G3 Recap 11-18-10

Main Items:

  • US initial jobless claims increased marginally to 439k last week, roughly as expected.
  • Philly Fed jumped to 22.5 in Nov vs 5 expected and 1 previously.
  • The Fed’s announced information for banks that are looking to increase dividends. The new guidelines for capital back the expected timing for dividend increases by the large banks and effectively sets an upper limit of 30% on payout ratios for the next 2 years. Along with the announcement, the Fed said the 19 largest bank-holding companies must submit capital plans by early next year showing their ability to withstand losses under a set of conditions to be determined by the central bank, including "adverse" economic conditions and continuing real-estate-related woes (the mortgage putback issue). The results of the new capital reviews won’t be made public.


  • China said instead of hiking rates it will implement measures to stabilize commodity prices through administrative control. PBOC advisor Zhou Qiren says rate hikes alone can’t solve inflation problems – China must also tackle supply side concerns as well. Reuters
  • South Korea in the process of introducing a tax on foreigners buying local government bonds, (14%% on interest, 20% capital gains) with potentially additional measures soon. – WSJ
  • Eurozone Current account dropped to -13.1bn in Sept, the worst print since early 2009. There was a sharp drop in the income deficit of -4bn, which is ~2/3rds the MoM change.
  • UK Retail Sales rose 1.2% YoY in Oct vs 1.5% expected – pretty ugly given the fact that RPI is up 4.5% YoY
  • UK CBI Trends Orders improved to -15 in Nov vs -24 expected and -28 previously.


  • US treasuries recovered its late morning losses, but remained lower on the day as the market begins to prep for auctions next week. CFTC spec positioning (white, as of 11/9) suggest that position unwinds could push recent moves further:

    The best short in G3 10y space remains bunds IMO, which could touch 3% in yield as the ECB continues to normalize policy. The first hike is forecast to occur in 3Q11, years ahead of the Fed. Ireland’s tapping of the EFSF, which by now appears to be well publicized, may be an additional catalyst for cheapening. Other markets appear to be expecting this as well: after a 1 week correction, EURCHF is again on its way up.