Rajoy walks the fiscal tightrope

Spain’s new government has announced spending cuts and tax increases worth an estimated EUR 27bn in an endeavour to reduce the gaping fiscal shortfall from 8.5% of GDP at the end of last year to 5.3% by December 31st. Most of the pain is being absorbed by departmental spending – all ministries are to reduce…

30 Mar @ 15:34

Is Europe doing enough?

The anticipated agreement on the expansion of the EU’s total available rescue funds should be welcomed, but all indications are that the deal likely to be announced today will be interpreted as a half-hearted approach that reflects compromise more than it does commitment. We’ve long stated that the move was necessary, and the narrowing of…

30 Mar @ 15:31

Yen gains may prove temporary

In the run-up to the end of the financial year, the Japanese currency has strengthened slightly. USD/JPY, which ten days ago was threatening the 84.0 level, fell below 82.0 for a time overnight. Part of the explanation for the turnaround lies with profit-repatriation flows by Japanese companies that frequently occur around this time of the…

30 Mar @ 15:29

The pressure on UK households

Behind the small downward revision to Q4 GDP in the UK (from -0.2% to -0.3%) is the picture of a household sector still under immense pressure from both modest income growth and rising inflation. Real disposable incomes fell 0.2%, having fallen in five of the past eight quarters. Real disposable incomes per head are now…

28 Mar @ 14:14

Yet more euro short-covering

The process of covering the mountain of record euro short positions which commenced in earnest during February has continued during the current month. That said, judging by the extent of short positions still being held by traders and hedge fund managers, we could yet see more of this type of activity in the weeks ahead…

28 Mar @ 10:26

Dark days ahead for the Dutch

Or: ‘Do as I say, not as I do’. Just six months ago, Dutch Prime Minister Rutte and Finance Minister de Jager were espousing the necessity for exclusion from the eurozone of those sovereigns who flouted Europe’s fiscal rules . In addition, both argued that those that systematically infringe should face tougher sanctions and the…

27 Mar @ 10:55

Bernanke will stay cautious on recovery

Although two regional Fed presidents have recently warned of the risks of maintaining an ultra-easy monetary policy for too long, it is extremely unlikely that Fed policy officials will alter their commitment to unchanged rates (for the next two years) any time soon. At their last meeting on March 13th, policy-makers at the Fed slightly…

26 Mar @ 13:28

Tough times in India

Evident over the course of the first quarter of 2012 is growing concern that China’s soft landing might be rather more turbulent than expected. Unsurprisingly, commodity-related investments have started to under-perform, with resource stocks losing favour and high-beta currencies like the Aussie under-performing. Attracting rather less attention is the deteriorating financial predicament in the world’s…

26 Mar @ 13:25

Contrasting Germany

After the decline in Q4 GDP at the end of last year, there is a strong focus on whether this was a one-off wobble or the start of a more sustained slowdown of the German economy. Last week’s provisional PMI data suggested the latter, but this morning’s Ifo data have thrown more uncertainty into the…

26 Mar @ 13:22

Europe’s growing growth dilemma

The relative calm that has emerged in the eurozone fiscal situation has been shattered by the latest provisional PMI data for March, released this morning. The data for both Germany and France were notably weaker, the former down from 50.2 to 48.1 and the latter from 50.0 to 47.6. This also follows a weaker reading…

22 Mar @ 14:25

Ireland slippage

Ireland has officially moved back into recession, GDP contracting 0.2% in Q4 of last year, with Q3 revised up from -1.9% to -1.1%, so despite this technicality, today’s release is not all bad news. Nevertheless, there has been a definite shift this week towards focusing on the economic risks that currently prevail in the eurozone….

22 Mar @ 14:22

Fiscal compact resistance

Increasingly apparent over recent weeks is that some national parliaments at balking at ratifying Europe’s fiscal compact. In France, Socialist opposition leader Hollande has already promised that he will seek to renegotiate the pact should he be elected in the upcoming Presidential election; he currently leads Nicolas Sarkozy in the polls by a comfortable margin…

16 Mar @ 21:58

Brazil’s fragility

One of the real stand-outs so far this month has been Brazil, for a number of reasons that we’ve talked about before. The real is down nearly 5% (vs. the USD) in March, but there have been signs of stabilisation in the latter half of this week. Comments overnight (Bloomberg), citing unnamed government officials, suggested…

16 Mar @ 21:48

Keep a weather eye on Spain

Although the political and financial temperature in Europe has definitely eased over recent months, a myriad of potential issues and concerns remain. Right near the top of the pile is Spain, where the economy is once again back in recession, the unemployment rate is a staggering 23%, house prices are collapsing and the government is…

16 Mar @ 21:46

Rate race

One of the reasons why we are seeing such notable shifts in FX is the changing interest rate picture that has emerged this month. Just this week, US 2Y yields have risen from 0.30% to 0.40%, which in a near zero-rate world is a fairly significant move. We’ve seen a similar move in UK rates,…

15 Mar @ 16:01

Another bubble bursting

It has been coming for quite some time but now it appears to be unfolding in earnest – the long-anticipated bursting of the Aussie housing bubble. Major cities such as Brisbane and Perth have experienced sharp declines in residential property prices over recent quarters, whereas prices in both Sydney and Melbourne have been more resilient….

15 Mar @ 15:58

FX effects

We’ve seen a stark shift in FX markets so far this month, a telling indication of both valuations and risk appetite. That Greece has avoided default, the ECB has thrown more 3Y money into the pot and the US has continued to put in solid performances has had a notable effect on markets. Yesterday the…

14 Mar @ 19:14

The Big Switch from bonds to stocks

As investors and traders gradually cast off their collective fear about Europe imploding, Greece defaulting and China decelerating, a very significant asset allocation-shift is being unleashed. The avoidance of risk in the second half of last year and the excessive rush into the safety of cash and hard currency sovereign bonds is progressively being unwound….

14 Mar @ 19:12

Solid sterling

Whilst the traditional risk currencies are getting a beating this month, it’s notable that sterling has been holding up well. We noted some of the better data being recorded on the domestic economy yesterday (‘Green shoots in the UK’), but this does not help explain the resilience being seen today given that the labour market…

14 Mar @ 19:07

Yen weakness not down to BoJ

Once again, the yen is weakening following a BoJ meeting although this time the central bank made discernibly little change to policy. The asset-purchase facility, which was expanded at the last meeting, was kept steady with the BoJ choosing to expand what it calls is “Growth-Supporting Funding Facility” by JPY 2trln. The BoJ Governor presented…

13 Mar @ 12:41