline in exports
• Prices in transportation, real estate services, etc. continued to fall on weak domestic demand and the cautious stance among corporations for increasing capex spending.
- Demand for loans remains weak
According to the Senior Loan Officer Opinion Survey on Bank Lending Practice in July, the DI for demand for loans among firms worsened 7pts from the previous survey to -17
CreditSuisse Japan Economics Weekly 20100729
Return of double-dip fears
- Market movers: A busy week ahead "Several important economic releases are on the agenda for next week. On Monday we are due to get data on July‟s PMIs for the entire EMEA region. Overall, we expect the PMIs to drop slightly compared with last month‟s figures. On Tuesday we are scheduled to receive numbers on Turkish inflation in July. We expect the numbers to show that Turkish inflation has eased slightly. On Wednesday there is a rate decision in Romania. We expect the central bank to keep rates unchanged. This is also the case for the Czech rate decision on Thursday."
- Fixed income outlook: Keep an eye on Turkish inflation "On Wednesday next week we get data on Turkish inflation. This figure will reveal if the dovish stance from the Turkish central bank (TCMB) is justifiable or not. We expect inflation to have dropped to 8.3% y/y in July, down from 8.4% y/y in June. Hence, this reading should give TCMB – and maybe also the market – some confidence that inflation is no longer accelerating up."
- FX outlook: Will macro momentum continue to fall? "According to the signals from our EMEA FX Scorecard the macro sub-scores have trended down in recent weeks. This is an indication that the macro momentum in the EMEA region is losing steam and that the currencies therefore can no longer find much support in accelerating growth. Next week we are due to receive data on PMIs in the entire region, but also data on industrial production and retail sales in some countries. It will be quite interesting to follow these releases as they will give a clear indication as to whether macro momentum in the EMEA region will continue down."
- Scorecard-based trade of the week Buy CZK/ZAR "For a third week in a row trade Scorecard based trade of the week is CZK/ZAR and the Czech koruna is still the highest scoring currency in our EMEA FX Scorecard and the rand is the lowest scoring currency in the Scorecard. Over the past couple of weeks this cross has been remarkably stable, but the trend remains upward, with CZK continuing to outperform ZAR over the past week."
DenDanske EMEA Weekly 20100730
- Fixed income outlook: Keep an eye on Turkish inflation "On Wednesday next week we get data on Turkish inflation. This figure will reveal if the dovish stance from the Turkish central bank (TCMB) is justifiable or not. We expect inflation to have dropped to 8.3% y/y in July, down from 8.4% y/y in June. Hence, this reading should give TCMB – and maybe also the market – some confidence that inflation is no longer accelerating up."
- FX outlook: Will macro momentum continue to fall? "According to the signals from our EMEA FX Scorecard the macro sub-scores have trended down in recent weeks. This is an indication that the macro momentum in the EMEA region is losing steam and that the currencies therefore can no longer find much support in accelerating growth. Next week we are due to receive data on PMIs in the entire region, but also data on industrial production and retail sales in some countries. It will be quite interesting to follow these releases as they will give a clear indication as to whether macro momentum in the EMEA region will continue down."
- Scorecard-based trade of the week Buy CZK/ZAR "For a third week in a row trade Scorecard based trade of the week is CZK/ZAR and the Czech koruna is still the highest scoring currency in our EMEA FX Scorecard and the rand is the lowest scoring currency in the Scorecard. Over the past couple of weeks this cross has been remarkably stable, but the trend remains upward, with CZK continuing to outperform ZAR over the past week."
DenDanske EMEA Weekly 20100730
Weekly Credit Update
- "Credit spreads continue to move tighter"
- "Bank spreads have outperformed on the back of Basel 3 amendments"
DenDanske Weekly Credit Update 20100730
- "Bank spreads have outperformed on the back of Basel 3 amendments"
DenDanske Weekly Credit Update 20100730
What if the euro zone’s problem was risk aversion?
- "There have been many attempts to explain the low long-term growth (productivity gains) in the euro zone:
• specialisation in unsophisticated services, where productivity is low, and deindustrialisation;
• shortfall in the innovation, R&D and higher education drive;
• labour market rigidity, which prevents the necessary adjustments in employment;
• distortion of income sharing at the expense of wage earners."
- "However, another explanation can be imagined, i.e. excessive risk aversion, which would explain:
• the high level of government expenditure and social welfare, and hence the high tax burden, which discourages corporate investment;
• the small number of innovative companies that become large corporations;
• the preference for risk-free savings (reinforced by financial regulation);
• the high level of precautionary household savings;
• the problem in terms of reallocating employment into more productive sectors."
- "If this is the right explanation, the governments would have to try to help the Europeans overcome their risk aversion (by tax incentives, public equity investors, "flex security" in the labour market, etc.)."
Natixis Flash Economics 368 20100720
• specialisation in unsophisticated services, where productivity is low, and deindustrialisation;
• shortfall in the innovation, R&D and higher education drive;
• labour market rigidity, which prevents the necessary adjustments in employment;
• distortion of income sharing at the expense of wage earners."
- "However, another explanation can be imagined, i.e. excessive risk aversion, which would explain:
• the high level of government expenditure and social welfare, and hence the high tax burden, which discourages corporate investment;
• the small number of innovative companies that become large corporations;
• the preference for risk-free savings (reinforced by financial regulation);
• the high level of precautionary household savings;
• the problem in terms of reallocating employment into more productive sectors."
- "If this is the right explanation, the governments would have to try to help the Europeans overcome their risk aversion (by tax incentives, public equity investors, "flex security" in the labour market, etc.)."
Natixis Flash Economics 368 20100720
The only way to reduce fiscal deficits without killing growth is to offer prospects of an acceleration in long-term growth
- "All OECD countries will have to reduce their fiscal deficits significantly over the next few years. If nothing bolsters the economy, this will lead to a marked reduction in growth, with, moreover, the slowdown in activity being amplified by foreign trade between these countries."
- ""Ricardian neutrality" gives a very partial view of what may be a compensatory mechanism: if there is a reduction in government expenditure, private economic agents expect a reduction in taxes - and hence additional income - in the future, and they accordingly spend more in the short term. However, more generally speaking, what is needed when fiscal deficits are reduced is the expectation that growth will accelerate in the future: governments must show why and how growth will become more robust in the long term than today. This generates expectations about higher incomes in the future (i.e. beyond the short-term effects of fiscal policies)."
- "This has a number of important implications for the fiscal deficit reduction programmes:
• if a hike in certain taxes (welfare contributions, taxes on corporate earnings in countries where profitability is low) would reduce potential growth, these specific taxes should not be increased;
• likewise, government expenditure that is favourable for long-term growth should not be cut (on the contrary, in fact);
• an economic strategy leading to higher growth with quality jobs in the medium term must be established (for example, maintaining a large sophisticated industry in Germany; development of green industries in the United States, etc.). Focusing economic policies on obtaining short-term results (Spain, France, United Kingdom, etc.) may have disastrous results."
Natixis Flash Economics 367 20100716
- ""Ricardian neutrality" gives a very partial view of what may be a compensatory mechanism: if there is a reduction in government expenditure, private economic agents expect a reduction in taxes - and hence additional income - in the future, and they accordingly spend more in the short term. However, more generally speaking, what is needed when fiscal deficits are reduced is the expectation that growth will accelerate in the future: governments must show why and how growth will become more robust in the long term than today. This generates expectations about higher incomes in the future (i.e. beyond the short-term effects of fiscal policies)."
- "This has a number of important implications for the fiscal deficit reduction programmes:
• if a hike in certain taxes (welfare contributions, taxes on corporate earnings in countries where profitability is low) would reduce potential growth, these specific taxes should not be increased;
• likewise, government expenditure that is favourable for long-term growth should not be cut (on the contrary, in fact);
• an economic strategy leading to higher growth with quality jobs in the medium term must be established (for example, maintaining a large sophisticated industry in Germany; development of green industries in the United States, etc.). Focusing economic policies on obtaining short-term results (Spain, France, United Kingdom, etc.) may have disastrous results."
Natixis Flash Economics 367 20100716
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