Recap 2015-03-10


Over the past week or so, strength in the USD is not longer occurring in conjunction with higher EU equity prices. The net result seems to be that the negative effects of a stronger USD is no longer being mitigated. The correlation between equities and FX is notoriously unstable, but it is quite strong of late and that seems to be the mantra of the day.

Also, the fact that EPS is expected to decline for the first time since early 2009 may itself be causing some portfolio adjustments, though the downgrades may be over for now:

In addition, despite the new EUR debt issuance the past few days, clearly supply not responding quickly enough to demand. The price action in EUR debt continues to drive longer term yields globally. At some point, either via more supply (over time) or lower demand (via prices) EUR yields will stabilize, but we are not there yet. Well… not in any place except Japan! Take a look at the far right column of this table of global 30y yield changes over the past 3 months:

The move in Japanese yields is the only DM market to have a positive print, and in fact the only country with a bigger move up in yields is Brazil! Quite surprising in the context of both the ongoing massive QE program … something for those long EUR sovereign debt to be mindful of. Perhaps the Japanese are selling JGBs to buy EU debt – specifically periphery debt, given that French and German 30y yields are now well below JGB levels. On that note… the 30y German yield traded at the same level as US 2y yields at one point today.

The upcoming Fed hike in addition to weak growth and lots of debt has resulted in a significant amount of credit tightening in EM. The 5y CDX is about to break the highest levels since 2009:

Separately, the NFIB small business survey was pretty interesting. The response to ‘Positions not able to fill’ hit the highest level since a random spike 10 years ago. However, the response to ‘compensation plans’ remain subdued. The differential between the two series is actually at the highest levels ever, a level last seen in 2000. This may reinforce Fed beliefs that they can let the employment data run a bit more before becoming concerned about inflation. In any case, the data is not weak by any means, and may be one reason why the US front end continues to move higher.

On a technical note, the Eurostoxx outperformance has taken the S&P / Eurostoxx ratio to the bottom of its 3.5 year range. There will probably be some profit taking here in the interim, but the chart is likely to provide a clue for the next move.


  • US NFIB Survey was broadly stable at 98 vs 97.9 exp and 98.9 prev
  • Australia Business Confidence declined to 0 vs 3 prev
  • China CPI improved to 1.4% vs 1.0% exp and 0.8% prev
  • Draghi Urged Greece to Allow Officials Back Before It’s Too Late. Draghi told Greek officials they face a critical situation and must let euro-area representatives return to Athens if they are ever going to obtain more aid. "Little has been done since the last Eurogroup (meeting two weeks ago) in terms of talks, in terms of implementation," Eurogroup chairman Jeroen Dijsselbloem said. "We have to stop wasting time and really start talks seriously," he said.
  • Japan: Interesting that as ECB enter’s it’s second day of QE, and German 10 years sup 30bp, Japanese rates are spiking, JGB yields up another 4bp at new multi-month highs. The Market is extremely illiquid owing to BOJ crowding-out effects but the sell-off is garnering a lot of attention
  • Yves Mersch: One way for banks to raise profits without shirking on investment is through genuine efficiency gains. And in this context I see a large “low hanging fruit” in Europe that is ripe to be picked – consolidation within the sector. According to most indicators there are too many banks in Europe relative to the size of the market. [3] This implies that there is significant scope to benefit from rationalisation, and without exacerbating the problem of “too big to fail”. Moreover, these benefits have become easier to realise now that we have a Banking Union and an end to supervisory divergence.


  • Tue: AU Home Loans
  • Wed: ChinaData, US Oil Data, RBNZ, UK RICS House Prices Balance, AU Employment
  • Thu: French CPI, US Retail Sales, Jobless Claims,
  • Fri: Canada Employment, US PPI, UMichigan Sentiment
  • Mon: US Empire Mfg, NAHB Housing Survey
  • Tue: