Across the Curve

Dallas Fed Manufacturing Index: Slumping

Via Chris Low at FTN Financial:

Posted in Uncategorized | Comments Off on Dallas Fed Manufacturing Index: Slumping

FX

Via Marc Chandler at Brown Brothers Harriman:

Drivers for the Week Ahead

– The continued surprises by policymakers remain the main feature of financial markets, as well as the how this contrasts to the Federal Reserve’s posture
– There are no fewer than eight central bank meeting in the emerging markets in the week ahead, and there is scope for more surprises
– With the ECB new bond buying program not being implemented until March, investors’ attention will return to politics and economic data

Price action:  The dollar is mixed against the majors on the day.  The euro had a volatile session in the wake of the Greek elections, falling to a low of $1.1098 against the dollar only to climb back to around $1.1240 currently.  The German IFO for January was mixed, with the expectations component lower than expected, but the current assessment higher.  The pound is edging higher, back above the $1.50 level after some hawkish comments by BOE members.  The dollar is trading around ¥118.20 against the yen.  EM currencies are mostly weaker, with the ruble underperforming on talk of further sanctions against Russia amid escalating fighting in Ukraine.  Elsewhere, ZAR, TRY, and MYR are underperforming, while KRW and PHP are outperforming.  Also of note, the yuan was down nearly 0.5% overnight, with USD/CNY now trading close to the May 2015 high of CNY 6.2598.  The move is partially being attributed to strong capital outflows.  The MSCI Asia Pacific index was down 0.25%, with the Nikkei showing a drop of similar magnitude.  Euro Stoxx 600 is slightly higher, with the DAX up 0.5% and the Athens ASE down 1.6%.  S&P futures are pointing to a lower open.

• Reasonable people can debate some of the details, but there was little doubt that last week’s big event, the ECB’s asset purchases, was widely anticipated.  Nevertheless, what is striking is the repeated surprises by officials everywhere over the past several months.
• Perhaps it began at the end of last October with the Bank of Japan’s 5-4 vote to double down on what was already an unprecedented pace of expanding its balance sheet.  Then in November it was OPEC’s decision not to reduce production to make room for increased US production and other non-OPEC producers.  Also in November, the People’s Bank of China unexpected cut its 1-year deposit rate, spurring an advance of nearly 40% in the Shanghai Composite in the following six weeks.  The Bank of Canada had its own surprise for investors last week when it unexpectedly cut its overnight cash rate to 75 bp from 1.0%.  It was the first change in rates since the mini-tightening cycle in 2010.  A few hours before the Swiss National Bank’s stunning decision to lift its cap on the franc, the Bank of India announced a rate cut in between policy meetings, catching the market off-guard.  There have been other surprises by emerging market central banks in recent weeks, and all in the direction of easing policy.  
• There are no fewer than eight central bank meeting in the emerging markets in the week ahead. They are Thailand, Israel, Russia, Hungary, South Africa, Mexico, Colombia, and Malaysia.  While the risk is the greatest that Thailand cuts rates, there is scope for surprise rate cuts from the others.  We suspect it is a question of time before Russia, South Africa, Malaysia, and Colombia cut rates.  
• These stand in stark contrast to the Federal Reserve.  The Fed gave investors months to prepare for tapering of its asset purchases, and even waited a bit longer than many had expected.  It then proceeded to taper.  It did not let an unexpected contraction in Q1 14 GDP distract it.  It did not let an acceleration of the pace of job growth distract it.  Nor were some bouts of market volatility sufficient. It said what it was going to do, and then it did it. This is one form of credibility.  
• The Federal Reserve concludes its two-day meeting on January 28.  The statement is unlikely to change substantively since the last one in mid-December.  Whatever negative impact is thought to be spurred by the dollar’s appreciation (restrictive), it is more than offset by the decline in oil prices and interest rates.  The FOMC’s forward guidance is evolving.  It has shifted from a “considerable period” to being “patient” before raising rates.  There is no need to change that now.  However, the March meeting is a horse of a different color.  If the forward guidance is not shifted in March, the views (which we share) about a lift-off taking place around mid-year will have to be reconsidered.  
• There have been two data points that seemed to work against the optimistic view of a Fed hike taking place in several months.  Average hourly earnings fell, and retail sales (even when autos, gasoline, and building materials are excluded) were disappointing. Investors may have made too much of these reports, and the data at the end of the week could help to correct the impression.  We note that within the first official look at Q4 GDP (which is expected to be the third consecutive quarter of above 3% annualized growth), there will be an estimate for consumption, of which retail sales account for about 40%.  Consumption is expected to have posted its strongest quarterly growth in four years, rising by 4% after a 3.2% annualized increased in Q3.  
• Separately, the Q4 Employment Cost Index (ECI) will be reported.  As the name implies, this index is a broader of the costs incurred to secure a labor force.  It includes direct costs, like wages, but also indirect costs, like benefits and taxes.  Employment costs rose by about 0.44% at a quarterly average rate in the 2009-2013 period.  The pace has increased.  In Q2 and Q3, employment costs rose 0.7%.  The ECI is expected to have risen by 0.6% in Q4.   When the ECI runs higher than CPI, it implies profit margins are declining.  
• With the ECB new bond buying program not being implemented until March, investors’ attention will return to politics and economic data.  Three notable data points will be provided: Spain’s Q4 GDP, flash eurozone January CPI, and money supply figures.  Many observers highlight the improvement in Spain, and Q4 GDP is likely to match Q3’s 0.5% pace.  However, it has been insufficient to slow the meteoric rise of Pademos, which is kindred spirits of Greece’s Syriza.  
• Syriza won the elections in Greece, falling short of a majority by just 2 votes (with 149).  Syriza won 36.3% vs. 27.8% for the centre-right ruling party New Democracy.  Syriza quickly formed a government with the Independent Greeks.  “The verdict of the Greek people ends, beyond any doubt, the vicious circle of austerity in our country,” said the Syriza leader and new Prime Minister Tsipras.  Of course, other European leaders have already started to position themselves for a tough period negotiation ahead.  The reaction was, on net, mostly muted.  After a strong early sell-off of Greek stock (especially the banking sector), the Athens index is now down around 1.6%.
• Meanwhile, Italy’s political drama continues to unfold.  A new president must be picked.  Beginning Thursday, and limited to two rounds a day, a new president will be picked.  The first three rounds require a 2/3 majority.  Starting with the fourth round, a simple majority is sufficient.  The first three rounds are about posturing.  The real drama lies in the backroom deals between allies and rivals.
• The January flash CPI report will give a taste of the challenge of the ECB’s efforts to put prices back on track to reach its target of near, but below 2% on the headline rate.  By simply deciding that its target is really the core rate, some pressure would be alleviated.  Egos and inertia, more than economic rationality, lies behind the reluctance.  Deflation is likely to have intensified.  January CPI is expected to have fallen to -0.5% from -0.2% in December.  The core rate is expected to be unchanged at 0.7%; low but not deflation.  The ECB model projects its asset purchases will push CPI up by 0.4% this year and 0.3% next.  
• Meanwhile, the financial conditions in the euro are improving before the new asset purchase program was announced.  The recent bank lending survey showed an increase in demand from businesses and households.  The M3 growth is expected to have accelerated to a 3.5% year-over-year pace in December.  It has risen steadily since bottoming in April 2014 below 1%.  Credit extension also likely improved.  On the margins, this may encourage participation in the TLTRO.  
• The UK reports its first estimate of Q4 GDP.  It is expected to have slowed from 0.7% to 0.6%.  The average quarterly growth over the last seven quarters has been 0.6%.  Although the two dissenting hawks on the MPC capitulated, Governor Carney has indicated that the central bank will look past the one-effect of the decline in oil prices on inflation.  Sterling’s weakness against the US dollar, where it fell below $1.50 last week for the first time since July 2013, is being offset on a trade-weighted basis by sterling’s rise against the euro, where it is at seven-year highs.  
• Japan reports a slew of data this week.  Even though, the yen seems more sensitive to the equity markets than the data, there are three points to consider.  First, despite the unprecedented pace of the expansion of the BOJ’s balance sheet, price pressures continue to ease.  When the sales tax increase drops out of the base, it will be even more evident that there is a poor correlation between a central bank’s balance sheet and consumer prices.  Second, despite a tight labor market (3.5% unemployment rate and 1.12 job-to-applicant ratio), wage growth is poor, and household consumption is weak.  Overall household consumption likely finished last year 2.3% lower than December 2013.  Third, the combination of a weaker yen, the drop in oil prices, and US economic growth above trend should improve Japan’s trade balance.  The December deficit is expected to narrow to JPY735 bln from JPY893 bln in November.  The seasonally adjusted figures show similar improvement.  Merchandise exports are expected to have risen by 11.2% year-over-year, which would be the strongest in 2014.  Foreign demand may also have help spur the expected 1.2% increase in December industrial output.  
• Last week’s MOF data showed Japanese investors bought a record amount of foreign shares.  There was a spike up in JGB bond yields.  The combination of the two may reflect the ongoing diversification of Japanese pension funds and the reform of GPIF.  For their part, foreign investors have sold Japanese bonds for four consecutive weeks, a streak not seen in a year.  Foreign investors have also pared their holdings of Japanese shares for the fourth week in the past five.  
• Monetary policy in Australia and New Zealand is set to change.  The Reserve Bank of New Zealand meets.  It will likely to signal that its mini-tightening cycle has ended.  It is too early to anticipate a rate cut now, but we suspect that is the direction of the next move.  Australia reports Q4 CPI figures.  The year-over-year pace is expected to fall to 1.8% from 2.3%.  This would be the lowest since the middle of 2012.  Some observers have played up the correlation between New Zealand’s CPI, which was reported on January 20 at -0.2% on the quarter and 0.8% year-over-year.  Our correlation work on level and change over the past five years points to a 0.4-0.5 correlation.  In any event, a soft inflation report in Australia will likely encourage speculation of an RBA rate cut as early as next month.  
• Lastly, we note that the message coming from the earnings reports of the world’s three largest international energy service companies (Schlumberger, Halliburton, and Baker-Hughes) was nearly identical.  Contracts are falling faster in North America than in other regions.  Schlumberger reported a 25-30% decline in North American customer spending compared with 10-15% in the rest of the world.  Halliburton reported a 25-30% decline in the US.  Baker-Hughes data show a 15% drop in US oil rigs since October 2014.  It says Saudi Arabia has shut down a single rig over the same period.  As the earnings reporting season continues, Royal Dutch Shell and ConocoPhillips will report earnings.  Investors will be keen to for more information on capital expenditure plans and hedging strategies.    

Posted in Uncategorized | Comments Off on FX

Corporate Bond Trading Friday

Via Bloomberg:

IG CREDIT: Highest Volume Friday in at Least 2 Years; 2 to Price
2015-01-26 10:37:09.415 GMT

By Robert Elson
(Bloomberg) — Trace count for secondary trading closed at
$16.6b on Friday vs $18.2b on Thursday, $12.2b last Friday;
$16.6b is higher than 97% of days since Jan. 2005
* 10-DMA $15.8b
* 144a trading added $2.3b of IG volume vs $2.8b Thursday,
$1.7b the previous Friday
* Most active issues longer than 3 years
* MXCN 4.25% 2024 was the day’s most active issue with
client buying 6x selling, together accounting for 100%
of volume
* GE 2.20% 2020 was next with client flows at 59%
* HPQ 4.30% 2021 was 3rd, client flows took 100% of volume
* HPQ 4.30% 2021 was 3rd, client flows took 100% of volume</li></ul>
* SKYLN 3.75% 2024 was most active 144a issue; client flows
took 100% of the volume
* BofAML IG Master Index at +150 vs +151 vs +152; 2014 range
was +151, seen Dec 16; +106, the low and tightest spread
since July 2007 was seen June 24
* Standard & Poor’s Global Fixed Income Research IG Index
unchanged at +181 vs +182, the wide for 2014-2015; +140, a
2014 low and new post-crisis low was seen July 30, 2014
* Click here for S&P spread history in a 10-year lookback
* Markit CDX.IG.22 5Y Index at 67.8 vs 68 vs 70; 76.1, the
wide for 2014 was seen Dec 16; 55 was seen July 3, the low
for 2014 and the lowest level since Oct 2007
* Last week’s $28.2b of IG issuance; stats, tenors, ratings,
sectors
* EBRD, IFC set to price; Pipeline of expected domestic, SSA
January issuers and M&A-related deals for 2015

Posted in Uncategorized | Comments Off on Corporate Bond Trading Friday

January 26 2015 Opening

Prices of Treasury coupon securities are registering slight declines following an evening of volatile price action motivated by the results of the election in Greece which has installed an anti austerity party with a near majority in the new Parliament. Initially, markets responded with a risk off trade but have since turned with risk not in quite as much disfavor as it was earlier in the session. At one point earlier S and P futures had dropped 18 points (currently -6) and the Long Bond traded below 2.34 (currently 2.375). The yield on the 5 year note has climbed to 1.323 from 1.31 at the close of trading in new York on Friday. Similarly, the yield on the 7 year note has increased to 1.613 from 1.604. The yield on the 10 year note increased to 1.613 from 1.614. The yield on the Long Bond increased to 2.375 from 2.374. The yield curve continues its relentless flattening. The 5s 10s spread is at a cycle low of 46.4 after closing in NY Friday at 48.4. The 5s 30s spread has dropped to 105.2 from 106.4. The 5s 7s spread narrowed to 29 from 29.4 and 7s 10s narrowed to a cycle low of 17.8 from 19. The only spread bucking the trend is 10s 30s which steepened to 58.4 from 58. The 5s 10s 30s butterfly richened to -11.6 from -9.6 and the 2s 5s 10s spread cheapened to 35.8 from 33.5.

Dealers report an active session with clients. Bank portfolios sold 3s to buy 5s. Central banks bought 10s and 5s. End users in Japan bought Long Bonds. Early in the evening I posted this which recorded buying in the 7 year through 10 year portion of the curve.

Posted in Uncategorized | Comments Off on January 26 2015 Opening

Sunday Evening Update

The still investment grade 10 year Treasury note is trading at about 1.76 percent on the victory of the anti austerity party in Greece. At one point the  S and P had dropped 18 points but has since recovered. The 30 year Treasury had reached 2.34 percent which is about as low a yield as we have observed on that instrument since man first learned to walk erect.

Dealers report real money buying in the 7 year through 10 year sector.

Posted in Uncategorized | Comments Off on Sunday Evening Update

Corporate Bond Spreads

Via a fully paid up subscriber:

1/22 CLOSE    1/23 OPEN      CHANGE

GE  24        89/86          87/84            -2
WFC 24      113/110        109/106          -4
JPM 25      140/137        137/134          -3
BAC 24      142/139        137/134          -5
C  24      146/143        143/140          -3
GS  25      154/151        150/147          -4
MS  24      144/141        140/137          -4
IG23        67¾/68¼      67/67½          -¾

Posted in Uncategorized | Comments Off on Corporate Bond Spreads

Greek Election Notes

A fully paid up subscriber across the pond forwarded this my way:

Sunday 25th January, 2015: Greek Elections

On Sunday, the Greek electorate will head to the polling stations. Current polls indicate a victory for the Syriza party; the main question is now whether or not they will have enough support to gain an absolute majority in Parliament or whether they will have to rely on a coalition partner.

Timeline:

• Sunday 25th January, 2015: Polling Hours: 07:00-19:00EET (05:00-17:00GMT)

•  Vote Counting starts immediately after the polling stations close (i.e. 19:00EET/17:00GMT), so exit polls expected soon after.

• Should have a good estimated results around 22:00EET (20:00GMT); Final results by Monday morning

Mechanics:

• Voting in Greece is compulsory (but none of the existing penalties have ever been enforced)

• Turnout is never 100%, but has consistently been around 70-80% of the voting population over the last 30 years. Votes of Greeks living in other EU member states are also counted

• Small parties need at least 3% of the vote to be represented in parliament

•  250 of the 300 Parliamentary seats are allotted proportionally to parties gaining more than 3% of the votes.

• The party with most votes is awarded a 50-seat bonus

• Parliamentary majority achieved by a party (or coalition) that commands at least 151 of the 300 total seats.

Coalition Options:

• Current polls put Syriza (Tsipras) significantly ahead of New Democracy (Samaras), but still a few seats short of a majority in Parliament (151 seats). If this happens, coalition negotiations will start straight away.

• The largest party (without majority) has three days to form a coalition according to the Greek constitution; if they fail, there is a strong possibility of another election.

• Usually the second largest party would be given the chance to form a coalition but, given recent poll data, it does not look possible to form a government without the largest party.

• Tsipras would require a considerable majority of parliamentary seats to form a stable government – given Syriza is not technically a single party but a combination of Greens/Socialists/Communists etc., Tsipras could find it challenging to garner support from his own party over difficult issues.

• Left-wing liberal, pro-European Potami is regarded as a one of the main potential coalition partners for Syriza (but as likely to demand more in the negotiations (e.g. FinMin position))

• Parts of PASOK and the Independent Greeks (ANEL) would also possibly join a coalition

Then What?

• First port of call for Syriza would be to extend the EFSF program which expires on February 28th

• Negotiations with Troika would resume on: (i) completion of obligations under existing program so delayed €7bn tranche can be released; (ii) components of a new program (e.g. ECCL from ESM); (iii) discussion on restructuring of current loans

• Greek parliament to elect a new President (only after government has been formed)

Posted in Uncategorized | Comments Off on Greek Election Notes

What to Watch Today

Via Bloomberg:

WHAT TO WATCH:
* (All times New York)
Economic Data
* 8:30am: Chicago Fed Nat Activity Index, Dec., est. 0.48
(prior 0.73)
* 9:45am: Markit US Manufacturing PMI, Jan preliminary, est.
54 (prior 53.9)
* 10:00am: Existing Home Sales, Dec., est. 5.08m (prior
4.93m)
* Existing Home Sales m/m, Dec., est. 3% (prior -6.1%)
* Existing Home Sales m/m, Dec., est. 3% (prior -6.1%)</li></ul>
* 10:00am: Leading Index, Dec., est. 0.4% (prior 0.6%)

Posted in Uncategorized | Comments Off on What to Watch Today

FX

Via Marc Chandler at Brown Brothers Harriman:

ECB Drives Markets

– The ECB’s announcement helped spur a new round of dollar-buying against most of the majors, save the yen
– For us, the biggest surprise was the open-ended nature of the ECB’s purchases, while the more significant problem is its efficacy
– In Greece, Samaras has made a couple of political gambles and lost
– For now, ECB QE is feeding into a general EM rally more than the renewed wave of dollar appreciation is hurting it

Price action:  The dollar continued rallying overnight against majors, though some EM currencies have gained.  The euro made a decisive break below the $1.1300 level and is now trading near $1.1240 against the dollar (a level last seen in mid-2003) and naer £0.75 against the pound (a level last seen in early 2008).  Sterling broke below $1.50 for the first time since mid-2013, despite solid UK retail sales figures for December.  The Australian dollar is underperforming, trading below 0.80 for the first time since mid-2009.  The dollar is back above the ¥118.0 level against the yen.  On the EM side, TRY and MXN are lower, giving up some of yesterday’s gains, but RUB, TWD, and INR are outperforming.  MSCI Asia Pacific index was up 0.9% with the Nikkei up 1.0%.  Euro Stoxx 600 continues to rally, up 1.4% near midday, while S&P futures are pointing to a lower open.

• The ECB’s announcement helped spur a new round of dollar-buying against most of the majors, save the yen.  After a quiet Asian session, Europe has extended the euro’s drop to $1.1220, which corresponds to the 61.8% retracement of the entire rally from record lows to record highs.  We had thought that much of what the ECB would announce had already been largely discounted.  The evidence was the rally in European stocks and bonds, and the persistent decline in the euro.  There was not only no bout of profit-taking, but existing trends accelerated.  
• The asset purchases are not really much larger than expected.  The 60 bln euros a month includes the covered bonds and asset-backed securities, which are already being purchased at a rate of about 10 bln euros a month.  It appears 5 bln euros of EU institutional bonds will be bought a month.  This leaves about 45 bln a month of sovereign bonds.  There is some pooling of risk but only for the buying of European institutions’ bonds, like the EU and EIB.  The total amount to be bought in the eighteen months from March through September 2016 will be roughly 10% of eurozone GDP.  This is in line with the first round of asset purchases by the Federal Reserve and Bank of England.  In the period of time it takes for the ECB to buy a tenth of its GDP, the BOJ will be buying a quarter of Japan’s GDP (worth of assets).
• Perhaps one of the bigger surprises was the open-ended nature of the purchases.  Draghi was very clear on this point:  “They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation” (emphasis ours).  Critics will focus on this or that technical hair-splitting detail.  They were forged not in the head of some academic, contemplating the theoretical best solution, but in the furnace of institutional and political reality.  
• The more significant problem is one of efficacy.  Will it boost inflation?  Reports indicate that the ECB’s model shows the asset purchases could boost CPI by 0.4 percentage points this year and 0.3 percentage points in 2016.  The experience of other central banks makes us more skeptical.  The Swiss National Bank expanded its balance sheet to 80% of GDP and still was experiencing deflation, even before it abandoned its currency cap.  The BOJ has been unable to engineer much inflation, and, in fact, revised down its forecast for core CPI (adjusted for the sales tax increase).  
• The currency channel may be from where the biggest boost to inflation may come from.  Consider that from March through early October last year the euro declined by 5.4% on a trade-weighted basis.  Since the middle of December, it has depreciated another 7.8%, thanks in part to the SNB’s recent decision.  The ECB’s new purchase program will not start until March (by which time inflation will likely be even lower).  Meanwhile, investors’ attention is shifting from monetary policy to European politics.  Greece’s national election is Sunday.  The party that has a plurality of votes will be given 50 extra seats in the 300-person parliament and will have three days to put together a government.  Polls have consistently shown Syriza ahead, and if anything, that lead has grown.  Italy’s presidential election starts next week as well.  
• Meanwhile in Greece, Samaras has made a couple of political gambles and lost.  He first gambled that parliament would eventually support his presidential candidate.  It did not.  He then gambled that demonizing Syriza would drive voters to him.  He ran a lackluster campaign.  He did not permit another candidate from his party, who has less political scar tissue and few enemies, to take the reins, even though that would have increased the likelihood of success.  Rather than campaign as a reformer as he did in 2012, Samaras ran defending a poor, even if somewhat improved, status quo.  
• Just as Greece was the canary in the coal mine in 2010, so too now, it needs be recognized that it is not a one-off.  Pademos in Spain, which is ideologically kindred spirit with Syriza, is leading in polls there for the national election later this year.  Between the changes in the way the EC will enforce fiscal discipline and the new monetary action by the ECB, policy is evolving away from the austerity demands seen earlier.  However, it may be too little too late.  
• For now, ECB QE is feeding into a general EM rally more than the renewed wave of dollar appreciation is hurting it.  The medium-term impact of QE on Eastern European assets seems positive, on balance.  For dollar-based investors, CE3 currencies will be dragged down with the lower euro.  But the ECB is doing some of the easing for those central banks and, assuming it works to some degree, they will benefit in terms of flows and potential growth spill overs.  More broadly, emerging markets stocks continue to rally.  For example, over the last five sessions the Russian equity market has gained 6%, Mexico 5%, while India and Turkey have risen about 4%.  Gains in the fixed income space have been just as expressive. All of this, of course, comes with anecdotal reports of foreign inflows return.  Still, we think that concerns that EM currencies will follow DM currencies lower will keep many investors reluctant to increase exposure.
• The passing of Saudi King Abdullah should not lead to any sustained impact on oil markets.  He has been succeeded by his half-brother and we expect policy continuity.  Oil price remain volatile, but have been trading within the same wide range for about two week.  For Brent, the range has been roughly $47-50 per barrel.  For WTI, that range is roughly $46-49 per barrel, despite news of the biggest inventory build in the US for the last 14 years.
• It is not about the data today though there has been a slew of data that in other times would have move the market.  The flash HSBC China PMI was reported above expectations at 49.8 from 49.6 in December, which shows that the manufacturing sector of the world’s second largest economy is still slowing.  Eurozone’s flash PMI was also a bit better than expected, consistent with 0.2-0.3% GDP growth.  The UK reported considerably better than expected retail sales, but sterling remains offered.  December retail sales were expected to have fallen 0.6.% but instead they rose by 0.4%.  Excluding autos, retail sales rose 0.2%.  They were expected to have fallen by 0.7%.  We also note that Korea’s Q4 GDP grew at the slowest pace since 3Q 2012, at 2.7% y/y and slightly below expectations.  The economy is facing strong headwinds and little in the way of price pressures. The last PPI figures came in at -2.0% y/y and CPI at 0.8%, compared with the 2.5-3.5% target range.  The BOK kept rates steady last week but we think it will cut rates this year, and the sooner the better.  
• Brazil reported mid-January IPCA inflation slightly higher than expected at 6.69% y/y vs. 6.46% in mid-December.  This brings inflation back above the 2.5-6.5% target range after a brief dip below.  With electricity costs likely to be hiked this year, the inflation outlook remains pretty bad.  Brazil will report December current account data later today, expected at -$9.7 bln.  This would keep the deficit above -4% of GDP for the second straight month.  For USD/BRL, support seen near 2.55 and then 2.50, resistance seen near 2.60 and then 2.65.  

Posted in Uncategorized | Comments Off on FX

Drachma Pricing

In case you are wondering about the value of a new Greek Drachma here is an excerpt from the morning research note of Kit Juckes at SocGen.

Via SocGen:

Fair value of the drachma – Should Greece leave the eurozone in a well-controlled fashion, a new Drachma (GRD) could fall at least 11% in real terms based on a Natrex model. This drop will depend crucially on the considerable amount of debt that would have to be forgiven/restructured and the credibility of the authorities.

Posted in Uncategorized | Comments Off on Drachma Pricing