Greek bonds remain unloved, except by Norway

• Strong performance by commodity currencies
• Euro still wavering
• China/US fx tensions likely to intensify again
• China/Japan bond tensions emerge
• German growth now tapering off
• BOC raises Canadian bank rate by 25bp to 1.00%
• Beige Book noted ‘widespread deceleration’

More grief for Europe’s peripheral bond markets on Wednesday, specifically Greece, with the  Greek/German 10yr government bond spread widening a further 15bp to 957bp (just below the peak back in May of 965bp). Interestingly, Norway’s enormous $450bn Government Pension Fund has been buying up Greek debt, as well as Spain, Italy and Portugal – clearly, they are of the view that none of these countries will default. Also, the FT has run a story this morning suggesting that the ECB has bought between €100m and €300m of Greek, Irish and Portuguese bonds this week as it recommences its Securities Markets Programme. Portugal held a successful 11yr auction which attracted a bid/cover of 2.6 times. Also, the Irish Finance Ministry announced that Anglo Irish, that enormous albatross around the neck of the Irish government and taxpayer, will be split up into a good bank and a bad bank...Read More

New month with old concerns

• Market moving on old stories
• Australia has new PM Gillard but the aussie is not celebrating
• No surprise with RBA or BoJ decisions
• Sterling watching gilt market for directional clues
• UK retail sales survey suggests modest August growth

The main stories in the early part of the week appear to be old ones that have been dusted off, slightly refreshed and sent out once again. The euro’s weakness overnight is owing to reports that the EU bank stress tests did not reveal all of the government debt they are holding (Wall Street Journal).  This follows on from reports yesterday that German banks may require more capital.  Furthermore, the BIS report of yesterday reminded us that the private sector deleveraging has a long way to go, with implications for both growth and currencies.  The main thing is to determine what is old news, what is speculation and what is a change of circumstances, although the trouble is that markets can move on all three, to varying degrees)...Read More

The 'even more jobless' US recovery

• Whatever comes of the US jobs data, it should not change the perception of a very jobless recovery
• Aussie weaker overnight on commodity price outlook
• More Japanese officials wary of unilateral intervention
• Trichet stretches further the definition of temporary
• More signs of switching into equities

Whatever the outcome of the US employment report today, it’s not going to change the wider perception that the pace of hiring in the US is way off that which typifies a normal recovery. On the current pace of private sector hiring, it would take nearly 7 years for employment to reach the peak seen in late 2007.  Compare this to the ‘jobless recovery’ after the last recession and in terms of reaching pre-recession peaks of employment, the pace of hiring this time around is less than half that of 8 years ago. So, whilst markets will have their usual flurry around the numbers, it’s this wider point that needs to be remembered in terms of the implication for interest rates (staying low), bonds (remaining bid, bar early September asset allocation shifts) and FX (risk of more QE)...Read More

New Month, New Flows

• BIS report shows increase in spot FX trading, dominated by investor and central-bank flows
• Fed minutes show some healthy debate
• China PMI rises modestly but below 5-year average
• Australian GDP gives the Aussie a boost
• US consumer confidence

The first trading day of September should be an indicative one for forex market sentiment, given that Tuesday was largely dominated by month-end flows in fairly light trading. This point is worth considering in light of the triennial BIS survey on the global forex markets released overnight, where there are two relevant observations.  Firstly, within the reported 20% increase in fx volumes over the past 3 years, most of this has come from spot (48%).  Secondly, in terms of investor type, most of this increase has come from “other financial institutions”, which include non-reporting banks, mutual funds, hedge funds and central banks among others.  This underlines the impact such flows can have on spot fx.  As such, a new month means new cash to be put to work and a new performance period for hedge funds...Read More

Bank of Japan, a fail

• Another Japan policy-response fails to hit the target
• European confidence improves, but at a slower pace
• UK consumer confidence reverses July decline
• Australian data suggests renewed buoyancy
• European issuance taken comfortable so far this week
• US income and spending data broadly in line

The market’s verdict on the Bank of Japan’s decision was pretty clear, with the yen substantially outperforming G10 currencies and being the only currency to strengthen vs. the USD on Monday.  Furthermore, the Nikkei is down 3.5%, with exporters particularly hit on the fear that yen-strength is here to stay.  One of the lessons from Japan over the previous 20 years, and there are many, is that policies, be they monetary or fiscal, rarely have the intended consequence.  We saw that with attempts to recapitalise the banking system in an attempt to get it lending again.  The focus now turns to the government’s fiscal package which is due to be announced at the end of next week.  Fiscal policy also has a pretty chequered history in Japan, most notably with the late ‘90s consumption tax-hike which de-railed the fragile recovery.  For now, markets are not prepared to give the government the benefit of the doubt...Read More

The UK consumer is doing very nicely

• Growth concerns gnaw away at the dollar
• Kan ratchets up the pressure on the BOJ over the economy and the yen
• CHF: the preferred safe haven currency
• UK retailers continue to report very strong sales
• German consumer confidence jumps in August
• Italian consumer confidence falls to a one year low
• Bernanke speaks on the economy at 14:00 GMT

Amidst the doom and gloom being expressed about the UK’s economic prospects, the latest survey by the CBI showed that UK retailers continue to report very decent sales. The net balance for the volume of sales in August was well above expectations at +35, a three year high, from +33 in the previous month. Retail orders were the highest since 1994, while clothing sales were the highest since 1988! According to the survey, retailers expect sales to remain strong in the months ahead. Wholesalers likewise are more optimistic than they have been for some time, but motor traders are less hopeful. Interestingly, retailers are reporting higher prices as well – the CBI’s measure of average selling prices rose to +58 in the three months to August (an 18yr high) from +49 in the period to May. Looking forward, there are some uncertainties for retailers, including the VAT hike next year, the sluggish pace of real income growth, concerns over falling house prices and the impact of savage public spending cuts. Where is this growth coming from? A couple of potential explanations – firstly, staycations have been much more common this summer, so UK consumers are spending more at home than usual, and secondly foreigners visiting the UK on holiday (and taking advantage of the cheap pound) have also been higher than usual...Read More

Retail sales in the euro area remained unchanged in June

The volume of retail trade in the euro area remained unchanged in June because of falling sales of food and beverages.

Published data show a decline in consumer spending, which could adversely affect the economic recovery.

Compared with the same period last year, retail sales in the euro area rose by 0.4%, surpassing expectations.

Economists forecast a rise of retail sales at 0.1% in June and 0,1% in annual terms.