Friday May 22Hamish Risk | May 21, 2015
Following the release of April’s FOMC minutes on Wednesday there has been a lot of coverage on what that means for Fed lift off, with the market consensus being that any tightening before September is very unlikely, which is good for carry trades and Emerging Markets. There’s also plenty of play on Greece, as the nation’s coffers run near empty and media reports report that government will be unable to make an upcoming payment to IMF on June 5th unless foreign lenders disburse more aid.
Grexit Bank of America
1. Letting go of the Greek reinsIt’s like a slow motion train wreck. For months Greece has been edging its way to what seems the inevitable Grexit. Most analysts see this as a binary situation. But there could be another way, says Bank of America’s Athanasios Vamvakidis. Leave them alone. If Europe prefers to avoid Grexit, Vamvakidis offers a theoretical scenario that’s worth considering given the high risks ahead for Grexit. It involves, to name just a few, repaying the Greek bonds held by the ECB, re-profiling loans to the Greek government, and leaving Greece alone to achieve its fiscal targets, with no more ESM or IMF. Who knows, it might work. Top marks for originality.
US rates Royal Bank of Canada
2. US Treasuries ‘big dipper” fadesA change in the price dynamics of the US Treasury market is a foot, says the Royal Bank of Canada, which could see the recent back up in yields continue. RBC provides some excellent analysis to validate this view based on cumulative daily changes in US 10-year yields across the three main time zones, and bond market reaction to economic data in the second-quarter, which looks markedly different to how markets reacted to data throughout 2014.
FX Rareview macro
3. ‘Risk on’ will return after weekendAs markets head into the long weekend (In the UK and the US), professionals will probably be doing some soul searching as to whether the short term trends have just resolved themselves inside longer-term trends. Indeed they may well return to their desks on Tuesday and realize they have very little exposure to risk after the recent clearing process, writes Neil Azous, from rareview macro. The cleanest trade to express across all markets at the moment to express this is being long USDJPY, says Azous. The call is based on a recent evidence of BOJ actions in the JGB market and some interesting technical analysis to points to the top side.
US economy Gavekal Dragonomics
4. Snatching recession from the jaws of recoveryFed liftoff took another hit this week after the April’s Fed minutes showed that policy makers had become nervous about the economic outlook in the US. Rate rises will most probably be delayed till later in the year. However, Charles Gave of Gavekal Dragonomics worries that the US may be in fact sliding into a more serious downturn. In his note ‘’Towards A US Recession’’ Gave provides his analysis based on the thesis of a growing ‘’financing gap’’ for US corporations, which has historically been a leading indicator for a recession.
China slow down Unicredit
5. Who loses most from China’s slowing?Yesterday’s China manufacturing PMIs for May paints a picture of persistent weakness in the world’s second-largest economy, says Unicredit. Just how China’s weaker growth outlook manifests itself in across the global economy is a key question. Unicredit provides some key analysis to this debate, by stress testing the global economy, across regions, for deceleration of Chinese growth. Contrasting the Eurozone with the global economy, and contrasting economies within the Eurozone makes for some interesting findings.