Contributing Editors' Blog Entries

Marc To Market's picture

FX Themes and Drivers

News of greater political uncertainty in Italy and poor European data is spurring risk-off moves, with the dollar and yen firmer, emerging market currencies mostly softer, global equity markets lower and core bonds a bit firmer.  


Following much weaker than expected German industrial production figures last week has been followed in kind by disappointing French and Italian output figures today.  Italy reported a 1.1% decline.  The consensus was for a 0.2% decline and the Sept series was revised lower.   French output fell 0.7%.  The consensus was for a 0.3% increase.  Yet it is really the Italian political scene that is the key driver today with the benchmark 10-year yield up more than 30 bp, dragging up peripheral yields generally.  Italian shares have been particularly hard hit and a couple of banks were limit down and stopped trading.  


This week is the last before the holiday mood sets in.  We identify ten considerations that will drive the capital markets. 

 

Tim Knight from Slope of Hope's picture

Well, my fellow Slope-a-Dopes, although this will undoubtedly be a dreadful decidedly devastating disappointment to many of you, I have chosen to put away my almighty artistically asinine alliteration pen for this Sunday's super significant spectacularly special EP.  Instead of dazzling you with my proficient pathetically putrid pitiful prose, I will focus my alertly astute attention on a stupefyingly serious subject.

Marc To Market's picture

Italy Trumps Greece

 

News that the Greek bond buy scheme did not get sufficient takers to reach the 30 bln euro target set the commentariat ablaze.  This may prove to be a minor technicality as Greek banks initially offered 75% of the Greek bonds but were prepared to pitch them all if necessary to ensure EU aid is forthcoming, which is the source of their recapitalization funds.

 

The bigger story is the fall of the Monti technocrat government in Italy.  Berlusconi's PDL party pulled support by abstaining economic reform votes at the end of last week.   After a series of consultations with the Italian president, it appears that parliament will not be dissolved until two important pieces of legislation are approved, the 2013 budget and financial stability measures.  The former is needed for obvious domestic reasons.  The latter is needed to maintain credibility in  EMU; assuring its partners.

 

 

 

Marc To Market's picture

 

We have been tracking the deterioration of the US dollar's technical tone over the past three weeks.  That ended abruptly.  Weak euro area data, a more dovish than expected ECB, and heightened political uncertainty in Italy, saw the euro reverse lower after briefly moving above an eighteen month-old downtrend.   

 

The UK also cut its growth outlook, and poor data increases the likelihood that the BOE  may have to resume its gilt purchases in the new year, though consumer inflation expectations have ticked up recently.  

 

At the same time, there appears to be little progress on the US fiscal talks.  Whenever a top official signals this, the dollar seems to tick up on risk-off considerations, though with diminishing impact.  The stronger than expected November employment data is not sufficient to stay the Fed's hand and the FOMC will most likely expand the long-term assets purchased under QE3+ at its meeting that concludes on December 12.