July 2011
I July 2011
* Observations by Nouriel Roubini
“The factors slowing U.S. growth are chronic. Private- and public-sector deleveraging is slow but persistent, despite a recent pause in household deleveraging due to even more releveraging of the public sector. Rising oil prices are crimping growth. Job creation is barely meeting the increase in the labor force. The housing market is in a double dip, with prices falling, quantities moving sideways at the bottom and no end in sight. Severe fiscal problems at the state and local levels are leading to a serious fiscal drag. At the federal level, an unsustainable deficit has gone unaddressed, while some spending cuts and the phase-out of transfer payments threaten to lead to increasing fiscal drag in 2011, 2012 and especially 2013. A second round of quantitative easing and third round of fiscal easing gave us a meager 3% y/y growth handle for just one quarter—Q4 2010—before growth slumped to 1.8% in Q1 2011 and likely stayed in that vicinity in Q2. Given the deleveraging, the fiscal drag and the global economic shocks, H2 2011 and 2012 are not likely to be much stronger.”
* RGE Out of Consensus
Advanced Economies Outlook: "In the short term, we still see a weak recovery story in developed markets (DMs), but a much stronger recovery in emerging markets (EMs). We see...few signs of a positive feedback loop and a self-sustained strong recovery in DMs. Demand remains short of what is needed to close output gaps in DMs and normalization of policy remains slow. A combination of a spike in commodity prices, policy mistakes and limited policy tools in DMs could make stagnation/double dip a short-term story that poses risk to our long-term gradual rebalancing narrative and raises the chances of a downturn in the short term."
—Christian Menegatti, Head of Global Economic Research, Rachel Ziemba, Senior Research Analyst, and the RGE Market Strategy Team, April 11, 2011
Our early-year view on advanced economies’ growth , which was more bearish than that of the consensus, turned out to be correct. In March, we asserted that “developed markets will also fail to match their 2010 performance (2.5% y/y) with a 2.1% growth rate,” highlighting risks and fat-tail scenarios and noting a lower resilience to an oil price shock than in 2008, along with the limited availability of policy bullets to address ailing balance sheets. As far back as December, RGE reported that in H2 2011, “the absence of a more robust recovery would be revealed.” Nouriel Roubini recently noted a more persistent correction of U.S. and global equity markets, and consensus now argues that this slowdown is a temporary “soft patch” driven by transitory tail shocks and “black swan” events such as rising commodity prices; Middle East turmoil; the Japanese earthquake; the euro zone’s (EZ) PIIGS troubles; and concerns about U.S. fiscal deficits.
* RGE Views Update
China Monthly : Adam Wolfe examines the contingent liabilities of the Chinese central government, including local government debt, revising previous estimates in light of audits of borrowings at the end of 2010. We maintain our expected default rate of 30% but revise our expectations for the resulting nonperforming loans sharply upward as other off-balance-sheet revenue streams for local governments are being choked off. Ultimately, we expect the central government to offer a large-scale bailout.
* Global Economic Outlook Overview: Our baseline recovery scenario remains one in which most DMs continue to follow an anemic, subpar, U-shaped path, hindered by ongoing balance-sheet repair, structural issues and the switch from monetary and fiscal stimulus to policy drag.
* Second Greek Bailout : Are Rating Agencies on Board With the French Bank Rollover Proposal? A proposal by French banks for rolling over Greek debt holdings is currently being reviewed and could be accepted if rating agencies agree not to declare this a selective default. Though Fitch has signaled it would keep the CCC rating under a "restrictive default," this would not contribute much to improving the maturity profile or debt sustainability and keeps risk premiums and contagion risk high.
* UK: New Financial Conduct Authority to Replace FSA by 2013- Broadly ahead of the euro zone curve on regulation and financial stability initiatives, the UK government has proposed creating a new Financial Conduct Authority (FCA), aiming to enhance systemic stability and restore confidence in the regulatory system.
* Turkish Economy Expands 11% y/y in Q1 2011 -Turkey's Q1 GDP results yielded another upside surprise; however, we expect growth to begin slowing on an annual basis in Q2, while fiscal and macro prudential measures will begin to have an effect in H2 2011.
* Asia Weekly: Australia and Malaysia Monetary Policy; Malaysia Exports; India Fiscal Policy By Michael Manetta, Mikka Pineda and Kunal Kumar Kundu: The Reserve Bank of Australia (RBA) is set to keep its cash rate target at 4.75% at its July 4 policy meeting, in light of inflation and employment data that indicated a soft patch in Q2. Malaysia saw export revenues rise at their fastest pace in nine months in April, and we are anticipating another solid (if slightly less impressive) performance in May. RGE expects Bank Negara Malaysia (BNM) to hike its benchmark overnight policy rate (OPR) to 3.25% on July 7, putting us at odds with a number of other analysts who are calling for a pause. In an effort to reduce the mounting losses of state-run oil companies as well as the burden of subsidies on the national exchequer, India’s Empowered Group of Ministers has announced a hike in prices of diesel, kerosene and cooking gas.
* Canadian Growth Flat in April; Economic Slowdown Ahead Canadian growth by industry was unchanged in April, slightly better than RGE and market expectations. As anticipated, manufacturing suffered from supply-chain disruptions from post-tsunami Japan, with auto production declining 6.9% m/m.
4 July 2011
RGE MARKET STRATEGY UPDATE
Contingent Capital: A Potential Stop-Gap
By Jennifer Kapila and Jorund Aarsnes
Contingent capital encompasses a broad number of options, but we focus on hybrid securities that boost core capital in periods of distress. Such structures are firmly embedded in the reform dialogue but have not gained widespread acceptance; they have been rejected from qualifying as Core Tier 1 capital. Regulators require new securities to be loss-absorbing and seek to minimize the discretion of the issuer to burden-share with creditors; issuers are, above all, concerned with cost as well as an even playing field; and investors demand adequate reward for the greater (and difficult to quantify) risks of such securities.
In spite of the certain issues, contingent capital securities (CCS) could play a major role in the capital structure of banks, particularly as the “sanctity” of senior unsecured debt is increasingly threatened. But ahead of such theoretical and sweeping changes, CCS may be an ideal stop-gap for relevant stakeholders. Volatility and current bank equity valuations render equity issuance expensive; this would be exacerbated if regulators collectively demand higher core solvency and markets demand immediate compliance. Permutations of CCS could allow banks to internally generate capital (in tandem with payout restrictions) to meet higher ratios, whilst reducing the likelihood of taxpayer recourse in an adverse shock scenario in the run-up to full implementation of Basel 3.
* Greek Bail-In Number One
By David Nowakowski
French banks have proposed two options for “voluntary” roll-over of maturing bonds.
The scheme is more akin to a slow-motion Argentine Mega-Exchange than a true Brady-style restructuring or re-profiling. RGE believes more significant debt relief will ultimately be needed.
The 30-year 5.5% par bond with principal guarantee is the more attractive choice for bondholders, but is worth less than par, so banks/insurers would be better advised letting bonds roll off, and no one without regulatory issues or political coercion (pension funds and asset managers are also being targeted) would participate voluntarily, except to stave off default.
Assuming non-participation would assure a disorderly outcome, capping losses at 47% is also an important consideration. A stay of execution can still help banks raise capital buffers and allow other peripheral countries to differentiate themselves and limit contagion, and is also a signal that policy makers can achieve 11th-hour agreements when disaster is imminent.
Even if it works, the plan brings little debt relief for Greece, which would remain insolvent and may still fail to implement the required austerity measures or to reach fiscal and growth goals, meaning a more comprehensive bail-in will probably be required
* Getting a Grip on Contagion and the Euro
By Michael Hart
This note addresses the conundrum of the euro's strength in the face of a year-long sovereign-cum-banking crisis in the eurozone (EZ). We argue that it can be explained by the actions of the ECB in the context of a (near) ZIRP world and, to a limited extent, official reserve diversification.
However, we also demonstrate that a tipping point exists for the euro, where sovereign credit woes translate into currency weakness. To this effect, we develop a Contagion Risk Index, which can serve as a valuable indicator of the euro’s prospects. At present, it signals a sharp rise in contagion risk, suggesting that the EUR is significantly mispriced and likely to correct.
This is based on our view that that the mooted “Vienna Plus” initiative is unlikely to be effective and, at best, will merely postpone a fuller restructuring, which will be both more costly and risks being disorderly and coercive.
* Interest Rate Dashboard - June 30, 2011
By David Nowakowski and Tsolmon Enkhbayar
RGE believes the slowdown of the past few months is likely to be more than just the "soft patch" markets hope it to be. The negative impacts of MENA unrest, rising commodities prices and the effects of the Japanese earthquake are worsening the slowdown.
Amid ongoing eurozone turmoil, Irish and Portuguese CDS spreads climbed higher, though the end of the month brought relief with Greece passing its austerity bill. The spread of 10y Italian bonds over Germany reached a record high since the creation of the euro and Spain continues to be under pressure as well.
Oil prices have recovered from their April 2011 peak levels, reducing fear premiums and inflation expectations. Increased production, access to IEA supplies and weak growth data should keep prices contained in the short term.
* Credit Dashboard - June 30, 2011
By David Nowakowki and Dayna Goodwin
Greek CDS are leading the drop in sovereign CDS on the back of Greek Prime Minister George Papandreou’s successful passage of the 78 billion euro austerity package. With the near-term threat of outright default easing, Greek CDS have declined from previous record-high levels to settle below 1900 bps. However, swaps are still up for a fifth consecutive month and, at these spreads, suggest an 80% chance of default within five years.
Perception of sovereign credit quality improved for the remaining PIIGS as swaps for Portugal, Ireland, Spain and Italy fell. Contracts for Itraxx Crossover 5y and Itraxx European investment grade declined as well, touching 395 bps and 134 bps, respectively, on Thursday at 3 p.m.
5 July 2011
China Monthly: Under the Rug, Behind the Couch: How Much Debt Is China Hiding?
By Adam Wolfe:
We now estimate that China’s local governments had debts of about RMB15 trillion (US$2.3 trillion) at the end of 2010, much more than we previously assumed, though with a longer average maturity. Between these and other contingent liabilities, Beijing could ultimately be responsible for debts that totaled more than RMB30 trillion (US$4.6 trillion) or 77% of GDP at the end of 2010.
Rating Agencies: Bank Rollover Proposals Would Amount to Default
Rating agency S&P; appears to have scuppered proposals by German and French banks to roll over up to 70% of the holdings of Greek sovereign debt over the next three years: On July 4, the rating agency declared that such a move would lead them to declare Greece in selective default. A par exchange offer with much longer maturity and below-market-rate coupon for the entire debt stock remains the most efficient solution.
French Politics: Could Strauss-Kahn Run for President?
Formerly considered the front-runner in next year’s French presidential elections, Dominique Strauss-Kahn (DSK) appeared to have lost his chance when he was arrested on May 15. Despite the possibility that charges leveled against the former IMF chief may be dropped, there remain doubts over his capacity to win office in light of the lurid allegations. However, opinion polls have consistently shown DSK to be the Socialist candidate most likely to defeat incumbent Nicolas Sarkozy, and a late run to seek the center-left nomination remains a possibility.
Global PMIs Reflect Slowdown in Manufacturing
While global PMIs are still positive, the June PMI for China fell nearly to the neutral mark and those for Europe also reflected a slowdown in manufacturing activity. In contrast, after a period of softening the U.S. ISM has increased. Recent PMI trends have been in line with RGE expectations for decelerated global growth in Q2 2011 and with our baseline scenario of a subpar, below-potential expansion in advanced economies and a slight softening of growth in emerging markets.
Japan's Core CPI Rises 0.6%; Are Energy and Food Prices the Only Culprits?
In May, Japan's nationwide core CPI, which excludes fresh food but includes energy, rose 0.6% y/y (0.1% m/m)—its second consecutive rise following 25 months of deflation. On average in 2011, core CPI will remain in deflation as consumer confidence and earnings growth remain stunted.
Indonesian Inflation Falls to 1-Year Low in June
Indonesian headline inflation slowed for a fifth straight month on continued food price disinflation, while core inflation remained flat. The data put Indonesia at odds with other emerging Asian economies struggling to contain accelerating inflation, and give Bank Indonesia the policy space to keep its benchmark rate unchanged in July.
Egypt Shuns IMF: What Are the Economic Implications?
By Ayah El Said and Rachel Ziemba: The Egyptian government has rejected any conditionality attached to IMF loans in favor of blank checks from Saudi Arabia and regional partners, lest it have to tie its hands ahead of presumed fall elections. The revised budget seems optimistic in its revenue, expenditure and growth estimates.
Italian Government Approves €47 Billion Austerity Package
In the wake of S&P; downgrading Italy’s sovereign credit outlook to negative, the government has approved a package of tax increases and spending cuts aimed at eliminating the budget deficit by 2014. Markets have not yet punished Italy for the ongoing political uncertainty, given the consensus on fiscal prudence among Italy’s political parties. However, if the eurozone debt crisis continues to intensify, markets may start to question the government’s commitment to fiscal consolidation.
6 July 2011
* Cross Asset Monthly - Stay of Execution
By the RGE Market Strategy Team
Following an EZ stay of execution, we indulge risk appetite but with a preference for quality and liquidity:
* Commodities: We stay flat the complex, but go overweight select segments—aluminium and silver.
* G10 FX: Event risk will hurt the EUR sooner or later; stay defensive risk currencies.
* G10 FI: Re-accelerating risk appetite and growth will promote short-end curve steepening—temporarily.
* EM FX/FI: Localized inflation risks point to country-specific rate payer/steepened and FX long positions.
* Credit: Stay long investment grade, look to enter high yield; stay long EM sovereigns against corporates.
* Equity: We overweight U.S. equity versus cash and global/EM equities, to balance risk appetite with quality.
* Financials: An inevitable combination of forbearance with weak asset quality points to downside surprises.
Energy Weekly - June 30, 2011
By Gary Clark and Patricia Ho
* The International Energy Agency’s release of 60 million barrels of light, sweet crude will aid in capping oil prices in the near term. The release is likely to result in market distortions and the narrowing of spreads between blends. The chance that the recent slowdown in global growth is more than just a "soft patch" has risen. We expect below-potential growth of 2% in developed markets this year, with growth of 6.5% in emerging markets, led by China at 9.1%. Strong Chinese growth supports demand for energy.
* LatAm Weekly: Inflation in Brazil; Mexico’s Monetary Policy; GDP Growth in Chile; Venezuela’s President Treated for Cancer By Juan Lorenzo Maldonado and Joao Ribeiro: Increased inflationary pressures have led the Brazilian central bank to revise its inflation forecast again, from 5.6% y/y to 5.8%. Inflation in Mexico continues to edge down as sharp deceleration in activity reveals slack in the economy. Chile’s economy is forecast to expand 6.3% y/y in 2011, with slower growth in H2. Meanwhile, Venezuelan President Chavez's announcement that he was being treated for cancer has moved markets.
* Massive Discovery of Rare Earths Could Pressure China New rare earth deposits, thought to amount to 80-100 billion metric tons, have been found in the Pacific. Though it remains to be seen if mining these deposits would be economically viable, the discovery may shock China, the producer of 97% of the world’s rare earth metals, into loosening its export curbs
* Pheu Thai Victory: Is Stability a Realistic Post-Election Outcome? The opposition Pheu Thai Party, led by Yingluck Shinawatra—younger sister of Thaksin Shinawatra—claimed a landslide victory in the July 3 elections. A key point of contention under the new government will be the status of the exiled Thaksin, who Pheu Thai vowed to pardon prior to the election. Mounting inflationary pressure remains the biggest concern for the next 12 months, particularly since Yingluck will be inclined to make good on her populist campaign promises.
* Australian Monetary Policy: RBA Remains on Sidelines in July For the seventh consecutive meeting, the Reserve Bank of Australia (RBA) left the cash rate unchanged at 4.75%—consistent with RGE’s forecast. Inflation and employment data indicate a Q2 soft patch as job losses and the strength of the Australian dollar take their toll. We forecast 25-bp rate hikes in August and September.
* Swedish Central Bank Continues Hiking in July -Riksbank , as expected, hiked the repo rate by 25 bps to 2.0% on July 5, keeping the repo rate path unchanged. We expect Riksbank to take the key policy rate to 2.5% by end-2011, as robust GDP growth drives up headline inflation.
See -> [America and Britain's Economic Policies Will Soon Be Similar](<brain://local/4xEXcruqoTA6jqWNdKu-7w/5BX03vjohFeXtBDR8qQYQw/AmericaAndBritainsEconomicPoliciesWillSoonBeSimilar>)
7 July 2011
* Sobering observations From Nouriel Roubini
“My prediction for the perfect storm is 2013, because right now everybody is simply kicking the can down the road. In the U.S., we will have problems after the election if we don't resolve our fiscal issues. At the same time, Europeans are putting off their problems, while Greece, Ireland and Portugal need to restructure their debt to deal with insolvency. I see policy makers trying to push these problems to the future. Private debt, supranational debt and balance-sheet crises will all come to a head in 2015.”
* Interest Rate Dashboard - July 7, 2011By David Nowakowski and Tsolmon Enkhbayar
Global growth has slowed sharply in H1, an effect especially notable in the U.S., the periphery of the euro zone (EZ), the UK and Japan. Concerns about U.S. fiscal deficits and the stalemate on the debt-ceiling increase still weigh on market sentiment, but economic readings are improving as temporary drags fade away.
The downgrade of Portugal’s long-term bonds to junk status by Moody’s has sent the yields on the EZ periphery government debt shooting higher. In a rapid response, the ECB announced a suspension of the minimum rating requirements for Portuguese-backed collateral.
As widely expected, the ECB hiked interest rates by 25 bps to 1.50%, its second rate rise this year. At present, we don’t see more hikes until late 2011.
* Energy Weekly - July 7, 2011
By Gary Clark
The oversubscribed auction of 30 million barrels from U.S. strategic reserves on July 1 implies strong demand for sweet, light crude. Nonetheless, there are rumors that traders are hiring tankers to store the oil, on the back of lackluster demand. Despite high oil and fuel prices, tanker fees are low and forward curve spreads have risen.
An attack by pirates on an oil tanker carrying one million barrels of fuel off the coast of Yemen highlights the vulnerability of shipping to attack in the area. Not only does Yemen pose instability risks, but attacks from Somali pirates have picked up in H1 2011.
* U.S. Labour Market: ADP Report Shows Improvement in June, Initial Claims Still Elevated
The ADP private employment report showed U.S. private payroll gains in June of 157,000 jobs—significantly higher than the 36,000 in May, but still below the 200,000-plus average between December and April. In the week ending June 25, the four-week average of initial unemployment claims decreased to 424,750, above 400,000 for the 13th consecutive week, after falling below the threshold in March. We had expected June payrolls to remain modest but to show a pickup from the job creation witnessed in May (with our forecast for a gain of 95,000), but the July 7 ADP report signifies a moderate upside surprise.
* ECB Hikes Key Rate to 1.50%, Suspends Minimum Rating Requirement for Portuguese-Backed Collateral
On July 7, the ECB raised the key rate by 25 bps to 1.50%, and President Jean-Claude Trichet announced that the ECB had also suspended rating requirements for Portuguese-backed collateral—as it had already done for other IMF/EU program candidates, Greece and Ireland—following Moody’s downgrade of Portugal’s credit rating. Our inflation forecasts of 2.7% y/y in 2011 and 2.0% in 2012 had factored in this rate hike, as well as a similar move in late Q4, after the ECB leadership change, barring a systemic disruption.
* Italy: The Politics of Procrastination
By Katharina Jungen and Mark Willis: The austerity package approved by the Italian government in late June is largely devoid of structural reforms, instead relying on spending cuts and moderate tax increases to eliminate the budget deficit by 2014. Given the back-loaded nature of the austerity measures, contagion risk is likely to remain elevated as markets may grow impatient and require immediate action
* Asia Weekly: China Inflation; China and Singapore GDP; Philippines Exports
By Adam Wolfe, Michael Manetta and Mikka Pineda: As we warned last month, higher pork prices in June appear to have driven Chinese inflation to its highest level since July 2008; meanwhile, China’s GDP decelerated in Q2 to about 9.3% y/y or 7.4% q/q. Philippine merchandise exports appear to have extended their decline in May, with commodity exports partially offsetting the drop in electronics due to decreased demand in the U.S. and China and supply chain disruptions from Japan. RGE expects Singapore’s advance estimate for Q2 GDP to show a 0.5% y/y contraction (-2.8% q/q SAAR), in light of a relatively subpar export performance and modest industrial production growth
* Australian Job Growth Advances in June
Employment data in Australia was better than expected in June, with a gain of 23,400 jobs and unemployment holding steady at 4.9%. The jobs numbers were the result of a 35,600 decline in part-time jobs that was offset by a 59,000 increase in full-time employment. Going forward, continued labor shortages, mainly in the mining states, could pose upside risk to inflation
* Q3 2011 Global Scenario Analysis: A Bumpy Rebalancing
By Christian Menegatti, Rachel Ziemba and the RGE Economic Research Team: A combination of a spike in commodity prices, policy mistakes and limited policy tools in developed markets could make stagnation/double dip a short-term story and pose risk to our long-term gradual rebalancing story.
* China Hikes Interest Rates: Is This the End of the Tightening Cycle?
In its fifth hike since October 2010, the People's Bank of China (PBoC) raised the benchmark one-year deposit and lending rates by 25 bps. The interest rate hike came a few weeks later than we expected but is in line with our base-case scenario. Most analysts expect this to be near the end of the PBoC's tightening cycle given easing H2 inflation expectations, though another interest rate hike is possible before September.
* Spain: On Tenterhooks
By Jennifer Kapila, David Nowakowski and Elisa Parisi-Capone:
Bank solvency issues are manageable but liquidity, growth and profitability remain constrained and tail risk is immense. Meanwhile, fiscal slippage in autonomous regions carries implications for the sovereign as regional governments account for almost 40% of total public expenditure, and compensatory action by the central government is unsustainable at current levels.
* Moody's Cuts Portugal's Credit Rating to Junk
Moody's lowered Portugal's credit rating by four levels to junk status with a negative outlook, citing the risk of a second bailout package (possibly with private-sector involvement) before the country would be able to return to capital markets in 2013. As rating agencies start putting Portugal in junk territory, the ECB will have to adjust its collateral rules for Portuguese debt the same way it did for Greece and Ireland, since they are under the EU/IMF umbrella.
* Germany’s Banking Sector: Resistant to Change?
By Katharina Jungen and Jennifer Kapila: The German government has failed to implement the necessary reforms aimed at remedying longstanding structural weaknesses in banking regulation and supervision. In addition, the seemingly reform-immune Landesbanken continue to pose a threat to financial-sector stability.
See -> 8 July 2011 America Needs a Grand Bargain, But All It’s Getting Is a Mini Deal
8 July 2011
* Greek unemployment time bomb squeezes Papandreou’s government
* Italian Bonds, under fire as yields rise 2, 5% to 5, and 25%. Italy is a major concern as banks unable to met stress tests. The economy of Italy, is equal to Greece, Portugal, Ireland combined. Debt to GDP 120% and unsustainable with little or no growth particularly in export markets. If the economy is stagnant, and some $40 billion interest repayment looms. Potential for default September, has been brought forward, hence market jitters.
11 July 2011
1. SA- IMPERIAL acquisition- overseas talks. Note Bidvest rumours for the same
2. Italy contagion looms. EURO markets and bonds slide. Italian yields surge
3. Swaps show Europe crisis bigger than US NB
4. Europeans stocks drop for a seconday on Italy crisis
5. Italian , Spanish bonds tumble on concern of contagion. Bundes bonds surge
6. Best currency forecasters says $ slump coming to end as index falls. NB
7. GOLD TOPS $1550
8. Sell off in the Euro as contagion spreads like wildfire.
9. Euro political risks related to Italian. Spain scenario as with others raise the potential for an orderly ‘restructuring’ of debt default. Proposals are being made for a EURO Bond, so the strong can support the weak. Might be time for an orderly default.. This will have a negative blow to the EU, if the leaders dont react now. Losses are going to have to swallowed and EU leaders have to convince markets this can be absorbed. Simply, contagion countries cannot trade themselves out of debt.
10. CISCO may cut as much as 5000 jobs. Early August??
11. European stability plan will do little for Greece- Euro Credit
12. Italy is 2% points away from a bailout.
13. Debt debate continues in Washington, with 23 days to go. See PIMCO review of the Grand Bargain. NB
14. US, flight to quality because of the Euro.
15. Italy as the worlds 1/3 largest trader in bonds is exposed to $175 Billion by the end of 2011. NB!!!!!!!!!
16. SA stocks fall led by Anglo, Billiton
17. Israel 1967 borders applied to reactivate the peace process. Israel & Greece NB
18. Murdock gets the heat on BSKB acquisition, closure of The News of The world, phone hacking scandal.
19. Derek Cambell Standard Bank energy investments NB
See -> [GERMAN BANKS ANGERED BY DATA PLAN](<brain://local/4xEXcruqoTA6jqWNdKu-7w/etILuuuvq16x_8H9wU-A2A/GermanBanksAngeredByDataPlan>)
July 2011 (continued) Roubini
* U.S. Labour Market Stalled Since May, Unemployment Rate at 9.2% in June
The latest U.S. Bureau of Labour Statistics employment report showed virtually no traction in the labour market, with June payrolls rising by a measly 18,000 after a downward-revised, anaemic gain of 25,000. The June gains were even lower than our expectations for a modest 95,000 gain. We think this negative report in the run-up to the debt ceiling negotiations should drive policy makers to push the bulk of spending cuts beyond 2012.
* Europe Weekly: Greek Debt; Volatile Turkish Inflation; Fragile Irish Growth; Russia’s Weak Fixed Investment; Poland’s Shale Gas Bonanza; Denmark’s Bank Woes By Mikko Forss, William Oman, Elisa Parisi-Capone, David Rogovic, Ortise J. Uku and Jelena Vukotic: Private-sector involvement in a second bailout package to Greece is being debated, with creditor countries increasingly pushing for a more coercive approach. Turkey’s consumer prices fell 1.4% m/m in June, bringing annual inflation down to 6.4%, helped by food prices. In Q1, Ireland’s GNP fell by 4.3% q/q and GDP increased by 1.3% q/q, reflecting the strong performance of multinationals and other exporting firms, though private consumption remains fragile. Q1 growth of 4.1% y/y in Russia was driven almost exclusively by household spending, raising the issue of growth sustainability. Shale gas development could help Poland cut its reliance on dirtier sources like coal, making it easier to meet EU-imposed carbon-emission targets, though a number of EU member states argue that hydraulic fracturing is environmentally harmful. After three rescue packages in Denmark, financial stability may be threatened by new guarantees contemplated by policy makers.
* Floating Crude Not Quite Profitable
By Gary Clark and Edward Joseph: Offshorefinancing deals, in which traders buy oil at the spot price, store it on a tanker and sell the contract for future delivery at a profit, were popular throughout much of 2009 and parts of 2010 when oil prices were low. Widening spreads between crude oil spot prices and futures contracts, and low tanker rates relative to 2009/10, have reduced the current cost of offshore storage. However, high crude oil and fuel oil prices and resulting high opportunity costs provide less incentive to store oil if investment opportunities elsewhere are better
* Confusion and Disagreement Surrounds Italian Government's Austerity PackageFollowing the passage of the Italian government's latest austerity package on July 7, the Ministry of Finance has had to clarify details amid widespread confusion. The government confirmed the size of the proposed savings over the next three years as €40 billion, rather than the larger figures previously put forward, and removed a clause that would have benefited the business interests of Prime Minister Silvio Berlusconi. The new legislation, which requires parliamentary approval within 60 days, aims to eliminate the country's budget deficit by 2014, though RGE does not expect the Italian government to meet its fiscal targets over the next three years due to political instability and the economy’s poor growth outlook.
* How Long Will Japan's Current Account Surplus Narrow?In May, Japan's current account balance fell for the third consecutive month, declining less than expected to 90.7 billion yen (US$7.3 billion)—a 51.7% decline compared to April’s 69.5% dive. A trade deficit of 772.7 billion yen, caused by earthquake-related power shortages and supply-chain disruptions, was offset by a widening of Japan’s income account as the Japanese increased their holdings of foreign assets.
12 July 2011
1. CISCO= 10 000 jobs to go be end of August 2011. Shaers down 22 % this year and 32.5% since august last year. $27.84 > $13 . ( 7000 by august & 3000 early retirement = 14 of total workforce
2. Rate swaps soar, as EURO under contagion threat
3. Japanese stocks decline amid EUROPES Debt Contagion
4. China stocks decline most in 2 weeks amid Euro debt concerns
5. Asian stocks drop on Euro Contagion
6. Crude oil declines amid Euro debt concern
7. Quanta`s may scrap routes, seek a merger to stem losses on overseas routes
8. Assange- Wikileaks- changes legal team pending UK extradition
9. Italy, Spain trade- like junk related debt as Contagion spreads
10. Italy- since 4 July 2011, the 4 largest Italian banks have lost share value of between 25-30% ( Unicredit, Banco Milano, Intesa Sanpaolo, )
11. Gold spot $1546. Gold may rally to $1600 trumping silver on debt
12. Inflation in Germany held steady at 2,4%
13. US Still no agreement on Debt Ceiling. A $4 Trillion Grand Bargain is on the table by Pres. Obama. Republicans will not vote for anything that includes Tax increases
14. Italian 5 year bond 5.95% . up 25%
15. A record on Credit Default Swaps for Italy.& Spain.
16. Europe Stoxx 500- 494 are falling
17. European leaders fish for a solution to Debt crisis
18. Dubai may have to sell main assets as yields decline
19. Zambia copper poised for top 5
20. SA Rand falls to a 2 week low against the $ amid Euo crisis.
21. Heayy market losses in Euro & asian markets. European leaders revive buyback idea.
22. Greece 10 Year Bond 17.10 %. May need another bailout. 2 year greek bond 31,5%
23. Italy 10 year bond 5 97% rising above 6% ( historical high)
24. Portugal 10 year bond 13,1%
25. Suisse Franc at record levels as money moves out of Euro.
26. German Bundes Bonds 2.25%
27. Flight to safety- $, Yen, Gold, German Bundes
28. Malaysian SUKUK declines amid political unrest
29. SA steel companies increase wage offer to end strikes
30. Indonesia hold interest rates for 5 months as inflation eases
31. Spain 10 year Bond 6.2% breaking all records
32. BOJ-Japan economic assessment raised. Interest rates left at 0%
33. Greece wont manage to sell all assets to stem debt crisis and aid plan
34. Zambia lures Zendanta , Vale to realise $6 billion investment
35. Rand has biggest 3 day decline since March amidst EU debt crisis began
36. Afghan president`s brother assassinated
37. Thomas cook shares down 28%. 321 million pounds off the market. 2nd biggest operator in EU. This is tipping point for TC as the buisness strategy model does not fit changing times. The shift in travel.
38. Central Bank of Kenya cut its discount window to 6,25%
39. $ 7 billion wiped of Murdock shares. BSkB shares plummet. Market punishes Murdock for privacy invasions since closing The News of the World. Remaining BSKYB 60% required by Murdock on hold . Criminal investigation reopened
40. Jean Claude Juncker- Euro Zone Chairman
41. State of luxury sector. Millionaires with $30 million or more grew by 8 % last year to 130-000 controlling some 36% of the market. No decline in luxury goods, houses, cars, planes , travel ect.
42. Fast fact: The 2008 recession cost everyone $7300 in lost consuption
43. News corp market cap shrinks $7 billion in 4 days
44. George Soros on EU- though some may default, the EURO must be ring fenced, a EURO Deposit Insurance scheme must be put in place. That is to protect depositors.
45. Latest hack attacks targets military personel
46. EU Regulators flail for a solution to contagion crisis
47. Dynenegy sacrifices bondholders to avoid default
48. Rate Swaps surge, sales evaporate NB ( Euro > $)
49. Abi Dhabi rents decline for 3 years in a row resulting in a glut
50. Keny`s shilling drops most in 2 weeks on EU debt concerns
51. Obama presses for a $4 trillion Grand Bargain on deficit as Republicans resist on taxes
52. US trade gap widens from $42 billion in May to $54 billion in June NB
53. Dodd frank rulings on Mortgage reduces investment
54. EU Debt overshadows US budget
55. Italy sell $6,75 billion in notes at higher yield prices
56. EU revives Bond buybacks
57. Crude oil falls for a third day on EU concerns
58. The current discussion resolution, An Orderly, Selective or Temporary default? NB Give me a break!!
59. Geithner- we need a balanced budget that protects savings and entitlements for the long term future of the economy, spending cuts, avoid defaulting on our debt. “I want to see republicans adopt a ‘similar spirit of compromise’.
60. Walker. If we hit the debt ceiling, congress must decide who we will pay or who we may not. This will have an interest rate effect and affect our credit rating as the largest power on earth. Everyone is buying short term debt, to avoid currency fluctuations. The reason they are not buying longterm debt i.e 30 year bonds. The US spends $4 billion a day in interest 7 days a week and rising. A balanced budget is urgently required.
61. News Corp buying back $5 billion in shares over the next 12 months
62. Egypt stocks, bonds decline as protests increase the likelihood of default. NB
63. UK inflation slows in June, the first time in 3 months
64. PIMCO hires John Devir after he changes his mind on running Harvard endowment
65. Cocoa the highest since 1979
66. Ivory Coast says its unable to make external payments on debt this year
67. Angola re-rated to BB- by S & P to stable on higher oil income
68. US trade deficit unexpectedly surges on higher oil prices
69. Cross currency swaps ‘most into US Treasuries’ since 1979
70. Poland selling more Euros
71. Hungarian inflation rate at a 2 year low, may not trigger interest rate hike
72. Options trading heads for record volume
73. T Boone`s (Boone Pickens) bet on natural gas. BP Capital Management
74. Chesapeake $1 billion bet on gas. Gas in replace of oil for transport. Focus on natural gas fueling infrastructure
75. US- Capital flight into US Treasury Notes – new highs
The NEW buzz words for debt resolution are:
-Orderly/ Temporary or Selective Default Strategy. (ECB rescue discussion 12 July 2011).
12July 2011 (continued) Roubini
* North America Weekly: U.S. Employment Report Highlights Risks to Growth in H2; Canadian Labour Market Resilience Will Be Tested in H2 By Prajakta Bhide and Tetiana Sears: The latest Bureau of Labour Statistics report underscores the ramifications of the weak growth phase in H1 and raises questions as to how much of a rebound can be achieved in H2, factoring in a negative feedback loop from weak job creation and depressed wages. The Canadian economy continued to add jobs in June (28,400), building on strong gains in the two previous months; however, this level of job gains is set to moderate in H2, reflecting cooling in several industries and slowing public hiring as federal and provincial governments step up fiscal consolidation efforts.
* Chinese Inflation Spikes in June: Is This the Peak of the Cycle?China's CPI increased 6.4% y/y in June, up from 5.5% in May 2011, as higher pork prices pushed the food subindex up 14.4%. We still expect food inflation to decelerate on an annual basis in H2 due to base effects, but the decline we previously expected now looks overly optimistic as higher pork prices bid up the cost of other proteins. Nonfood inflation reached a record 3.0% y/y on higher residential costs and consumer goods prices; June is expected to be the peak for the current cycle as base effects will eat into the y/y headline rate in H2
* Italian Government Bond Yields Reach Nine-Year High Italy’s 10yr government bond yields rose to a new nine-year high on July 8 as fears of contagion intensified. Market sentiment toward Italy has recently fallen due to increased political instability, poor economic growth prospects and the continuing inability of EU policy makers to agree on the extent of private-sector participation in Greece's next rescue package.
* Australia Unveils A$23/Metric Ton Carbon TaxAustralian Prime Minister Julia Gillard on July 10 unveiled a tax of A$23.00 (US$24.74) per ton of carbon dioxide that will apply to around 500 of Australia's largest carbon emitters. Though Australia produces only 1.5% of global carbon emissions, the country derives around 80% of its electricity from coal and is the world’s largest carbon emitter on a per capita basis.
* LatAm Weekly: Brazil’s Domestic Demand Indicators; Mexico’s Industrial Production; Chile’s Monetary Policy; Peru’s May GD By Juan Lorenzo Maldonado:In Brazil, data on retail sales for May and formal job creation for June will provide hints as to the trajectory of consumption amid decelerating economic activity. We expect to see a rebound in Mexico’s industrial production in May after a disappointing April. Chile’s central bank will likely continue normalizing rates in July, as economic activity remains buoyant and prices continue to drift from the bank’s mid-point target. Peru’s economic activity continued decelerating in May, likely receding to 6.73% y/y from 7.3% in April as manufacturing activity continued to slow.
13 July 2011
1. SA Sport Travel – Rugby World cup tickets
2. Ireland-Moody`s cut Credit to Junk status adding pressure to EU to stem crisis
3. Blaming Freddie , Fannie for crash gives banks a free pass-
4. China`s economy expands 9,5 % beating expectations after rate rises
5. Italian debt risk puts BNP Paribas & Credit Agricole in the front line. French banks have the greatest exposure outside of Italian banks
6. Italian Debt n EU1,8 trillion , making it the third largest
7. Ireland- 10 yr bond 13.45% ( a new record), Italy 5,58%
8. $/ Euro- $ 1,4002
9. Goldman says Greek debt manageable versus the combined debt of Spain & Italy at 550 billion EU
10. The inverse relationship between Gold & $ has broken down. The flight to safety into $ is accompanied by record gold price. The forecast for $1600 is imminent.
11. Oil is not only a commodity; it is also a financial asset with a life of its own. The IEA could not sell the 60 million barrels. The prediction over the next 2 years is oil is $140/ b +
12. Spain may need to deepen spending cut plan by 2012- finance Minister says
13. German bonds rally as Moodys cut Ireland rating to junk
14. Gold may extend rally
15. SA mine nationalization scares away investors- Cutifani says
16. Impala faces strike action as pay resolution is not solved
17. Hungary need more savings to meet 2012 deficit target- Central Bank says
18. China home buyers increased 31% and defy efforts to cool lending
19. Yen weakens on speculation Japan intends to sell currency
20. Bank of Thailand raises repurchase rate from 3 % to 3.25%
21. Defaulted Greece may have to aid Trichet to save face as ECB stands firm
22. Oil trades near highest in NY on China growth
23. US-McConnell offers ‘last Choice’ 3 phase plan to raise the debt ceiling
24. China grows more than forecast with Central Bank cooling economy
25. Pound $ 1.5925
26. IEA- david Fyfe says oil pirces set to rise
27. GECAMINES undisclosed sale of Congo copper mines to Israel`s Gertler may undermine share offer.. NB
28. Portugal, Ireland overtake Venezula in global risk
29. Ireland 2 yr bond 18, 65% (New Record) and 10 yr 13,35%..... Italy 10 yr Bond 5,46%, Greek 10 yr Bond 16,77%
30. Murdock faces 6 probes into hacking. Gordan Brown & Royal family effected
31. Dollar , Franc weaken on growth of China economy
32. UK unemployment grows at fastest pace since May 2009
33. Bernanke warns politicians to sort out the debt, or risk the economic recovery. Twice a year FRB Chairman has to brief the US on the economy. The ripple effect on markets if the US Defaults is turmoil for the $, interest rates, and the markets. The caution will be the theme of the day. Rising unemployment, and EU Debt contagion. Testimony live 4 pm.today. Bernanke goes to Congress to ask them what they are going to do for the economy. He gave QE1 & 2. Only Congress can raise the debt ceiling.
34. WATCH THE PRICE OF GOLD with safe havens & DEBT CONTAGION THEME.
35. Putin ‘outraged’. on Ratings with yield spreads to Latin America
36. Murdock-The entire British Political Establishment has united against Murdock and wants a withdrawal of BSKYB BID
37. Steven Bell , Chairman of Hedge Fund GLC. CEO of Global Corporate Fund. Worked under Bernanke for 25 years. Next Council meeting needs to deal with contagion. Moody`s problem is with Europe not Ireland. US retails sales due tomorrow is critical information to analyses current status. There is a limit to how much bonds the FDR can buy. Interest rates can be kept low, but with growth diminishing in US, and Europe is shaky, that is a huge part of global economic growth. There is a terrific amount of pessimism, and Steven Bell is feeling more cautious now, than a week ago with the developments in Italy & Spain. These developments are a game changer, and the Bond markets have been hit with no defence. We are in a new phase! The problem of the US, is balance growth with the deficit.
38. Italian debt risk puts France Credit Agricole & BNP Paribas in the front line
39. SA- Gordhan says economic policy aimed at growth
40. IMF calls on Italy to rein in debts
41. Newscorp pulls out of BSKYB bid as British establishment goes for Murdock
42. Ireland 2 year bonds 20.16% ( Record) after moody`s junk bond rating
43. Gold made record highs today
44. Mario Draghi: Debt crisis enters a new phase.2 Trillion Euros required to fix the Euro debt market-ECB (That`s the number today!)
13 July 2011 (ROUBINI)
Truth or Dare: Breaking the Glass Ceiling on U.S. Federal Debt
By Prajakta Bhide and David Nowakowski
* We think that Congress will act to extend the debt ceiling before August 2, or before there is a situation of technical default. A deficit reduction plan of US$2.0-2.4 trillion attached to a similar-sized extension of the debt ceiling appears more plausible than a larger-sized deal.
* Even in a worst-case scenario, interest payments can and will be made, as will Social Security Payments—a partial government shutdown would be likely.
* Rather than contemplating the unlikely eventuality of a technical default, watching the amount of fiscal austerity included in the debt ceiling negotiations is more important.
* Front-loaded fiscal austerity, beyond the already substantial fiscal contraction in store for 2012, will weigh on growth but should be a positive for rates generally
* Italian Government Bond Yields Rise to Critical Level
* Italy’s 10y government bond yields broke the 6% mark on July 12, after rising to a new nine-year high on July 8, unsettling some traders and bringing the euro zone closer to a potential disaster scenario, according to some analysts. With €1.9 trillion of outstanding debt, Italy is the world's third-largest government debt market, making it too big to save, unlike Europe's much smaller periphery economies. A rift between Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti has also contributed to market concerns in the past week, along with widespread confusion over the recent €40 billion austerity package.
* Bank of Japan Maintains Policy Rate, Upgrades Assessment of Economy
* On July 12, the Bank of Japan (BoJ) unanimously voted to maintain its virtual zero-interest policy rate for the 10th consecutive month and upgraded its assessment of the economy, noting the easing of supply-side constraints and accompanying improvements in production. The BoJ also voted to maintain its Asset Purchase Program at 10 trillion yen. According to the BoJ, weak consumer sentiment and power shortages pose downside risks to growth in the longer term.
* UK Growth: BCC Survey Indicates Slow Recovery in Q2 2011
* The quarterly economic survey conducted by the British Chambers of Commerce (BCC) showed a weak underlying growth trend in the UK. The survey revealed a continuation of the slow recovery in Q2, with overall results more positive than in Q1, but mixed data showing challenges to confidence—the manufacturing and services sectors improved only slightly and remained weak compared to historical averages, with confidence in the manufacturing sector at its lowest level in two years. UK growth will mainly depend on net trade and capital spending.
* Canadian Trade Deficit Slightly Narrows in May
* Canada’s trade balance improved only marginally in May, with exports expanding 1.2% and imports gaining 1.1%, led by nonrecourse sectors. As a result, the trade deficit narrowed to C$814 million from C$857 million in April. Despite widespread gains in exports, net exports will exert a drag on growth in Q2. However, the improvement in May's trade performance may suggest gradual recovery in auto production, which bodes well for growth in Q3.
14July 2011
Greek default inevitable with every citizen $40 000 in hock
1. Japanese stocks drops with Moody`s review on Dollar ( $ index down 3/10 %)
2. Record futures trading on the potential for European contagion-Australian Credit
3. Obama to have Camp David meeting this weekend to resolve debt limit
4. Moody`s downgrades Government guaranteed debt of 5 Irish banks
5. Italy braves yield sale with a $7 billion bond auction ( 2016-2026) as Senate votes for cuts
6. Worst Rouble sale in 18 months as a result of EU Contagion
7. Gold jumps to record as EU & US debt crisis drives haven demand $1589 before 1 am this morning
8. Italy .10 year bond 5,62%
9. US debt placed on review for downgrade by Moody`s of AAA rating
10. Italy to big to bail out as debt contagion engulfs in a new phase
11. SA Rand strengthens against $ -bids seen at 6.0832
12. Ireland 2 year bond 13.93%
13. Italy has one of the highest saving rates in EU , with only 10% of debt held by foreigners
14. Greece- traders see a 90% chance of default
15. Fitch. Italy can manage yield increase & expects a balanced budget in 3 years
16. Feds QE3,is recipe for gold to go to $2000
17. Singapore`s economy sank 7,8 % in 2nd quarter as manufacturing slumps
18. Credit Suisse to cut 1500 jobs or 3% of work force –Dow Jones
19. Syria risk, may push Lebanese bonds to
20. China growth of 9% for remainder of 2011 with investments inland
21. Blair says Palestinian –Israeli talks could resume by September
22. Italy sold nearly 5 billion in bonds with an average yield of 5,9%
23. Swiss Central bank very concerned as SF strength hits a record.-Jordan
24. Greece paying 32%, Ireland 16%, & Italy 5.p% for 2 year bonds
25. UBS to cut 5000 jobs and save $1,2 billion annually
26. US Moodys & Standard Poors put US on notice- This is the first time since 1917, US rated AAA has been under threat.
* High Time for an Orderly and Market-Oriented but Coercive Restructuring of Greece's Debt
* By Nouriel Roubini: As we have been arguing for over a year, Greece is not just illiquid; it is also insolvent and will not regain market access until its insolvency is resolved. The solution that we have proposed for quite a while is the same that has been used in a number of sovereign debt restructurings in emerging market economies: an exchange of the entire stock of public debt with new debt with the same face value, a significant maturity extension (20 to 30 years) and a coupon that is not only much lower than the current unsustainable market rates but also a little lower than the original coupon.
* Despite Serious Vulnerabilities, Italy Is Not Greece; the Show Will Probably Go On By James Mason and the RGE Economic Research and Market Strategy Teams:
* Italy’s economic vulnerabilities and recent political friction have unsettled markets this week, sending bond yields to record highs. We believe the European and Italian authorities will ensure that a very big auction of 5y, 6y, 12y and 15y bonds on Thursday goes well. Italian debt is probably sustainable with interest rates below 7%, but there are material downside risks to growth and the fiscal balance. While higher borrowing costs are certainly concerning, increases in interest rates will take time to feed through into higher debt-service costs.
* U.S. Monetary Policy: More Support if Persistent Weakness Brings Back Deflationary Risks
* In the June 13 semi-annual testimony to Congress, Fed Chairman Ben Bernanke noted that the Fed remains prepared to provide additional policy support if the recent economic weakness persists, and importantly, if deflationary risks re-emerge. We have previously noted that stronger near-term inflation will make the Fed reluctant to unleash QE3 in H2 2011. We assign a 25% probability to the scenario of more policy accommodation. Regardless, we see no active policy removal before Q4 2012, and recent labour market weakness suggests risks may be tilted toward the tightening cycle commencing later.
* Investing in Turkey: It’s All in the Exchange Rate
By David Rogovic and Tim Azarchs:
* As foreigners seek out high-yielding assets, some argue Turkey’s high nominal interest rates make it an attractive country for short-term speculative capital inflows. However, the return on investment in Turkish assets, from a foreigner’s perspective, depends not only on the nominal interest rate earned, but also the future value of the TRY relative to the investor’s home currency. In RGE’s view, the CBT’s dovish monetary policy stance increases uncertainty around the future level of the TRY and renders Turkish investments risky.
* Sudan: Navigating the Choppy Waters of Secession
By Corinna Bordewieck and Rachel Ziemba:
* Though South Sudan has been enjoying the excitement of independence and good will from much of the international community, it continues to have many strikes against it: pervasive poverty, insufficient infrastructure, shortage of skilled labor and undeveloped institutions. Unresolved political and economic issues—including the border dispute and lack of clear oil-sharing and transit agreements—complicate the emergence of South Sudan and could add to regional inflationary pressures and cloud the growth outlook.
* Observations From Nouriel Roubini
“A maturity extension with no face-value reduction would provide massive debt relief to the Greek sovereign: A euro due in 30 years is worth less than a euro due in a year on a net present value (NPV) basis, and such a par bond is equivalent—on an NPV basis—to a discount bond with lower face value and a higher coupon. And an exchange offer should provide a menu that includes—in addition to a par bond for hold-to-maturity investors such as banks—a discount bond that would be appealing to mark-to-market investors such as hedge funds.”
* RGE Out of Consensus
Eastern Europe’s (EE) Vulnerability to Euro zone Crisis: “While EE economies have so far shown significant resilience in the face of the eurozone debt crisis, the region remains exposed to spill over risks via its financial and trade links.
Western European parent banks operate in the region through subsidiaries and account for 70-90% of total bank assets...Reduced parental support to regional subsidiaries would further choke off credit supply and undermine the flagging recovery in domestic demand. With the exception of Poland and the Czech Republic, credit growth rates in EE have been flat or negative owing to still-high unemployment rates, the banks’ impaired balance sheets and hefty bank levies imposed in Hungary."
Jelena Vukotic, Research Analyst, May 26, 2011
For months, the RGE Europe Analyst Team argued that Eastern Europe (EE) economies are not immune to euro zone debt woes. In May, Jelena Vukotic drew attention to inherent vulnerabilities within the EE banking systems, highlighting dependence on external support and high exposure to credit risk as roughly two-thirds of total lending is denominated in foreign currency.
While markets had been underplaying the contagion risk to EE in recent months, RGE had been warning that “a severe deterioration of the euro zone debt crisis could affect the whole region, as higher risk aversion could further dampen already sluggish credit growth and put pressure on exchange rates and consumer and investor confidence.”
On July 12, consensus caught up with RGE, with Erik Berglof of the European Bank for Reconstruction and Development telling Bloomberg, “Suddenly the markets seem to have taken a more pessimistic view on the possibility of resolving the eurozone crisis...The potential direct impact is on southeast Europe, and the indirect impact is through banks in western Europe and ultimately also through growth in the euro zone.” The ripple effects are being felt in the markets, as Hungary and Poland’s currencies reached new lows against the Swiss franc, hurting borrowers who took out FX-denominated loans.
* Record Interest Rates Sought At Italian Bond Auction
* Italy was forced to pay record interest rates during a key auction of government bonds on July 14, though the level of bids to covers showed the market retains an appetite for Italian debt. On the same day, members of Italy’s Senate successfully ratified the government's €40 billion austerity budget, and the House of Deputies is expected to follow suit today. Despite recent market turmoil, in our view, Italian public debt probably remains sustainable.
* EU Stress Test 2.0: Results on July 15 to Include a Sovereign Default Scenario and Recapitalization Mechanism?
* The European Banking Authority (EBA) will release stress test results today at 5 p.m. BST. FT Deutschland reported that the EBA is asking the 91 banks participating in the current round of stress tests to include a 36% probability of a Greek default on its government bonds, given its CCC rating. We estimate that a 50% reduction in the face value of disclosed Greek sovereign debt could result in additional capital requirements of €25 billion-35 billion for a large subset of European banks, with the brunt of that borne by Greek banks.
* MENA Focus: Uprisings Not On the Backburner By Ayah El Said, Maya Senussi, Rachel Ziemba and John Prosser:
* Dissatisfied with the lack of progress in post-Mubarak Egypt, protesters returned to Tahrir Square on July 8 for the biggest protest since the ouster of former President Hosni Mubarak. The NATO coalition is splintering in Libya, as Muammar Qadhafi entrenches, Ramadan approaches and European leaders seek an exit.
* The government crackdown continues to plague Syria, and no near-term breakthrough is expected despite the recent national dialogue efforts. Meanwhile, Tunisia’s transformation into a pluralistic political system has been predictably slow—the general elections, initially planned for July, are now slated for October 23. Despite assumptions that Yemeni President Ali Abdullah Saleh would stay in Saudi Arabia after a firefight a few weeks ago, he recently appeared on television pledging his return.
* As for Bahrain, national unity efforts are again floundering, with Shi’a political party al-Wefaq threatening to pull out of talks.
Energy Weekly - July 15, 2011
By Gary Clark (Roubini)
* Chinese inflation rose in June despite monetary tightening measures, driven by increased food prices. Despite the tightening and a softening in commodity imports, we expect China to continue with planned investment and for commodity imports to remain robust. Oil imports should increase 10-15% y/y from 239.3 million tons in 2010.
* Poor U.S. payroll figures indicate weakening growth, which, combined with euro zone sovereign debt woes, add to concern over the global economy. However, a decline in U.S. gasoline prices appears to have led to an uptick in gasoline demand.
* The IEA will decide whether to release more oil from its strategic oil reserves on July 23, following an increase in Saudi output to 9.7 million b/d in June—the highest level since February 2006.
* The fourth attack this year by militants on a gas terminal that feeds gas to Israel and Jordan from Egypt has put the future of the pipeline in doubt and caused Jordan to look for alternative supplies.
15July 2011
1. Pentagon hack attack. Revel 24 000 sensitive files were removed ( Air surveillance ect.)
2. Credit Suisse the target of an investigation by US Justice probe into private banking practices.
3. SA Rand strengthens against $ in early trade
4. European stocks have continued downward 10 of 11 weeks
5. Italian default swaps rise 13 basis points to a record of 302.50
6. Greek 2 year bond 32, 59%
7. Spanish mortgage defaults would surge if law changed
8. ITALY must speed up deficits to avoid $170 billion in debt
9. Lithuania capitalizes on Germany exit of nuclear power and accepts an offer from Hitachi
10. BHP agrees to buy PETROHAWK for $12, 1 billion for natural gas NB!!! ( NOTE US conversions)
11. US –House plans to vote on a $2,4 trillion debt limit increase
12. UK has $269 billion exposure to Greece
13. EU Stress test results-Bank HELABA Refuses to publish results in full
14. EU Stress- To fund over 2 years- Greece 33%, Portugal 23%, Ireland 22 %, Germany under 2% & UK 0,07%
15. Gold spot $1588.93
16. See Chris hart Investment solutions interview on E News Channel 19. 50 pm , EU stress tests interview released today.
17. Alan Rusbridge: The Guardian. Been investigating Murdock/ News Corp influence on politics & wire tapping since 2002
_ 18 July 2011 (Monday)_
1. EU Stress Test 2.0: Eight EU Banks Fail Stress Test; Combined Shortfall of €2.5 Billion
2. Out of 90 European banks, eight failed the EU stress tests, with an estimated combined capital shortfall of €2.5 billion, according to the July 15 release. The eight banks included five Spanish banks, two Greek banks and one Austrian bank. At the end of 2010, the European Banking Association (EBA) estimated that 20 banks would have capital ratios below 5%, with a total shortfall of €26.8 billion, but the final number of test failures fell to eight because of the €50 billion of capital raised between January and April 2011. On the basis of these results, the EBA recommended that national regulators should closely monitor banks with Tier 1 ratios close to 5% and with significant sovereign debt and ensure that specific steps are taken to improve capital ratios
3. Europe Weekly: Italian Banks; EZ Systemic Risk; Polish Growth and Inflation
4. By Mark Willis, Jennifer Kapila, Elisa Parisi-Capone, Jelena Vukotic and David Rogovic: Following record spreads between German and Italian bond yields, the Italian government must recover the confidence of investors. The ECB is again in tightening mode, with two rate hikes already delivered as Greece awaits a solution; we expect the ECB to delay the end to the nonstandard measures originally put in place until late Q3. Record highs for the Swiss franc against the euro and strong Hungarian forint gains since early April heighten credit risk for Hungary, while in the Czech Republic, softer inflation data and the worsening eurozone debt crisis suggest that the policy rate will stay on hold for longer. Poland’s central bank revised up its inflation forecast for 2011 while revising down growth estimates for 2011 and 2012, following the latest inflation figures
5. South Africa Labour Market: Strike Season Intensifies
6. South Africa's annual wave of industrial strikes, driven by the chemical and energy and general industries labor unions, is posing a major risk to the recovery in 2011. Workers are seeking higher wages, which would likely weigh on economic growth, worsen the fiscal position and add to economic uncertainty. The resurgence of the strikes may impair output and dampen investor confidence. Despite improvements, the economy is not growing strongly enough to create jobs, and we expect the unemployment rate to remain very high in 2011.
7. FDI to China Continues to Slow But Stays Strong
8. In the first half of 2011, FDI to China increased 18.4% y/y to US$60.89 billion, slowing from the 23.0% pace of the months through May. In June, China’s FDI increased 2.8% y/y to US$12.86 billion, marking the third consecutive month of slowing growth after a 13.4% y/y increase in May
9. NEWSCORP trading at 50% discount, signals life without Murdock. Former CEO Rebekah Brooks arrested Friday 15 July 2011. Dow Jones CEO les Hinton resigns.
10. GOLD $1600 – UBS says $5000 by 2020??
11. Euro status for financing: Germany 1,19 %, Greece 34% & Portugal 23 %
12. UBS says gold will go to $5000 by 2020
13. Gold has the longest run since 1980
14. Asian stocks drop on concerns of US economy
15. Cameron to cut short African trip to take the initiative on hacking scandal
16. Goldman leads the banks to sell property bond holdings
17. BOFA mortgage settlements magnifies strain
18. Stocks fall, Euro declines & Gold climbs to records
19. Suisse Franc rises and becomes the World`s most expensive currency as Taylor sees euro parity
20. Russian stocks in for the biggest decline in a week as oil drops
21. Sovereign, Corporate default swaps rise in EU after stress tests.
22. US Debt limit equivocation. Default referred to as a contagion Armageddon.
23. Arab ‘spring’ pits Saudi Security against US interests.
24. EU Sovereign debt risk hits new record with default swaps
25. US Wisconsin prepares for Federal Default
26. Oil rich Bashkortostan raises first bond sale since 2007
27. Spain & Italy Bonds reach record highs
28. US risk of default does not shake treasuries
29. Wall Street downgrades economy
30. Core Europe infected by debt contagion as France leads debt swaps. Europe debt woes converge with the US
31. US-Banking is less likely to run amok one after with Dodd Frank
32. Italian bond yields go beyond 6% & unsustainable. Current ECB meeting critical. The European leaders have to ensure they avoid contagion. Spain 10 year bond 6.33%.The cot of borrowing has to come down in order to be sustainable
33. US supports Greece PM austerity measures to reduce deficit levels= Hillary Clinton
19 July 2011 (Tuesday)
1. Japanese stocks slide amid US/ Europe debt concerns
2. Malaysia intends to award a licence for Islamic ‘ Mega bank’ in third quarter
3. Rupert & James Murdock face UK enquiry into phone hacking scandal along with Rebekah Brooks. Investigation initiated in the US .
4. News Corp credit diverges as S& P warns of a downgrade
5. Soros Quantum cash holdings of 75% leave Hedge Funds baffled by instability. NB
6. Accounting ‘spreads’ red flag swaps to highest level
7. Japan needs atomic weapons to face China & North Korea , Tokyo Governor says
8. China raised treasury holdings as reserves reach a record NB
9. Fitch says Philippines must raise revenue investments for a higher grade
10. Central & eastern Europe need a firewall against Euro debt crisis
11. German investor fall more than forecast with pending contagion
12. James Murdock fights for career as investigation intensifies
13. Sino-Forest debt ratings are cut by Moody`s
14. Italian yield surge revives the need for an EU common bond
15. Cameron beats Sarkozy in battle for bond investors cash
16. Booming cotton harvest- no boon for African producers with monopolies
17. London Olympics meeting budget of $11.8 billion and ahead of schedule
18. Euro led construction declines for May, led by France & Slovenia
19. Rupert Murdock says this is the most humble day in his life
20. Merkel says Euro debt woes cannot be solved in on step, at the meeting 21 July 2011 summit
21. EU Banks facing a tripling of capital reserves as they move to Basle 111
22. IMF staff sees ‘Serious Risks of Contagion’ in Euro area. ( News Flash ) NB
23. IMF sees ‘Major consequences of Contagion’ in Euro area, even if Greece can divert a crisis ( News Flash) NB
24. Bailout of Moscow Lehman like crisis sends MTR soaring
25. US Congress bickers as Bond Holders brace for panic.
26. EU- sovereign crisis pushes options to a 14 month high
27. Deutsche, RBS, SOCGEN,
28. Serbian Gov remains undaunted by euro debt crisis with recent bond sale
29. Goldman Sachs net misses analysts estimates as fixed income revenue falls
30. IMF says investors not convinced that Greek crisis can be resolved
31. BOFA reports record quarterly loss on costs of bad home loans
32. US Money market funds elude Dodd Frank regulations
33. Banks too big to fail face surcharge of 25%
34. Top US forecaster Crandle sees growth in the US, the next 6 months
35. Basle committee says 28 banks would have to comply with Basle 111 surcharge. NB
36. News Corp is a buy as sellers sell on emotion- T Keene
37. US -5 States on a AAA credit rating review for a downgrade by Moody`s for a possible cut. NB
38. European stress tests may spark an increase in reserves =S&P;
39. Wells Fargo shares climb on record profits. $ 15 billion cost cutting plan NB
40. Coco Cola profit sales rise by 18% from Latin countries
NB. Please note IMF flash warnings on Bloomberg today!
_ 20 July 2011 (Wednesday)_
1. PIMCO faces shorter debt as YEN, is the ‘cleanest of dirty shirt.’
2. Greek 2 year note rises over 40% for the first time. Note: 27% on 1 July 2011- the market has no faith in Greece recovery
3. Greece: Papandreou see make-or-break time to avoid crisis on eve of European Summit
4. Gold to extend rally if US increases debt limit
5. Oil climbs for a second day on decreasing oil supplies
6. Poland yield spreads below Spain spur sales of longest bond in 4 months
7. UN declares emergency as famine engulfs 2 Somali regions effecting 3,7 million people
8. Treasury explores plan to help 1 million homeowners from foreclosure
9. Grundlach hedge fund up 28%. The Money maker who has outperformed his rivals
10. SA inflation rate climbs to 5%
11. Apple has grown 80% in the past year. Current shares value at $392 ( year to date $317- 392). Specialist IT advisor Gene Munster (Bloomberg IT specialist) says the upside is 50% to $650 in the next year with Chinese I Pad sales. NB !!! Apple to keep pushing into China & emerging markets.
21 July 2011
1. EU Banks need to raise 460 billion Euros to stem default crisis. Merkel & Sarkozy reach consensus that Greece needs a further 110 billion Euros. A decision is critical at today`s EU Summit
2. US John Taylor FX Concepts- US headed for recession next year similar to 2008. They have used up all of their ‘gimmicks’, even with QE3, & interim relief with the raising of the debt Ceiling. NB
3. IMF urges stronger Yuan to avoid recession
4. Basel 111 may be onerous for Australian banks
5. Jay Carney. No deal yet!
_ 26 July 2011_
1. Swiss franc strengthens past 80 centimes/ Dollar for the first time
2. Gold at an all time high $1630
3. US -no resolution to the Debt Limit increase due in 8 days. Market speculates..What if ...?
_ 27 July 2011_
1. Santander profit drops 38% on expectations
2. Gold becomes the ‘go-to-asset’, amid the US Debt limit Dollar sell-off. ($1630)
3. S&P; sees a 50:50 chance of the US AAA rating downgrade to AA
4. Tom Keene interview. “In The Garden of the Beasts by Eric Larson, The Best Book of his year, and then commented “Nice to get away from Washington for four minutes” TK. This exemplifies the anxiety in the markets about the US Debt Limit & default days away
See -> 27 July 2011 Fed gives away $16 trillion: Gold may be more undervalued than we think
28 July 2011
1. Global sell off with US Debt ceiling not finalized
2. Credit Suisse Dougan plans to cut 2000 jobs as profit drops 52%
3. US banks bracing for downgrade don’t see credit a problem
4. China`s ‘aging emperors’ hurt economic growth
5. NZ $ trading near all time high as interest rate hikes expected
6. Frank Templeton favours Korea & Indonesia Bonds
7. Gold trades near an all time high as US lawmakers attempt to avert debt crisis
8. US Debt deadlock distracts from longer term fiscal apocalypse. Peter Coy
9. Amazon mirrors Apple to pass the $100 billion market cap
10. US FDR warns of slow growth ahead
11. S&P; see Greek default on European plan Implementation- cuts credit rating
12. Roach says ‘China appalled by US Debt default impasse’. May curb Treasury buying
13. Indonesia asset growth attracts Malaysian investment
14. Eurobond planned for 2012 as yields slide to November low. Russia credit
15. US sovereign down grade would cut Asian trade
16. European stocks slide for the fourth day
17. Rand unchanged against the $
18. Investec said to hire 5 banks for a$120m 5 year loan
19. Yen strengthens against the US $
20. Cyprus president will cut Ministers after S&P; downgrade
21. Confidence in Europe declines more than forecast with increased Debt woes
22. Bank of England , Miles, sees risk of UK slipping into recession
23. Italy struggles to sell bonds today. Investors want a higher interest to 7% , which is the tipping point
24. Stocks in SA fall for the third day led by Anglogold , BHP
25. Serbia raspberry growers complain about lower prices-stockpiles increase
26. Treasuries join stocks decline as debt debate continues
27. Vikram Pandit Citibank CEO: does not see US default
28. Middle East interests rates decline against record deposits
29. SA jobless rates increase to 25,7% as economy recovery wanes
30. UK executives flock for Mandarin at the Confucius Institute
31. Franc bites as strength forces stocks to decline.
32. Italian bonds decline at a 10 year auction seeking higher interest rates
33. US Credit swap ceiling hits 80& as debt deadline nears
29 July 2011
1. Spain downgraded to Aa2. S&P; threatens a further downgrade. 10 year bond 6.13%
2. Gold $1613
3. US Deficit decision delayed one more with days left
4. Nintendo profits fall most in 21 years as profits fall
5. Most Asian stocks fall on US Debt deal impasse
6. Anglo American says its first half profit is up 41 % on metals
7. Treasury may have to apply a risky payment plan as debt limit looms
8. Swiss National Bank posted $13,5 billion loss as euro weakens and hurts reserves
9. SA labour Union vows to shut harmony & AngloGold in strike.
10. Swiss Franc continues to rise
11. Portugal 10 year bond 10.82%
12. Uganda`s inflation rises to an 18 month high as food prices surge
13. John Williams FDR San Francisco President. The issues are if we don’t raise the debt ceiling is macro sustainability. Atlanta: James Bullard
14. US Debt proposal has spending cut ‘trigger’ which historically is full of failures
15. Credit Agricole falls on Greek fallout to the sum of $1,22 billion
16. Morgan Stanley says Ireland & Greece funds pouring into Suisse Francs. Swiss safety rules.
17. Fed meets top 20 banks to mitigate debt default after.
18. Roger Altman interview (Betty liu) on US Debt / Default status means Failing to make & interest or principal payment.. service interest or reschedule . Along as you are timely, there is no default. We may go into some overtime , say by a few days, but not even a technical default. Whats the opportunities thereafter. US GDP growth falls to 1.3% from 1.8% in six month- Altman says they are shocking, & disturbing. As a result , he sees a soft patch for growth and lower M&A; . The impact of deficit reduction should be delayed until 2013. We need 2% growth to begin reducing the jobs market. We just don’t have the growth to hire more jobs. Policy is not the major reason the economy is not working. Chairman founder and CEO of Ever Corp partners.
19. Obama- The US may face a deep economic crisis
20. Treasury may have to adopt a risky payment term as debt limit is days away.
21. Traders are saying QE3 is inevitable to get markets going again.
22. $ 1626, a few $ away from a record high
23. Merck to cut 13 000 jobs by 2013. This after already releasing 17 000, and by 2015, some 30 000 would have been retrenched. Mainly US employees.