The Eurozone1. Let’s begin with the euro area where Italy’s largest bank is trying to raise €13 billion of fresh capital. Unicredit stock fell almost 7% on Monday as the market absorbs the new shares.
Source: Reuters; Read full article
2. Italian bond spreads to Bunds continue to rise on political uncertainty – reaching 200 basis points for the first time in years.
3. In France, Francois Fillon announced that he would stay in the presidential race despite accusations of corruption. Unable to replace him, Les Republicains are feeling the pressure.
Source: The Independent; Read full article
The French-German 10yr spread blew out to the highest level since 2012 – the height of the Eurozone debt crisis.
the French German 10 year spreads are priced like we are in the middle of a financial crisis! same deal with Italy.
currency traders know what is going happen before bond traders do and bond traders know the lay of the land before the slobs in equity land get clued into the good the bad and the ugly...... recently we have been oscillating between the bad and the ugly.
4. Other Eurozone yields rose as well. Here are the Spanish and the Portuguese 10yr yields.
5. Next, we have a few updates on Germany.
• German politics is heating up as well as Social Democratic Party’s Martin Schulz is now in play. This is no longer just a “tail risk” event.
Source: Politico; Read full article
Source: ?@Schuldensuehner
• German factory orders significantly exceeded economists’ forecasts, rising 5.2% for the month. Surprisingly, much of the increase came domestic orders (blue line below).
• Growth in German construction activity, on the other hand, slowed.
Source: Tradingeconomics.com, IHS Markit
• Just like in the US, wage growth in Germany remains soft (although German workers tend to be paid better than their American counterparts).
Source: @acemaxx, @josephncohen; Read full article
6. Speaking of wages, the euro area as a whole has been struggling with wage growth. The ECB has consistently overestimated its compensation forecasts.
Source: Goldman Sachs, @joshdigga
7. Finally, ECB’s Mario Draghi blasted the Trump administration for easing banking regulations. Some in Europe are concerned that a softer regulatory framework in the US will give American financial firms a competitive advantage in the global markets.
Source: Fox News; Read full article
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The United Kingdom1. One measure of retail sales activity (although very volatile) showed softening in the sector.
2. UK’s new car registrations hit the highest level since 2007. However, economists see some trouble ahead for auto sales.
Source: @FT; Read full article
3. The number of visitors to the UK jumped as tourists take advantage of the weak pound.
Source: @scotiabank, @DeanDijour
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EuropeElsewhere in Europe, Romanians took to the streets again, despite the authorities backing down from decriminalizing certain corruption offenses.
Source: The NY Times; Read full article
Investors don’t seem to care about Romania’s elevated political risks, pushing the local stock market higher.
China1. Bond yields in China are on the rise again as the central bank shift into a tightening bias (discussed yesterday).
• The 10yr government bond yield.
• AA+ corporate bond yield.
3. Part of the reason the PBoC is comfortable with higher rates is stable growth.
Source: @fastFT; Read full article
4. China saw the largest outflows on record in 2016 ($725 bn).
Source: @IIF, @josephncohen; Read full article
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Japan1. The yen continues to rally on demand for haven assets among political uncertainty.
a flight to safety and the reason the EUR/JPY cross is getting pounded..... a "risk off" mentality
2. Japanese household spending has been trending lower for quite some time. Will we see some improvement this year?
Source: Goldman Sachs, @joshdigga
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The United States1. This summary from Goldman shows a long road ahead for US tax reform.
what an incredibly long and winding process and with non existant co operation... Tax reform right now looks like
an opium induced hazy dream.... All the vultures who are making there mid 6 figure and 7 figure incomes by serving as tax accountants, tax lawyers...... and whole departments in companies all have a vested interest in keeping things that way they are.
Source: Goldman Sachs, @joshdigga
Policy uncertainty remains elevated.
Source: Goldman Sachs, @joshdigga
2. The cost of government debt is quite low, reducing the pressure to exercise fiscal discipline.
Source: @stlouisfed, @josephncohen; Read full article
Some in Congress are concerned about the impact of fiscal stimulus on debt levels. Will stimulus generate enough economic growth to offset the loss of revenue? Send us your comments.
Source: @NickTimiraos, @josephncohen; Read full article
3. Following up on yesterday’s discussion on the payrolls report, here is the breakdown by sector.
Source: @BLS_gov, @Tmp_Research; Read full article
4. After recovering on Friday, Treasury yields resumed their declines. Soft wage growth makes rate hikes less urgent.
The market is pricing in a rather low probability of an inflation overshoot.
Source: Goldman Sachs, @joshdigga
5. The market-implied real rate is drifting lower, which makes the effective monetary conditions in the US easier.
6. CapEx in the United States remains well below trend.
That is bad news and we need tax reform and a cessation of the open warfare to restructure the tax code to get US CAPEX up
Source: Morgan Stanley, @MattGarrett3
7. Here are the countries that are most reliant on exports to the US and would see the greatest economic damage if the US imposes a border tax. Ireland is #1 because it is the most widely used country for US companies who are using Ireland as their initial tax haven.. before doing a double dutch.. special tax maneuver and then taxing the laundered and reduced profits to the BVI or the Grand Cayman.
Source: @business, @Tmp_Research; Read full article
8. Finally, this chart shows the index of prices for food consumed at home versus in restaurants. The recent divergence tells us that while agricultural commodities prices have weakened, services inflation continued to push ahead.
Source: @stlouisfed, @josephncohen; Read full article
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