June 2011
1 June 2011 (Wednesday)
1. Oil trades on a 3 week high with price at $105 soon
2. US House rejects debt limit increase
3. Portugal could only sell 850 million Euros of 3 month Bills at 4.97%. Not sustainable!!!!!
4. Zambia agrees to sell Equinox stake to Barrick for $160 m in cash
5. Greece in ICU as EU regulators scramble to find a solution by end of June
_ 2 June 2011_
1. Stocks fall around the world
2. Greek default raised to 50% by moody`s as EU readies for a second bailout
3. Defaults poised to grow from Brazil to India as inflation spurs rate rises
4. BOJ say Japans paralysis post Fukishima & quake unacceptable. Stocks fall most since April as no confidence vote continue
5. Vinashin asks bondholders to write off 90%
6. Taliban insurgency, IMF loan freeze to Pakistan
7. Portuguese bailout brings long prescribed medicine to economy
8. State credit default swaps beat Obama on budget cuts
9. Spanish unemployment the highest in EU at 21%. ICOLA virus from cucumbers damages a multi- billion dollar industry as Russia & other countries ban vegetables from EU & Spain
10. OPEC resist call to supply more oil to aid World recovery
11. Merkel says Europe`s problems stem from Debt , not the Euro
12. Japan -Kan survives a no confidence vote
13. Blatter re-nominated as FIFA President as contender dismissed on controversial bribery charges within FIFA
14. Rice soars 50% in Thailand
15. Greek 2 year bonds climb to 24.6% & 10 year bonds 16.7 %. Not sustainable
16. EU asks Vietnam on restraint of trade with latest bans
17. US sell off on weak data
18. S& P say $600 billion written off markets since highest
19. Gold rises this am with sovereign bond jitters
20. Commodities & metals decline on a weaker outlook
21. Asian stocks decline 1.5-2%. On recovery concerns
22. Japanese carmakers decline Toyota down 3, 25% due parts delivery after quake
23. Spain sells $4 billion in Government Bonds and meets maximum target
24. Greece credit ratings free fall, 30 times average
25. Geitner advises that US borrowing facility will run out 2 August 11
26. US Congress still stuck on Debt Ceiling increase
27. Tornadoes continue to cause havoc in US- Massachusetts the latest
28. Russia bans all fruit & vegetables from Europe and attaches all vessels delivering. 17 die from ECOLA virus & 1500 infected in Germany. The source of the virus not discovered yet. EU says ban exaggerated.
29. Every stock in the S& P is in the red. Of 500 stocks , 10 were in the green- a blood bath as the sell off continues
30. Investors stampede out of stocks & pile into Treasuries??
31. Trichet call for a Euro Finance Ministry. NB The surveillance of fiscal, budgetary , representative Government formation
32. SA- Vehicle gains the slowest in 17 months
_ 6 June 2011 Monday_
1. Wheat fields wilt in drought with parched fields from China to Kansas. Prices rally 20%
2. Greece- German (23 Billion) & French Banks (57 billion) – top exposure to Greek Debt. Credit Agricole has largest exposure. Austerity measures are followed by massive demonstrations in Athens. PM Papandreou faces backlash. Removal from the EMU recommended to exit Debt trap- Euro Credit
3. Stocks & $ gains drop on US growth concerns & further Fed easing
4. Egypt get $ 3 billion from IMF at 1,5% for restructuring after elections
5. SA stocks fall on opening trade led by BHP & SAB Miller/ Wal Mart will expand city by city in African markets
6. OPEC overshadowed by Qaddafi in the most hostile meeting since 1990
7. Geitner may support Lagarde to keep US leadership of the World Bank
8. EU needs Trichet Finance Ministry- Simon Johnson
9. Portugal Social Democrats Coelho takes over leadership
10. European shares down lead by construction & travel. European airlines downgraded as the cost of oil represent 30% of overhead costs and for every $ increase is a cost of $1,6 billion to the industry. The oil price has raised costs over 60% past year. Airline profits could be cut by 54% in 2010 as costs rise from 13% to 30% with oil price increase
11. Japan. TEPCO contagion may cost utilities 10 billion Yen. Japan Credit
12. UK- 53 economists prepare a plan B. Green new deal, tax policy & real financial reform. UK facing the largest deficit in peace or war time history
13. Tokyo electric slumps most in history as bankruptcy concerns resurface
14. A new economic world order- Southern Silk road- Emerging nations, of Latin America/ Africa/ Middle East- Stephen King HSBC- a turbo charge of growth versus N America or Europe. See more transactions with Rimbi versus the $. The US has unsustainable debt in both the public & private sectors. The $ would have to be devalued
15. Goldman Sachs Criminal probe
16. Euro rises against $ the highest in a month 1.46: $1 on optimism of a Greek bailout
17. Goldman Sachs says EU tested banks
7 June 2011 (Tuesday)
1. International Lease Finance Corp. (ILFC)- see the importance of China development of their own aircraft. Russia to come on line this year. ILFC the largest owner of aircraft globally-will continue to buy planes from Boeing & Airbus irrespective of the oil price. ( CEO Henry …
2. Lipsky , acting CEO IMF discusses the UK economy.
3. Spain`s regional revolt over austerity measures threatens recovery
4. GE Capital to vie for ING online bank for $9 billion
5. UAE cut by UBS as investment and removed from preferred country list
6. China plans to invest $100 million in solar in 40 African countries
7. Russia wheat price to rise 33% after export ban
8. S& P sees Japan failure to signal spending
9. Euro gains on Greek debt optimism
10. European banks shortfall means Greek default out of the question
11. SA gross reserves shrink 1% to $50,1 billion for April
12. Russian food prise may rise the next 2 months as exports resume
_8 June 2011 (Wed) _
1. Andreus Nauen (Repower Systems CEO Vienna) Germany going from Nuclear to Wind power Vienna. A unit of India Suzlon Energy
2. Greek Bond rollover risks the rest of euro bonds going to Junk status- euro Credit
3. Barclays to cut jobs in equity sales worldwide.
4. Gold drops on concern over sovereign debt status eases
5. Ruwanda plans to narrow 2011-12 budget deficit to 2,3%
6. Corn crop delays in the US send inventories to the lowest in 37 years
7. IMF call on BOJ to speed up asset purchases to avoid deflation
8. Lagarde takes lobbying to China after failing to get the support of India
9. Shrinking bank valuations lead to pay cuts
10. Bernanke says ‘frustratingly low recovery’ leads to accommodation actions
11. ECB & Germany clash over Greek Debt rollovers.
12. Does Greece need a Vienna initiative? The original initiative was established for liquidity of Eastern European countries at the time. The situation now is debt sustainability, & not liquidity. The initiative may by time (7 years) but not the solution and is there o avoid a contagion. The bond holders are being requested to accommodate, but a Vienna inspired solution may give some creditors of Greece a long term payback or in part. ERIC BERGLOF- EUROPEAN BANK for RECONSTRUCTION ( Chief economist & the originator of the Vienna solution)
13. Germany- ECOLI outbreak has peaked. Hundreds of millions of vegetables destroyed each week. Part compensation planned for Spanish producers
14. SA stocks decline , led by Anglo, BHP & Impala
15. IT`s BUBBLE TIME AS ASIA BRACES FOR QE3. Commentary by William Pesek
16. Dimon asks Bernanke if Post crisis rules are holding back US growth.
17. Tanzania plans super tax profit on minerals to boost revenue
18. World bank sees overheating risks amid growth of 3,2%
19. BANKING FILM of WHAT drove the crash ‘The Flaw’- David Sington (Director) . Between, 1980-2010, the wealth of the majority was transferred into the top 1% or .01%. ( Interview SKY News , Boulton & Co , 1.pm)
13 June 2011 (Monday)
1. Roubini says a ‘perfect storm’ brewing may descend on the global economy 2013. US Fiscal, Japan stagflation, China slow down & EU defaults
2. China lending unexpectedly tumbles adding evidence economy is slowing
3. Nickel plunging in bear market with glut outstripping demand
4. All stock markets down some 5% in the past 6 weeks. Money still moving into US Treasuries & other fixed interest havens. US 2 year Treasury .41% & 30 years 4.16%
5. Hong Kong property prices tumble
6. Mohammed El Erian (PIMCO CEO) backs Stanley Fischer ( Bank of Israel Governor) for IMF top job
7. New Zealand currency tumbles with new round of earthquakes in Christchurch
8. Turkey`s Erdokan wins a 3rd term as premier
9. Bilderberg meeting in Davos. To talk in private the World’s most pressing isues.
10. Andrew Kakabadse (Cranfield University)- author of The Bilderberg people. Not a secret society, but rather a meeting of minds (They shape the way we think) . Henry Kissinger, Bill Clinton, Trichet, Pascal lamy, Prince Charles… (Meetings in private rather than conspiratorial). One simply gets an invitation by telephone.
11. Gold spot $1530
12. WTO working toward an early harvest of trade liberalization- Pascal Lamy WTO Director General
13. Slovenia risk rises the most in Europe after bailout nations as the inflation RATE RISES 4 % , THE HIGHEST SINCE 2008
14. Asian stocks decline on concern global economy slowing
15. $ 3 Trillion vanish from markets as risk appetite wanes as the Stoxx 600, S& P, MCI Emerging Markets, Dow Jones ect. Are down by an average 5-7% all record stock losses over the past 6 weeks
16. India Essar seeks resources from Indonesia & Australia to meet soaring demand
17. Philippines ahead of the curve in meeting inflation says finance minister
18. Treasury strips emerging as favourite for Wall street as US economy slows
19. Trichet cold war with Germany may risk damage that may force compromise
20. Humanitarian crisis looms as 1000`s of Syrians seek asylum in Turkey
21. US faces a vicious cycle with troop withdrawals from Pakistan & Afghanistan
22. 10 000 Greeks take to the streets in protest against austerity measurers
23. ECB stance on Greece means higher costs for Spain & Portugal
24. Krona gains on Franc as investors seek higher returns without Greece
25. SA`s emerging stocks may gain 15% -Shapiro
26. Trichet is holding a gun to his head on Greek debt- Chart of the Day
27. David Rubenstein co founder of Carlyle Group. Buying ancient artefacts from Museum like the Magna Carta
28. Italian voters set to overturn key Berlusconi referendums
29. William Cohan, “ Money & Power” ( Goldman Sachs took advantage of clients money and bet on the mortgage market
30. Mauritius set to raise its bench market limit to beat rising inflation
31. Poland likely to meet deficit pledge- World bank
32. Bank of Singapore- Asia`s private bank
33. IMF targeted in IMF attack. International law was breached. Andy Purdy formed the International Cyber Agency and says Countries like Russia & China have the capability. Can’t jump to the conclusion that China is behind the attack.What we are hearing from the news , but this is the tip of the iceberg, particularly multi-nationals
34. Stanley Fischer making a last minute bid for IMF
14 June 2011
1. HUAXI Village, CHINA the richest socialist & communist village in China. Plays by its own rules ( HU Renbao & Son)
2. Sugar prices driven by Thailand port gridlock the worst in memory. Prices up 20% since May
3. Greece branded by S&P; as the World`s worst currency with its default status & credit rating
4. The Worlds monopoly on Global grain producers in the hands of 4 producers. Two trade publicly & the other private from Switzerland. CARGILL (US)< LOUIS DREFUS ( French), BUNGE & Archer Daniell`s Midland (ADM) US. Between them, 90% of the grain trade
5. Europe`s last dictator must choose between IMF aid or manage Belarus economy alone.
6. China raises reserves ratio as inflation races to the highest pace since 2008
7. UK house prices decline –RICS
8. Greece sells 26 wk T Bills for 1.65 billion Euros with borrowing 4.96 %. Yield (Cover Ratio 2;58 ). 10 year T Bills soar 17,14%
9. Greek bailout enters homestretch as EU leaders race to avoid default
10. Namibian inflation soars to a highest in a year at 5,2 %
11. China increases the amount of money the Banks have to hold
12. BOJ assistance to economy after quake limited to $6 Billion!!!
13. Interview Bloomberg: John Brynejolfsson(Formerly investment advisor for PIMCO) of ARMORED WOLF- forecasts an oil bubble with oil prices coming down. OPEC nations do not want Saudi Arabia to pump more oil which revenue it needs. Also, a rally in US Treasuries
14. Bankia IPO may be key to covering maturing debt of $215 billion
15. Bank of Israel says IMF won`t let Stanley Fischer run because of his age
16. Equities in SA advance as Chinese demand expands
17. Biggest US banks able to meet Basle 3 capital requirements
18. S&P; 500 still holding 1.4% above 200day moving average
19. Egypt debt buoyed by Obama`s $ 1 billion guarantee of Euro Bonds
20. Hackers attack US Senate
21. Japan- Kan plans to resign after quake passage
22. China- 1000`s protest police brutality
23. China`s power shortage trumps Premiers inflation surge
24. Spain sell $7.8 billion in T bills almost meeting maximum target
25. Saudi Arabia said to offer additional crude to Asia & European refineries
26. Qadaffi`s days numbered as coffers run dry –ex-central banker says
27. Glencore Q1 profit soars 47%. Today acquired a peruvian copper project for $475 million
28. US- Lawrence Summers says US may be facing a lost decade, similar to China or Japan. The aftermath of a huge credit bubble. Different to any post war slump, structural reasons for low growth or lack of stimulus. Japan has unsustainable debt. Niall Fergusson =London School of Economics says the problems are structural. More stimulus not necessarily the best option because of deficit. Even Keynes would be doubtful of a new round of stimulus.
29. Kaddafi coddled by US companies whose hearts are where there money is. ( Conoco Phillips/ Exon Mobile)
30. Carlyle buys a stake in a hedge Fund with 55% controlling stake with Kevin Kenny to continue as CEO. Fund to focus on emerging markets. Emerging Sovereign Group with $1.65 billion in assets
31. South Africa Central Bank posts loss
32. Serbia won`t sell more of euro Indexed Debt
33. Obama courts Espanic voters with the first visit to Puerto Rica since Kennedy
_ 15 June 2011(Wednesday)_
1. US funding for Tornado surveillance has run out
2. Berlusconi risks deepening debt with fiscal tax cuts
3. French banks under review with Greek exposure. Mooody`s downgrading on Credit Agricole, and BNP Parisbas, Societe General
4. Greek austerity measures & demonstrations in Athens
5. Greek- European Bank stocks tumble
6. UK jobless claims up 20 000 , 3 times economists predictions with total joblessness to + 7%. Pound tumbles
7. Bank of Ireland becomes a ‘slave’ to the country`s debt problems
8. Polish inflation quickens the fastest in a decade
9. Euro weakens on Greek Debt
10. UK Government to bank ring fence the banks. Osborne introduces new plan today
11. Debt maturity wall cut to $473 billion bump in the road- Credit markets
12. Greek Debt crisis principal to Euro Region stability of Banks- ECB
13. Margaret Carlson review of Republicans in Bloomberg
14. Jeffrey Applegate –JP Morgan- Investment policy, to have exposure to credit, be fully invested, NO US Treasuries. US financials look better than European Financials. NOT IN CASH!! The period we are in now is distinct and advises to be overweight in emerging markets .and underweight in European stocks .e.g. If Nestle goes up 15%, one will most likely lose 15% in currency. Also advises US stocks as most have a low PE value
15. Euro falls to the lowest this month against the Greek bailout as do European stocks
16. Former Credit Suisse banker Butler gets fraud conviction tossed by court
17. Homebuilder confidence in the US slides to a new 9 month low
18. Brazil foods gain most in 5 months after anti=trust ruling postponed
19. Bank of Spain calls for regional spending limits
20. Carlyle said to interview banks with initial 41 Billion IPO offering
21. Blackstone turns IPO failure into a lucrative bid for Grahams deal
22. UNICREDIT may need to raise $7.8 billion in new adequacy rules
23. Goldman cools on economy ignoring China years
24. Consumer prices increase more in the US than estimated on raw material costs
25. Suisse Franc record may force SNB to keep rates on hold for another quarter
26. Perry calls on Republicans to remove economic misery
27. Stocks slump on concern recovery is weakened, Greece at the apex of Euro concerns
28. Dubai returning to the market with Bond yields the lowest since 2009
29. Bank of Ireland has to raise $7.4 billion to meet capital requirements. The value of the bank has shrunk to 1/25th of its former value. If the bank fails to raise funds, it will become nationalized
30. Wal-Mart to accelerate openings of mid-size stores- CEO Simon
31. SEC proposes expanding oversight of brokerages clients assets after Madoff
32. Peter L Bernstein ‘Against the Gods” ( New book recommendation)
33. Euro may rebound to $1:50 – Credit AgriCole
34. Kissinger donates 1 million documents
35. Fed officials said to be discussing inflation targeting backed by Bernanke
36. CNBC SA-Andrew Cantor-CIO Future Growth on bond investments & transparency
_ 21 June 2011 (Tuesday)_
1. Singapore to oust Switzerland as top management centre...PWC says
22 June 2011
1. French Agricultural Minister wars of a century of hunger & urgent rationalization required globally to stabilize & manage ( Bloomberg)
23 June 2011
Energy Weekly - June 23, 2011
By Gary Clark
* Oil prices hit their lowest level in 2011 on June 23, touching US$90/b, as the International Energy Agency unexpectedly announced that it was to release 60 million barrels of oil from its 4.1-billion-barrel stockpile. We expect GCC OPEC members to increase production—this, combined with IEA supplies and early indications of weak global growth, will suppress prices in the short term.
* Brent’s premium to WTI should narrow, but not reverse, as North Sea output rises on the back of completed maintenance. International benchmarks may suffer in the face of periphery eurozone (EZ) debt woes and a slowing of growth in emerging markets.
* Developments in the EZ are adding to general volatility across asset markets, including oil, and to concerns over global growth. The concurrent correction in equities is a hit to wealth, which could exacerbate the current slowing in the global economy and demand for oil and oil products.
* ICE Futures Europe has begun publishing trader information for Brent and gasoil—akin to the U.S. Commodity Futures Trading Commission’s Commitment of Traders Report. On the downside, EIA budget cuts will restrain the agency’s ability to report statistics on the oil market at a time when politicians are calling for more transparency.
* Outlook Overview: A Blip or a Dip for Global Growth?
By Christian Menegatti, Rachel Ziemba, Nouriel Roubini and the RGE Economic Research Team: Our baseline recovery scenario remains one in which most developed markets (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. Meanwhile, emerging markets (EMs) will continue to power ahead, though their expansion will fall short of 2010 rates as growth converges toward potential.
* Spain Outlook Update: Fiscal Housekeeping Shifts to Regional Governments
By Elisa Parisi-Capone: Spain will rely on its ability to retain export market share and sustain rising tourism revenues to support the economy amid ongoing deleveraging. On the downside, if uncertainty emanating from Greece is left to fester, there is a significant chance of sovereign risk concerns engulfing Spain and the banking sector as well.
* EU Stress Test Round Two: EBA Set to Include a Sovereign Default Scenario?
The European Banking Authority is reported to be asking the 90 banks participating in the current round of stress tests to more seriously consider potential losses from a Greek default on its government bonds. In RGE’s view, the restoration of Greek debt sustainability requires a 30-50% net present value reduction, broadly in line with current market pricing. 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.
24 June 2011
* Observations From Nouriel Roubini
“Until recently, equity markets seemed to discount these tail-risk events and continued their upward rally, but since the end of April, a more persistent correction of U.S. and global equity markets has started in earnest, driven by worries that U.S. and global economic growth may be slowing down much more than expected by the consensus. Viewed with an optimistic spin, the recent shocks are transitory, growth is set to recover in H2 2011 and the recent market correction is bound to reverse itself, leading to the resumption of the market rally. But there are good reasons to believe that this is not just a soft patch but rather a more persistent slump that may lead to a growth stall, a growth recession or even an outright double-dip recession in some advanced economies. The rise in commodity prices increases input costs at a time when firms are not able to transfer these cost increases to highly leveraged consumers via increases in retail prices. Plus, the slowdown in GDP and productivity growth increases unit labor costs and squeezes margins. The softening in final demand affects the bottom line through weaker top-line revenue growth. And, for any given earnings expectation, valuations will also suffer because of the increase in risk aversion due to tail risks and uncertainty.”
* RGE Out of Consensus
UK Monetary Policy: “Although monetary policy clearly affects the exchange rate, we attribute the majority of Sterling’s past depreciation to the crisis and resulting weakness in the real economy, and hence are skeptical about arguments that rate hikes will result in enough appreciation to significantly suppress imported inflation...in our view, fiscal tightening will drag down on growth more than either the BoE or consensus expect.”
—Parul Walia, Research Analyst, and James Mason, Senior Research Analyst, March 15, 2011.
As far back as February, we have maintained that, in light of the UK’s slow recovery and painful austerity measures, the Bank of England (BoE) would hold off raising rates, in spite of mixed opinions within the BoE monetary policy committee. The June monetary policy committee meeting minutes vindicated this view, with dovish members dominating a split roster, within which Adam Posen still favors QE2, and Spencer Dale and Martin Weale otherwise support a hike. The June minutes highlighted the risks of below-target inflation in the medium term and noted an expectation for weakness in demand growth to persist, reflecting Parul Walia and James Mason’s March assessment that “monetary policy does not need to be tightened just as fiscal tightening kicks in and suppresses domestically generated inflationary pressures in the majority of the UK’s consumer/service-focused economy. Instead: monetary policy should continue to support economic rebalancing, so long as wage settlements and inflation expectations remain well anchored.”
* RGE Views Update
The RGE Economic Research Team issued the remaining quarterly Outlook Updates this week. For the full list, visit the Outlook Center.
* United States: RGE’s baseline view for an extended period of subpar growth seems to have been vindicated so far, albeit with some volatility. We still think that in 2011 the economy will avoid reaching stall speed, though this risk has risen.
* Canada: We maintain our call for the economy to grow at 2.7% y/y in 2011; however, the balance of growth has shifted across the quarters. The Canadian economy notably slowed in Q2, though economic growth will pick up in H2 to around 2.2-2.5% q/q.
* Euro zone: A strong Q1 performance, especially among core countries, and the robust start to Q2 informs our baseline growth forecast of 2.0% y/y for 2011 (up from 1.7% in the previous Outlook Update).
* France:The impressive start to 2011 was underpinned by relatively robust fundamentals, such as increased investment and strengthening private consumption, which has led RGE to revise upward its growth forecast for 2011 from 1.5% y/y to 2.1%.
* Spain: Spain will rely on its ability to retain export market share and sustain rising tourism revenues to support the economy amid ongoing deleveraging.
* Central Europe:The recovery in CE-3 economies (Czech Republic, Hungary and Poland) continues to progress, though growth rates remain below trend. RGE forecasts regional growth of 3.4% in 2011 and 3.5% in 2012.
* Emerging Europe and CIS: Although growth is becoming more broad-based, emerging Europe will continue to grow below potential in 2011. Regional growth will slow over the course of 2011, and be slightly weaker in 2012 (4% y/y) as fiscal and monetary policy are tightened and global demand eases.
* China: Despite the slowdown in economic activity in Q2, we stick with the growth forecast presented in our March 2011 Outlook Update. We had expected Q2 to be weak, and the current soft patch looks to be transitory.
* Taiwan:We revise our growth forecast upward slightly to 4.9% y/y in 2011, as Q1 growth of 19% q/q SAAR exceeded our expectations.
* Lat Am:Given strong growth in Q1, we are revising our 2011 growth forecast upward to 4.7%, as the region decelerates toward sustainable, close-to-potential levels.
* MENA: Continued political unrest dampened the growth outlook for the MENA region, and we now expect growth of about 3.9% y/y in 2011, impacted by significant downward revisions for Egypt, Tunisia, Syria and Bahrain.
* Sub-Saharan Africa: We revise downward our expectations for growth to 4.9% y/y in 2011 and 5.3% in 2012, limited by higher financing costs and price pressures.
* Gulf Cooperation Council: Ample government spending and stronger hydrocarbon output sets the GCC countries on a path to far outperform the rest of the MENA region, expanding by 6% in 2011.
ROSI FX: Good Entry Point for Shorting the Subindex
By Natalia Gurushina
* The FX 5 subindex of the RGE Oil Sensitivity Index (ROSI) tracks long (RUB, NOK, COP, CHF, AUD) and short (THB, INR, TWD, KRW, IDR) strategy. Our research shows that the subindex has a pretty good fit versus the price of oil.
* At present, the ROSI FX 5 subindex appears too high relative to the price of oil (both Brent and WTI) and shows a significant deviation from both its short-term and longer-term trends (Figure 1).
RGE believes that if there is further downward correction in the price of oil, WTI could move another US$5-6/barrel before finding support.
In our view, downward correction of the ROSI FX 5 is likely and this creates a good entry point for shorting the subindex—more specifically, shorting an equal-weight basket of RUB, COP, AUD, NOK and COP versus an equal-weight basket of THB, INR, TWD, KRW and IDR.
The current value of the subindex is 119.39, and we expect it to move to the 117.0-117.5 range.
* The key risk to the trade stems from rising expectations of additional monetary stimulus from the Fed, which might prevent further USD strength (which is usually accompanied by lower oil prices).
* The Boxing Match of IEA and OPEC: IEA Opens Crude Coffers in 60-Million-Barrels-Strong Punch
By Shelley Goldberg and Gary Clark
* The International Energy Agency’s announcement that they will tap into strategic crude oil reserves, along with Fed Chairman Ben Bernanke’s uninspiring speech on U.S. growth, reduces the price of WTI and confirms our outlook on crude oil.
* We hold our crude price forecasts for the year at US$98/b for WTI and US$110/b for Brent.
* High volatility on both price and grade spreads should persist even amid the summer doldrums.
27 June, 2011
* Soros says the EMU will ultimately fall apart with sovereign default. Chinese Premier continues to support EURO.
* Outlook Conference Call: Monday, June 27
On Monday, June 27, at 9 a.m. EDT/2 p.m. BST RGE Chairman Nouriel Roubini will introduce the June 2011 Global Economic Outlook Update, along with Arnab Das, managing director of market research and strategy, and Christian Menegatti, vice president and head of global economic research. The Global Economic Outlook is now available at Roubini.com and in PDF.
* Turkish Fiscal Policy: Good From Afar, but Far From Good
By David Rogovic: A reliance on temporary factors, such as one-off tax revenues, above-trend growth and lower interest expenditures, is in part responsible for Turkey’s supposed fiscal restraint in 2011. Although public spending increased less than expected in the five months to June, at 6% y/y, RGE believes a tighter fiscal stance is needed to cool down an overheating economy and put growth on a more sustainable path.
* Pharma Drags Down Singapore IP in May, Other Sectors Provide Mixed Picture
Singapore's industrial production (IP) index continued its tumultuous ride, plummeting 17.5% y/y in May, after a 9.3% decline in April, far beyond consensus expectations. In both months, pharmaceuticals played a big role in pulling the headline IP number lower, offsetting healthy growth in precision engineering and chemicals. Petrochemicals, which broadly capture a whole swath of intermediate goods, fell y/y, which suggests demand for intermediate goods regionally may be slowing.
* Europe Weekly: Turkish Credit Growth; UK Consumption; Russian Payroll Tax; Greek Crisis Impact on Romania; Finnish Growth Policy
By David Rogovic, Deepika Sharma, Parul Walia, Jelena Vukotic, Mikko Forss, Tim Azarchs and David Rogovic: The Turkish Banking Regulation and Supervision Agency announced several macroprudential measures designed to curb consumer credit growth, slow domestic demand and prevent the buildup of financial imbalances. RGE expects UK consumer demand, which accounts for approximately 65% of GDP, to be flat in 2011, owing to inherent weaknesses in consumption. The Russian president announced tax-rate reductions for corporations that will increase Russia’s reliance on natural resource revenues and the breakeven oil price in the 2012 budget. Market angst hit Romania’s leu in mid-June, sending it to a four-month low, trading at 4.24 against the euro. The new Finnish coalition is relatively pro-bailout.
* FT Arrives at Wrong Conclusion on Greek Crisis and CDS
From the EconoMonitor: David Nowakowski argues that the Financial Times, in a recent article on the Greek crisis and credit default swaps (CDS), misinterprets the gross/net numbers, also incorrectly surmising the “value” of CDS following a restructuring. Further, the big problem is counterparty risk, where, in the case of CDS, small net exposures can become huge. Otherwise, the corporate CDS market is doing just fine.
28 June 2011
* Greek Political Crisis Reaches Boiling Point
By Mark Willis and Katharina Jungen: Greece’s fate hinges on Parliament approving the Medium-Term Fiscal Package (MTFP) on June 29 and 30, a prerequisite for the country to receive the next bailout tranche by mid-July. RGE expects the package to pass with a very small majority, though several domestic pitfalls nonetheless would remain, including a high probability of further fiscal slippage.
* Second Greek Bailout: Contingency Plan and Bank Rollover Proposals Emerge
At the June 23/24 Summit, EU leaders agreed to support Greece with a second bailout package if the Greek parliament passes the medium-term austerity package negotiated earlier with the troika. According to press reports, EU leaders are also preparing for the case that the Greek parliament rejects the new measures. RGE maintains that a par exchange offer with much longer maturity/below-market-rate coupon is the most efficient solution.
* China's Local Government Debts: How Big and How Bad?
The first full audit of local Chinese government debts found RMB10.7 trillion (US$1.7 trillion) of liabilities at the end of 2010, with RMB8 billion already overdue. We assume about RMB14.6 trillion in outstanding local government debts, with nearly 90% financed through the banking sector, including off-balance-sheet lending, and expect UDIC debt loads to increase further in 2011 as restrictions are loosened for low-income housing projects.
* Thailand: Beyond the Poll
A Pheu Thai (PT) election victory on July 3 looks increasingly likely, which raises the critical question of whether the country’s conservative forces, particularly the military, would allow such a government to form and grant amnesty to exiled former Prime Minister Thaksin Shinawatra. A PT loss or military intervention after the election could prompt Red Shirt supporters of Thaksin to storm Bangkok’s streets in a replay of last year’s protests, which turned violent and left more than 90 people dead.
* Oil Windfalls and Ruble Appreciation: Kudrin vs. Ulyukayev
By Tim Azarchs and David Rogovic: Assuming Russian exports remain unchanged at 2010 levels, for each dollar increase in the price of oil, export earnings would increase by US$223 million per month. The Russian finance minister has predicted that if Russia spends all its windfall oil earnings rather than rebuilding the reserve fund, the ruble would climb as high as RUB24 to the USD, a warning that the central bank's first deputy chairman disputes. RGE used the central bank's managed exchange rate mechanism to model potential outcomes.
29 June 2011
* Greek Government Tries to Win Over Wavering MPs Ahead of Crucial Vote
A number of the government's 155 MPs have indicated they will oppose the new fiscal tightening proposals, thereby reducing an already slim majority ahead of the Greek parliament's crucial vote on June 29. Without consensus on the necessary but painful reforms, the risk of political collapse, disorderly default and ultimate exit from the eurozone increases significantly
* North America Focus: U.S.: A Weak ISM and FOMC Musings; Canada: Strong Inflation For Now
By Prajakta Bhide, Tetiana Sears, Syed Rahman and Rachel Ziemba: For the U.S., this week’s ISM index reading should further underscore the weakness in manufacturing activity in June. For Canada, the May CPI report should show continued inflationary pressures stemming from elevated commodity prices, as Q1 national accounts data shed more light on the state of household balance sheets.
* Lat Am Weekly: Brazilian Capital Flows; Mexican Economic Activity; Argentine Politics; Chilean IP
By Juan Lorenzo Maldonado and Nathalie Picarelli: Brazil’s foreign investment data will be released this week, revealing valuable information about the composition of incoming capital flows. Mexico’s IGAE will likely show a modest 3.65% y/y expansion in April, faster than March’s 3.53% but still short of its 4.57% 3mma. Argentina’s economic activity continued to decelerate in April, though demand indicators still show momentum. Chile’s IP growth continues to normalize after March’s spike.
* Iran Plays Regional Chess, Amid Power Struggles at Home
By Maya Senussi and Rachel Ziemba: Iran has been exerting influence across the region—especially on the other side of the Persian Gulf—from behind the scenes. Meanwhile, intergovernmental fault lines are widening, and even strong oil prices won’t be enough to keep Iran’s economy from stagnating in 2011.
* From the EconoMonitor: FT Arrives at Wrong Conclusion on Greek Crisis and CDS
By David Nowakowski
David Nowakowski argues that the Financial Times, in a recent article on the Greek crisis and CDS, misinterprets the gross/net numbers, also incorrectly surmising the “value” of CDS following a restructuring. Further, the big problem is counterparty risk, where, in the case of CDS, small net exposures can become huge. Otherwise, the corporate CDS market is doing just fine.
30 June 2011
* Greek Parliament Passes Critical Vote on Austerity Measures
The Greek parliament on June 29 approved a medium-term fiscal package with a vote of 155-138, fulfilling the major prerequisite for the disbursement of the July tranche and for agreement to a second bailout package. The government will now have to pass a related implementation law on June 30, sanctioning an independent privatization agency. RGE does not view the current arrangement as stable and does not exclude the risk of a restructuring as a last resort.
* Japan's Industrial Production Improves in May; Optimism Remains Tepid
In May, Japan's industrial production rose by 5.7% m/m from 1.6% in April, as production lines increased activity, especially within the transport sector. In northern Japan, where the earthquake wrought the most damage, industrial production gained 18.8% m/m on reconstruction efforts, though electricity shortages continue to limit output.
* MENA Focus: MENA Real Estate: Fallout From the Arab Spring
By Ayah El Said, Maya Senussi and Rachel Ziemba: MENA property markets are diverging in the wake of the Arab Spring; however, in the region as a whole there is a persistent undersupply of affordable housing as populations and labor forces continue to grow. The increase in housing costs is not only a major contributor to inflation and inflation expectations, but also a trigger of political unrest.
* Canadian Inflation Spikes in May: Moderation Ahead?
In May, Canada’s headline inflation accelerated to 3.7% y/y, led by a huge leap in gasoline prices, to exceed RGE and market expectations. The recent easing in gasoline prices should mitigate some of the upward pressure on headline inflation stemming from high food prices, while the deflationary impact of a strengthening Canadian dollar on import prices should keep core inflation subdued.