China’s growing pains

Notwithstanding the general mood of optimism apparent in risk assets these days, there is a growing school of considered opinion which believes that China is heading directly for a hard landing. Complicating the compilation of evidence to support this view is the fact that the Lunar New Year holidays were earlier than usual this year,…

15 Mar @ 15:51

The vulnerability of gold

Gold bulls are starting to shiver and shake, with the price down another 2% today to USD 1,643 an ounce. At the end of last month, it was close to USD 1,800; six months ago, it was touching USD 1,900. So, what is going wrong? Is this the end of the bull cycle, or simply…

14 Mar @ 19:03

Total wipeout

The deal is done, credit default swaps are likely to be activated and in one fell swoop Greece’s debt mountain has been cut by EUR 100bln. But what’s the outlook for Greece now and does this mean the worst is over in terms of the debt situation? The good news is that, in activating the…

12 Mar @ 18:54

RBA refuses to countenance Aussie FX intervention

Excessive currency strength has become a tremendous policy vexation for some central banks over the past couple of years. In Japan, the BoJ’s FX-intervention war-chest is now monumental, such is the concern in Tokyo regarding the negative impact which an overvalued yen poses to the economy. Recently, the BoJ significantly expanded its asset-purchases program and…

07 Mar @ 18:36

China’s subtle shift

On the face of it, China’s revision of its growth target was an expected and relatively small change, but this is China we are talking about, so any shift in stance cannot be ignored. The move to target growth of 7.5%, rather than 8.0%, really reflects the official sanctioning of what has been desired for…

06 Mar @ 13:13

The ECB’s LTRO dilemma

The ECB’s auction of 3Y funds back in December has been credited with any number of things, from staving off a full-scale credit crunch in the eurozone to helping the rally in peripheral bond markets and also supporting the best start to the year for world stock markets for 15 years. Next week the ECB…

24 Feb @ 15:13

Political instability down under could rock the Aussie

Last night’s resignation by Foreign Minister (and ex-Prime Minister) Kevin Rudd has further inflamed political tensions within his Labour Party over who should lead it into the next election. After weeks of intense speculation surrounding her leadership, current Prime Minister Julia Gillard expressed her disappointment at Rudd’s decision, which the latter claimed had resulted from…

22 Feb @ 16:24

Asia’s increased resilience

Spending a few days in Asia is focusing my mind on the extent to which this region can detach itself from what is going on in Europe. It has successfully de-coupled from problems elsewhere (in 2007-08), but does the water that has passed under the bridge since then make Asia more resilient or more vulnerable…

16 Feb @ 18:49

Moody’s blues

Rather belatedly, Moody’s has finally recognised that the AAA debt ratings of both France and the United Kingdom cannot reasonably be defended. Austria has also (justifiably) been handed a warning notice, while six other EU countries including Italy, Spain and Portugal have all had their rating downgraded by at least one notch. Sifting through the…

16 Feb @ 18:47

The problem with Portugal

In extremely difficult circumstances, the government of Prime Minister Pedro Passos Coelho deserves fulsome praise for the gusto it has displayed in attempting to rectify the gaping hole in Portugal’s national balance sheet. With an electoral mandate based on austerity, he has implemented measures that are expected to reduce the budget deficit to around 4.5%…

07 Feb @ 18:31

The dollar’s new allure

With Greece once again on the brink and the rest of southern Europe still in a critical condition, it is little wonder that traders have started turning away from the euro once more. For the most part the dollar has been the major beneficiary of this fresh uncertainty, especially over recent days. Friday’s very encouraging…

07 Feb @ 18:30

Iberian intent

In sharp contrast to Greece, it is difficult to be too critical of the intentions of politicians on the Iberian Peninsula. Portuguese Prime Minister Pedro Passos Coelho has implemented significant austerity measures designed to lower the budget deficit to 4% of GDP this year, against the headwind of another deep recession, and debt-to-GDP is expected…

03 Feb @ 12:41

More UK QE despite stronger data

The UK data this week has largely served to muddy the water surrounding next week’s MPC meeting, where the Bank of England will be debating the merits of further quantitative easing. In the wake of the Q4 GDP numbers (which fell 0.2% QoQ), the immediate fear was a return to recession, given that the last…

03 Feb @ 12:39

Lofty levels for the aussie

For the Aussie bulls, the past few weeks have delivered some terrific returns. Just this morning the AUD managed (by only a few pips) to briefly breach the high set late in October, although it failed (again by only a few pips) to break the early-September high. As is so often the case when risk…

02 Feb @ 19:14

The ECB will have to yield on Greece

The widening dichotomy between what is being asked of private sector bond-holders in Greece and the stance of the ECB looks ever more untenable and, if some reports are to be believed, this is one of the sticking points that is preventing a resolution of the talks. It all comes down to the fact that…

02 Feb @ 19:13

A merciless euro short-squeeze

It has been a very impressive display by the beleaguered single currency this morning. After looking decidedly vulnerable at close to 1.30 early in the London session, it subsequently bounced to above 1.32 at one point. Bolstering the recovery were higher than expected January PMIs throughout Europe, optimism that a Greek debt deal might now…

01 Feb @ 17:43

Portugal peers over the precipice

Greece dominated discussion at yesterday’s EU Summit but not far behind was Portugal which is also staring into the void. The yield on Portuguese 10yr bonds soared to 17.4% on Monday, up 400bp this year alone, with the two-year yield reaching 21.5%! Compounding Portugal’s difficulties over recent weeks was S&P’s recent decision to downgrade the…

31 Jan @ 12:58

Sliding house prices a big worry down under

Ahead of next Tuesday’s RBA meeting, the slide in house prices witnessed over recent months is a further consideration for policy authorities. In both November and December, the RBA decided to lower the target cash rate by 25bp, now 4.25%. Another rate cut is widely expected. For the doves on the policy-making board, the fall…

31 Jan @ 12:55

Greek impasse overshadows EU summit

In contrast to many of the 16 EU Summits held over the past two years since the Greek debt crisis first erupted, yesterday’s was a particularly productive one. Firstly, twenty-five of the EU’s 27 member countries signed up to Angela Merkel’s fiscal compact, designed to implement tougher budgetary discipline in Europe. All signatories to the…

31 Jan @ 12:54

CDU scuppers EFSF-ESM merger plan

Angela Merkel’s hope that the firewall for Europe could be buttressed by allowing unused funds from the EFSF to be placed into the ESM have been blocked by her own party. According to a Bild am Sonntag story yesterday, her party has opposed the measure because Germany would have been liable for an additional EUR…

30 Jan @ 11:52