Recap : EUR inflation & ECB, CNY fix vs CNH

Commentary:

A few interesting items:

First, following the weak German inflation prints, the EUR 5y5y forward inflation is back at the lows from earlier this year. If they stay here or break lower, there is likely a significantly higher chance of some sort of action from the ECB next Thursday. The market has responded to this somewhat – the Euribor white pack rallied ~3bps today. (side note – there are probably some room for nefarious participants to affect markets here. The inflation market is much smaller and less liquid than the money markets, but is now a key input for the ECB, given how far away spot inflation is from their inflation target. A nefarious player could potentially use the inflation market to affect ECB policy, and hence money market rates!)

In RMB space, note that CNY has been fixing consecutively lower for a while. (h/t Steve) In fact, the rolling 10 day rate of change (green) is now negative for the first time since early February, when the depreciation trend really started:

However, USDCNH (white) has continued to rally even though the fix (orange) has been stabilizing:

I noted the likelihood of a lower CNY fix – and lower USDCNH – on 4/16, so the divergence is surprising. If any readers have a view on the continued divergence – please share!

Finally, here’s a very interesting piece on valuing internet businesses via monthly active user:

http://www.asymco.com/2014/04/29/monthly-apple-users/

Note that even iTunes can only generate revenue (not profits!) per user of just ~$9, with a 700mm user base. So the next time you see a tech company valuation based on the number of users, remember those figures.

Notable:

• US Consumer Confidence was stable at 82.3 vs 83.2 exp
• Germany Gfk Consumer Confidence was stable at 8.5 as exp
• France Consumer Confidence declined to 85 vs 88 exp and prev
• UK GDP +0.8% q/q versus +0.9% expected. +3.1% y/y vs +3.2% expected.
• ECB Stress Test Parameters: rates @ 4%, GDP -3.5%, UER @ 12%, House Prices -35%. T1 Capital >=4.5% of RWA. Results published in 4Q.
• BoE Stress Test Parameters: 2y recession, GDP negative for 2 years, UER @ 13%, House Prices -20%. T1 Capital >= 5.5% of RWA. Banks will have 6-9 months to raise capital if they fail. Results expected in Oct.
• The Senate Banking Committee beginning Tuesday will take up a bipartisan bill that so far has attracted the most support from lawmakers from both parties. It would replace Fannie and Freddie with a new system by which private firms could issue mortgage-backed securities and purchase federal insurance. Private investors would be required to take initial losses before government guarantees would kick in. – WSJ Note that the 50bp rise is actually quite substantial. 30y Fixed rates are currently 4.26%, so a 50bp rise decreases affordability by ~12%.
  

Upcoming Data:

• Tue: UK GfK Consumer Confidence, Japan PMI, NZ Business Confidence
• Wed: Month End, Turkey Trade Balance, EU CPI, South AfricaBalance, US ADP Employment, CanadaGDP, US GDP, Chicago PMI, Australia PMI
• Thu: UK PMI, Yellen Speaks, Jobless Claims, PCE, ISM Mfg, Japan Employment
• Fri: ItalyPMI, US Employment, China Non-mfg PMI,
• Mon: AustraliaBuilding Approvals, China HSBC Mfg PMI, ISM Non-Mfg PMI, AU Trade Balance
• Tue: RBA, EU Services PMI, NZ Unemployment, Australia Retail Sales, China HSBC Services PMI