There’s a basic formula for trading Abenomics:
NKY ≈ SPX x JPY Read more
When the European Central Bank governing council meets on Thursday in Frankfurt, sushi is unlikely to be on the menu. But officials should have a concern: is the eurozone turning Japanese?
This chart shows headline inflation (in Japan the measure excludes fresh food) for Japan since its bubble turned to bust in 1990, heralding a slide into deflation. Radical action by its central bank is just beginning to return price rises, as the far right hand side shows. Read more
How much is a £20 coin worth? The Royal Mint seems to have created a risk-free arbitrage, thanks to its decision to sell the first silver £20 coin for £20, with free postage (hat tip to Elroy Dimson). It is legal tender, so there’s no risk of it being worth less than £20 (and it could always be paid into a bank account or swapped at the Bank of England if you feared it might be).
Yet, on ebay demand is such that the coins are selling for £30 or more – and some chancers are listing the coins for as much as £65, plus postage. Presumably these prices are being paid by collectors attracted by scarcity value. It certainly has nothing to do with the intrinsic value, as the silver content of the coins is worth only about £6.33. Read more
Everyone from the US Treasury to the European Commission to our very own Martin Wolf is upset about Germany’s export-driven growth model – as I said on Saturday, it’s acting as a parasite on the rest of the world.
The blame can be laid on Germany’s savers – they just refuse to go on the sort of debt-fuelled spending binges Brits and Americans love so much – as well as on the German government for not encouraging them to spend more, or stepping in to spend in their stead.
But the blame should also be put on the euro. If Germany still had the Deutschmark, the country’s current account surplus would have led to some natural rebalancing, with the currency strengthening to make BMWs and other German exports more expensive, and so less competitive. The euro has risen a bit, but not nearly enough.
This chart shows exactly how competitive Germany has become, thanks to the Hartz reforms of the labour market of 2003-2005, and self-imposed austerity.
Okay, not quite. But the current account tells you most of what you need to know. Since May, emerging countries which need to attract international capital – those with current account deficits – have seen their currencies and share prices slide and their bond yields jump. Those with a surplus have been hit much less hard.
John Authers has put up a nice chart from HSBC showing this for equities already. This chart from Keith Fray (usually on the FT Data blog) shows the close link between rising yields and a current account deficit (the outlier in the bottom left is Chile, running a current account deficit but a massive government surplus). Read more
Ben Bernanke can move markets, and sometimes his words are too strong for his own good. That may have been true of his press conference last month, when he announced that he planned to start tapering off QE bond purchases later this year, and end them altogether by next summer. That drove a dramatic rise in Treasury yields, and in the dollar.
For a further classic example, look at the speed with which currency markets responded late on Wednesday and early on Thursday to a speech he made in Massachusetts, and to the minutes from last month’s meeting of the Federal Open Market Committee, published on Wednesday. The euro gained 4.5 cents against the dollar in a matter of minutes, while the pound gained almost 4 cents (or about 2.6 per cent). Read more
After its disastrous banking and property bubble and bust, house prices have been growing strongly again, and are within a whisker of their 2008 highs – in stark contrast to Ireland and Spain. All three (with two different measures of Spanish housing) are shown in this chart, and Iceland’s break from the Irish/Spanish pattern is clear:
This, just like the country’s return to economic growth, looks like another justification for Iceland’s decision to refuse to bail out its banks, unlike most of the rest of the world.
Now, I’m no friend of bank bailouts, and would much rather see middle-class bank creditors take losses than taxes rise on the poor to subsidise those creditors.
But things aren’t quite as simple as the housing chart shows. As well as cleaning up its banking system through a gigantic default, in large part on foreigners, Iceland’s krona has collapsed.
When measured in foreign currencies, the people of the island are far poorer than they were, something which really matters for a place which imports virtually everything it needs other than fish and electricity.
One example is the import of cars: for the four years since 2008, the total tonnage of cars (I know, funny measure, but that’s how Iceland provides it) imported is lower than for the single year of 2006. And this isn’t only because of the extremes of the bubble: last year, even as Iceland began to recover and imports picked up, saw fewer cars imported than in any year from 1999 to the collapse.
Adjusting Icelandic house prices into euros, then, allows a fairer comparison with Spain and Ireland’s outcomes (although not a way Icelandic residents will think about it, of course). And it tells quite a different story:
Now, this doesn’t matter to Icelandic homeowners paid in krona. But it does put a bit of a damper on the idea that Iceland is having a strong recovery.
Measuring in krona, even Spanish house prices have started to rise, as you see in this next chart: Read more
Uncertainty over the outcome of Italy’s election has strengthened sterling as its safe haven status appeals, in spite of Moody’s downgrade of the UK. James Mackintosh, investment editor, examines the prospects for more of a bounce in sterling.
Mario Draghi managed on Thursday to talk down the euro – the latest volley in the cover ‘currency wars’. Ralph Atkins, capital markets editor, analyses the president of the European Bank’s verbal game theory.
Today’s the deadline for European banks that want to repay early the emergency three-year loans from the European Central Bank. James Mackintosh, investment editor, consider the implications for the ECB and the currency wars.
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