Blog

Welcome to the point of no return

wdetsinyi — Wed, 16 May 2012 12:44:21 +0000

Nearly five years into the global credit crunch, you get a feeling for when something has reached the point of no return, when no amount of reassurance, promises or policies will fight the tide of markets. But to be sure, this is not to define markets as pure ‘speculators’, rather rational individuals and entities that are removing deposits from Greek banks, reducing their exposures to all types of market risk and doing their best not to be crushed by a moving train.

More RMB depreciation cannot be ruled out

wdetsinyi — Tue, 15 May 2012 09:19:08 +0000

Noticeable over recent months is that all those commentators and talking heads who have claimed for so long that China’s currency is massively undervalued have gone into hibernation. Because what has become abundantly clear is that the analysis that lay behind this claim was fundamentally flawed and incomplete. Recent developments in China will now hopefully trigger a more rational appraisal of the valuation of the currency, which so far this year has actually depreciated against the dollar, the pound and other major Asian currencies (except for the Japanese yen).

Finding the inflexion point

wdetsinyi — Mon, 14 May 2012 12:01:47 +0000

Whilst the single currency has certainly suffered so far this month, by all accounts it’s not yet reached an inflexion point whereby it’s fallen out of bed. Yes, it remains true that EUR/USD has fallen in all but two trading days so far this month, but at the same time it’s the high-beta currencies that have taken more of the pain, the Aussie, Kiwi, scandis and Mexican peso all losing ground against the euro. On this basis it looks to be more a global re-rating of risk, of which the euro crisis is playing its part, but this will more likely than not change in the near future.

Spanish banks – the next systemic risk

wdetsinyi — Thu, 10 May 2012 09:46:49 +0000

Yesterday’s decision by the Rajoy government to take a 45% stake in troubled lender Bankia and to provide capital as necessary is just the tip of the iceberg in terms of cleaning up the bereft Spanish banking system. The third-largest lender in Spain and arguably the most vulnerable because of its huge exposure to the tumbling property market, the government correctly formed the view that urgent steps were required to attempt to stabilise Bankia.

Why is the euro not much lower?

wdetsinyi — Wed, 09 May 2012 08:50:14 +0000

It is looking decidedly dreadful for the single currency once again.

A warning for euro bears

wdetsinyi — Thu, 03 May 2012 10:28:26 +0000

Yesterday’s flood of distressing economic data out of Europe reinforced the observation that what the region desperately needs is a weaker currency.

The remarkably resilient Aussie

wdetsinyi — Wed, 02 May 2012 09:52:31 +0000

Although unexpected by many local commentators, the case for a 50bp rate cut by the Reserve Bank of Australia at its last policy meeting was a fairly compelling one. With the non-mining economy in recession and inflationary pressures abating it was clear that the Australian central bank needed to ease financial conditions significantly. Falling property prices would also have contributed to its boldness – according to the Australian Bureau of Statistics, established house prices fell by another 1.1% in the March quarter, a fifth consecutive decline.

The politics of austerity

ssmith — Thu, 26 Apr 2012 07:36:28 +0000

At its heart, the crisis in the eurozone is one of economics. At the start of Economic & Monetary Union (EMU) there was a great focus on the M, far less on the E. At the risk of oversimplifying things, the lack of economic focus is why things went wrong and why governments pretty much everywhere are trying to make amends. But the political price of this is becoming all too apparent and, whilst the centre of Europe is enacting reforms that strength central surveillance and powers (such as the fiscal compact), there are more signs that electorates and indeed politicians are pushing back.

Switzerland’s titanic struggle

wdetsinyi — Fri, 13 Apr 2012 10:02:01 +0000

The most surprising thing about last week’s crossing of the 1.20 line on EUR/CHF last week was that it took so long to happen. Even though the SNB has downplayed the significance of it, it’s unlikely to be the last battle between the markets and the SNB.

A critical time for gold

wdetsinyi — Thu, 05 Apr 2012 08:51:56 +0000

The next couple of weeks loom as a critical time for the gold price following sustained selling pressure since the end of February. Over that time, the precious metal has fallen by USD 160 to USD 1,625, although, for the year to date, it is still up by 4%. Should the gold price take out last December’s low at USD 1,522.65, then from a technical perspective this would be a very bearish signal indeed.

Oil prices now the strongest growth headwind

mderks — Tue, 27 Mar 2012 10:57:35 +0000

Last week’s warning from the International Energy Agency (IEA) that the surging cost of oil now represented a bigger risk for global growth than the European sovereign debt and banking crisis did not generate the publicity it deserved. Brent crude has jumped by 17% this year to USD 126 a barrel, essentially matching the high achieved a year ago; in mid-2008, Brent soared to a record high of USD 146.

Tough times for the Aussie

wdetsinyi — Thu, 22 Mar 2012 12:20:28 +0000

There can be little question that the cycle has turned for the Aussie.

The boom in German house prices

wdetsinyi — Mon, 19 Mar 2012 12:39:14 +0000

There are always winners in every crisis. In this instance, one of the big beneficiaries of Europe’s sovereign debt and banking debacle has been German house prices, which have been moving steadily higher over the past couple of years.

China’s growing pains

wdetsinyi — Thu, 15 Mar 2012 13:06:27 +0000

Notwithstanding the general mood of optimism apparent in risk assets these days, there is a growing school of considered opinion which believes that China is heading directly for a hard landing. Complicating the compilation of evidence to support this view is the fact that the Lunar New Year holidays were earlier than usual this year, distorting most series.

The vulnerability of gold

wdetsinyi — Wed, 14 Mar 2012 16:13:18 +0000

Gold bulls are starting to shiver and shake, with the price down another 2% today to USD 1,643 an ounce. At the end of last month, it was close to USD 1,800; six months ago, it was touching USD 1,900. So, what is going wrong? Is this the end of the bull cycle, or simply a healthy correction after what has been a sensational run?

It is worth recalling that in the middle of last decade before the financial poo hit the fan, gold was trading around USD 425. As such, gold has almost quadrupled in price in just seven years.

Total wipeout

wdetsinyi — Fri, 09 Mar 2012 15:28:26 +0000

The deal is done, credit default swaps are likely to be activated and in one fell swoop Greece’s debt mountain has been cut by EUR 100bln. But what’s the outlook for Greece now and does this mean the worst is over in terms of the debt situation?

RBA refuses to countenance Aussie FX intervention

wdetsinyi — Wed, 07 Mar 2012 15:46:10 +0000

Excessive currency strength has become a tremendous policy vexation for some central banks over the past couple of years. In Japan, the BoJ’s FX-intervention war-chest is now monumental, such is the concern in Tokyo regarding the negative impact which an overvalued yen poses to the economy. Recently, the BoJ significantly expanded its asset-purchases program and implemented an inflation target designed to demonstrate that it is determined to fight the deflationary effects of the strong currency.

China’s subtle shift

wdetsinyi — Mon, 05 Mar 2012 12:48:41 +0000

On the face of it, China’s revision of its growth target was an expected and relatively small change, but this is China we are talking about, so any shift in stance cannot be ignored. The move to target growth of 7.5%, rather than 8.0%, really reflects the official sanctioning of what has been desired for some months now, if not years, namely a shift towards rebalancing growth within the Chinese economy. It is also an official acknowledgement that China cannot endlessly strive for growth at any price, the economy having doubled in size (in real terms) over the previous seven years.

The ECB’s LTRO dilemma

wdetsinyi — Thu, 23 Feb 2012 14:29:11 +0000

The ECB’s auction of 3Y funds back in December has been credited with any number of things, from staving off a full-scale credit crunch in the eurozone to helping the rally in peripheral bond markets and also supporting the best start to the year for world stock markets for 15 years. Next week the ECB will undertake the second 3Y auction, but does this mean more of the same if take-up is high? In all likelihood, probably not.

Political instability down under could rock the Aussie

wdetsinyi — Wed, 22 Feb 2012 11:54:36 +0000

Last night’s resignation by Foreign Minister (and ex-Prime Minister) Kevin Rudd has further inflamed political tensions within his Labour Party over who should lead it into the next election. After weeks of intense speculation surrounding her leadership, current Prime Minister Julia Gillard expressed her disappointment at Rudd’s decision, which the latter claimed had resulted from her failure to express her ongoing support for him. Recall that Gillard replaced Rudd as Prime Minister in a leadership coup less than two years ago.

Latest Greek deal will unravel very quickly

wdetsinyi — Tue, 21 Feb 2012 10:42:19 +0000

This latest Greek debt deal will unravel very quickly, despite the pangloss that European leaders will undoubtedly attempt to wrap around it. As the FT reports today, finance ministers attending this latest all-nighter in Brussels were informed last week that the implosion of the Greek economy ensured that the country’s debt dynamics were far worse than anticipated and that yet another expensive bailout would probably be required after the money from this second EUR 130bln had been disbursed.

Iran is rattling a lot of cages

wdetsinyi — Fri, 17 Feb 2012 15:55:03 +0000

Against a varied group of nations intent on denying it nuclear capability, Iran has at its disposal what is arguably an even more potent weapon – the price of oil. But in this high-stakes game the cost to either side of getting what it wants is astronomically high.

Asia’s increased resilience

wdetsinyi — Wed, 15 Feb 2012 11:38:11 +0000

Spending a few days in Asia is focusing my mind on the extent to which this region can detach itself from what is going on in Europe. It has successfully de-coupled from problems elsewhere (in 2007-08), but does the water that has passed under the bridge since then make Asia more resilient or more vulnerable to the shockwaves from Europe? It’s a key question, especially with China again making noises about offering more solid assistance to the eurozone.

Moody’s blues

wdetsinyi — Tue, 14 Feb 2012 11:41:39 +0000

Rather belatedly, Moody’s has finally recognised that the AAA debt ratings of both France and the United Kingdom cannot reasonably be defended. Austria has also (justifiably) been handed a warning notice, while six other EU countries including Italy, Spain and Portugal have all had their rating downgraded by at least one notch.

The euro carry trade

wdetsinyi — Thu, 09 Feb 2012 12:11:56 +0000

The ECB’s second 3Y auction of funds takes place at the end of this month, with the first operation credited (by the ECB President) with staving off a credit crunch in the eurozone and, more tentatively, having contributed to the rally in risk assets seen so far this year. But does this mean that the euro will turn into the carry currency of choice?

The ECB will have to yield on Greece

wdetsinyi — Thu, 02 Feb 2012 12:21:25 +0000

The widening dichotomy between what is being asked of private sector bond-holders in Greece and the stance of the ECB looks ever more untenable and, if some reports are to be believed, this is one of the sticking points that is preventing a resolution of the talks.

Greek impasse overshadows EU summit

wdetsinyi — Tue, 31 Jan 2012 09:15:42 +0000

In contrast to many of the 16 EU Summits held over the past two years since the Greek debt crisis first erupted, yesterday’s was a particularly productive one.

Firstly, twenty-five of the EU’s 27 member countries signed up to Angela Merkel’s fiscal compact, designed to implement tougher budgetary discipline in Europe. All signatories to the compact will also be required to insert collective-action clauses into new government bond issues by January 2013.

The growing monetary policy divide

ssmith — Thu, 26 Jan 2012 09:49:21 +0000

Here’s a simple test. ‘A’ is expected to grow 1.8% this year, has seen its economy reach its pre-crisis level of output and has seen core inflation rising (currently 2.2%). ‘B’ is heading for recession (growth seen -0.5%), remains nearly 2% below its pre-crisis peak in output and has core inflation steady at 1.6%. Central bank ‘X’ has rates at 0.25%, has committed to keep them here for nearly three years and has indicated more QE may be on the way after two rounds already completed.

Yet another stalemate in Greek debt reduction talks

wdetsinyi — Tue, 24 Jan 2012 10:45:17 +0000

It was always a forlorn hope that agreement on a ‘voluntary’ Greek debt restructuring would be completed by yesterday’s EU finance ministers’ meeting. This is no surprise to anyone who has been following the negotiations; there are essentially four sides involved in these very complex negotiations with vastly differing and competing interests, with a lot of money at stake and a rapidly deteriorating set of underlying circumstances.

ECB objections to fiscal-compact draft bear fruit

wdetsinyi — Fri, 20 Jan 2012 10:30:39 +0000

According to a Bloomberg story today, European lawmakers have strengthened the latest draft of the fiscal compact to reflect many of the criticisms made earlier this week by the ECB. EU finance ministers will discuss this latest draft at their next meeting on January 23rd. Should the structural budget deficit deviate “significantly” from the target of 0.5%, then there will be a centralised corrective mechanism which is triggered automatically.