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