17 November 2010

What Roubini said / Lo que dijo Roubini

(Para español, desplácese hacia abajo.)

Nouriel Roubini made various claims and predictions today in an interview on CNBC:
  • QE2 will be followed by several more rounds, up to QE4 or QE5. (This prediction matches the TransEconomics view that, if necessary, the Fed will end up more than doubling the size of its balance sheet to to $5 trillion.)
  • David Cameron and Mervyn King in the UK have an implicit agreement whereby the Bank of England will offset Treasury tightening with monetary loosening. The monetary loosening will take the form of QE2 a l'anglaise and will start as soon as fiscal pain (rock throwing) becomes unbearably intense.
  • Given falling output in the European Union periphery and deflationary fiscal policy in Europe, the European Central Bank's current resistance to more quantitative easing is "not productive".
  • We will probably see private orderly restructuring of sovereign debt in Greece first, then Portugal, and finally Ireland.
  • Restructuring can take the form of exchange deals: sovereigns exchange outstanding bonds for some other assets. This is worked out with bondholders: no supranational entity (EU or IMF) need be involved.
  • QE2 in the USA coupled with insufficiently fast appreciation of the Chinese yuan can lead to new or enlarged existing asset bubbles in China, even if China tightens credit and money.

Hoy en entrevista en CNBC, Nouriel Roubini predijo y afirmó:
  • Después de esta ronda de estímulo cuantitativo (QE2) nos esperan más rondas, hasta QE4 or QE5. (Este punto es consistente con nuestra opinión en TransEconomics de que, si es neceario, la Fed más que duplicará el tamaño de su balance, hasta $5 billones.)
  • David Cameron y Mervyn King en el Reino Unido tienen un acuerdo implícito según el cual Banco de Inglaterra contrarrrestará la política restrictiva del Tesoro con estímulo cuantitativo. El estímulo tomará la forma de un QE2 a la inglesa y comenzará tan pronto el dolor fiscal se torne insportable (los disturbios aumenten).
  • Dada la contracción económica en la periferia de la Zona del Euro y la restricción fiscal en Europa, la resistencia del BCE a aplicar más estímulo cuantitativo (que el BCE llama "relajamiento crediticio") "no es productiva".
  • Probablemente veremos una ordenada reestructuración privada de deuda en Grecia, primero, luego Portugal e Irlanda.
  • Estos soberanos pueden canjear bonos por algún otro activo. El trato puede hacerse con inversionistas privados, sin que intervenga ninguna institución subpranacional del tipo FMI o Unión Europea.
  • Aunque China restrinja el crédito y el dinero, QE2 en EEUU y demasiado lenta depreciación del yuan pueden provocar que en China la inflación se acelere y las burbujas financieras se multipliquen y se expandan.

08 November 2010

Fed lending standards, Fed Bullard speech, OECD leading indicator

Here are links to this morning's key global releases:

Fed: The October 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices. Key quote (bold face is mine):
The October survey indicated that, on net, banks eased standards and terms over the previous three months on some categories of loans to households and businesses.2 Both large and other domestic banks reported having eased some standards and terms; large banks were primarily responsible for the easing reported in July.3 However, substantial fractions of banks reported in response to a set of special questions that standards for many categories of loans would not return to their longer-run averages for the foreseeable future.
SF Fed Bullard's speech. Highlight:
Bullard said the FOMC must defend its implicit inflation target from the low side as it would from the high side. Since U.S. short-term interest rates are already approximately zero, further disinflation would mean rising real interest rates in the face of a slowing pace of recovery.
Remember that we economists believe that people make saving and investment decisions based on the real interest rate: the nominal rate minus the rate of inflation expected over the investment decision time horizon.

When nominal rates are at zero, as they are today, the Fed needs to persuade the public that in the future inflation will accelerate and stay rather high. (Which is not to say that hyperinflation will set in. Hyperinflation is of cours undesirable, but more importantly, it's in no way an inevitable consequence of QE, in my view. I don't even see it as a threat.)

OECD Composite Leading Indicators. Key content:

OECD composite leading indicators (CLIs) for September 2010 point to diverging patterns of economic growth across major economies.

The CLIs show signs of continuing expansion in Germany, Japan, the United States and Russia, while pointing to a moderate downturn in Canada, France, India, Italy and the United Kingdom.

The CLIs for Brazil and China continue to point strongly downwards, edging below the long term trend and implying that the level of industrial production will fall below its longer-term trend in these two economies.
There's no time to get this into Spanish, now, as I'm heading out the door on a business trip.

Follow me on Twitter: @gisgnoret

Zoellick, explain yourself. Zoellick, explíquese.

Zoellick wrote this:
The [G20] system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.
Krugman and De Long have already responded (impolitely).

Martin Wolf argued (persuasively, in my view) against a gold standard last week.

Gold prices move up and down with global levels of fear. We're to link exchange rates to fear? Even when we might fear opposite things (deflation, inflation)?


Zoellick escribió esto (es mi traducción):
El sistema [G20] debería también contemplar el uso del oro como referencia internacional de las expectativas en torno a la inflación, la deflación y cuánto valdrá en el futuro cada divisa.
Krugman y De Long ya contestaron (de manera descortés).

Martin Wolf arguyó en contra de un estándar de oro (en mi opinión de manera persuasiva) la semana pasada.

El precio del oro sube y baja con el nivel global de miedo. ¿Debemos vincular la política cambiaria al miedo? ¿Aunque temamos fenómenos contradictorios (deflación, inflación)?

06 November 2010

Hoy sí

Bernanke explicó QE2 para el público en el Washington Post el jueves pasado. El párrafo clave es el siguiente:
This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.
Justifca otra ronda de relajamiento cuantitativa (quantitative easing, or QE) con base en lo siguiente:
  1. Funcionó en el pasado (en la primera ronda).
  2. Con sólo anunciar la intención avanzó la bolsa de valores.
  3. Promoverá crecimiento económico: bajando las tasas de interés hipotecarias; bajando los rendimientos de los bonos corporativos (lo que promoverá inversión fija); elevando los precios accionarios, lo que, por enriquecer a los consumidores, puede impulsar más gasto.
En otras palabras, la Fed considera que otra ronda de QE se transmitirá a la economía por que los mismos canales que una decisión de política moonetaria normal (una reducción en la tasa de política monetaria).

Pero con una excepción: antes no se justificaban decisiones de política monetaria por su efecto en los precios accionarios.

Hoy sí.

Sígueme en Twitter: @gsignoret

I'm glad we use Eurostat for Spanish labor data

Edward Hughes warns us to be careful in interpreting Spanish labor data. It's a good lesson in the perils of trying to perceive changes on the margin from data not seasonally adjusted. Hughes is scathing in tone:
But the way they present the data isn’t interesting, in fact its downright misleading. In particular they chose not to seasonally adjust the data – which in a seasonally driven economy like the Spanish one with significant ups and downs in tourist activity doesn’t make much sense – and this omission is not only lazy, it is negligent. (Read the whole post.)
It turns out that although Spain's statistical agency's (INE's) unadjusted unemployment series shows month-on-month improvement, the seasonally adjusted series shows worsening.

For our own global macro database we have always relied on Eurostat's time series for Spain. We did this for one-stop shopping and comparability with the rest of the Euro Area.

Now we have another justification.

How might QE2 boost commodities prices? ¿Cómo podría QE2 elevar los precios de las materias primas?

(Para la versión en español, desplácese hacia abajo.)

The Fed's second round of quantitative easing (QE2) can boost commodities prices through four channels. First, by depressing Treasury yields in the middle of the yield curve and (it is hoped) by inflating prices generally, it can exert downward pressure on the U.S. dollar against other currencies such as the euro.

Of course, this would boost global commodities prices in dollar terms only (it would have the opposite effect on prices in euro terms, for example).

This tranmission channel pertains to all segments of commodities. Equally, it pertains to all other traded goods and services priced in U.S. dollars. QE2 is aimed, after all, at inflating dollar prices.

Second, by generating confidence that the U.S. economy will avert deflation and thus stir up hopes that growth will take off, it can draw speculators into the futures markets for industrial commodities: energy commodities and base metals.

Third, by generating fear of hyperinflation even while boosting high hopes for industrial commodities (in an unusual confluence of events), it can provide support for precious metals. Of course, this support will be iffy and unstable, as with any price support that relies on mere raw feelings such as fear.

Fourth, by depressing Treasury yields (in the middle of the curve), it can draw investors desperate for yield into the asset class.

Follow me on Twitter: @gsignoret


La segunda ronda de relajamiento cuantitativo (QE2) de la Fed puede dar ímpetu a los precios de las materias primas por cuatro vías. Primero, al deprimir los rendmientos de los bonos del Tesoro en medio de la curva, puede deprimir el dólar frente a otras monedas como es el euro.

Claro, este fenómeno reforzaría los precios de las materias primas en términos únicamente del dólar (tendría el efecto contrario en las cotizaciones en euros, por ejemplo).

Esta via se aplicaría a todos los segmentos de las materias primas. Asímismo, se aplicaría a la cotización en dólares de cualquier otro bien o servicio transable. El propósito del QE2, recuérdese, es inflar los precios en dólares.

Segundo, si genera confianza en que la economía estadounidense puede evitar la deflación y así despertar esperanzas de que el crecimientos despegue, puede atraer inversión especulativa hacia los mercados de futuros de materias primas industriales: energéticos y metales base.

Tercero, al generar miedo de hiperinflación al mismo tiempo que despertar esperanzas para las materias primas industriales (en una coincidencia de eventos inusitada), puede dar soporte a los metales preciosos. Claro, dicho soporte será incierto e inestable, como suele ser el caso cuando un precio toma su soporte de puros sentimientos primitivos.

Cuarto, al deprimir los rendimientos del Tesoro (a la mitad de la curva), puede incitar a inversionistas en búsqueda desesperada de retornos a entrar en esta categoría de inversión.

Sígame en Twitter: @gsignoret

27 October 2010

More Web jewels found today

Tim Duy's Fed Watch, Too Little:
Federal Reserve policymakers must be pleased with themselves. Market participants have fallen in line like lemmings off a cliff pursuing the obvious trades as the excitement over quantitative easing builds. Equities, bonds, commodities are all up. Dollar is down. Perhaps more importantly, measured inflation expectations have trended higher. Psychology is a powerful thing. Like leverage. ... (keep reading).
Prajakta Bhide et al (Nouriel Roubini's Economonitor), What's ahead for the Fed?:
An anemic and subpar U.S. recovery amid balance-sheet repair, weak demand, slack in the economy and disinflationary pressures has always been our baseline scenario. By the summer of 2010, the disinflationary bias in expectations had become more evident, and the economy—lacking a self-sustained recovery—had started heading toward a dangerous stall speed. We vocally expressed our concerns around deflation/stagnation/double-dip scenarios and called for more policy action, while recognizing that the effects on the real economy would be limited. (Keep reading.)
Jon Hilsenrath and Jonathan Cheng ($WSJ), Fed Gears Up for Stimulus:
The Federal Reserve is close to embarking on another round of monetary stimulus next week, against the backdrop of a weak economy and low inflation—and despite doubts about the wisdom and efficacy of the policy among economists and some of the Fed's own decision makers. (Keep reading.)
Marshall Eckblad ($WSJ), Banks Turn Their Reserves to Profit:
Call it steroids for bank profits.

The biggest U.S. banks virtually doubled their collective earnings in the third quarter just by injecting $8.1 billion into net income from funds they had set aside to cover loan losses.

There are 18 commercial banks in the U.S. with at least $50 billion in assets, and together they earned an adjusted $16.8 billion in the third quarter. Of those profits, nearly half, or 48%, were from drawing down what bankers call loan-loss reserves, according to an analysis by Dow Jones Newswires. A year ago, the same 18 banks earned $6.2 billion in quarterly profits; at that time, they added more than $7.8 billion to the same reserves, a move that reduced their profits. The analysis omits a $10.4 billion noncash charge to earnings that Bank of America Corp. disclosed during the third quarter. (Keep reading.)

¿Qué significa rendimientos de TIPS negativos para materias primas y crecimiento?

James Hamilton (Econbrowser) interpreta el hecho de que los bonos del Tesoro protegidos contra la inflación (TIPS) de nueva emisión estén pagando rendimientos negativos.

A quienes llaman "insólito" el evento de rendimentos negativos en TIPS, Hamilton contesta que rendimientos negativos en el mercado de bonos del Tesoro es la regla, no la excepción. Si no se ha presentado antes para el caso de TIPS es probablemente porque los TIPS son instrumentos relativamente nuevos:
Although this appears to be the first time that newly issued TIPS have locked in a negative real return, that's because TIPS have only been offered to U.S. investors since 1997. You can get a longer time series by comparing the yield on a 6-month T-bill at any date with what the CPI inflation rate actually turned out to be over the subsequent 6 months for which investors held that bill, a magnitude sometimes described as the "ex-post real interest rate." That series is plotted below. We've actually been in a period for several years in which short-term loans to the government were a losing proposition in real terms, and the longer-term real yields such as the 5-year TIPS are only now coming down to join them. The recent era of negative real yields was briefly (if spectacularly) interrupted in the fall of 2008, when a sharp deflation in the CPI made short-term loans to the government an excellent deal for the lender in ex-post real terms.

Negative ex-post real rates on short-term securities are thus nothing new. We saw them for much of this decade and for much of the 1970s. Although negative realized ex-post real rates do not establish that investors knew that they were in for a losing bargain in real terms, they persisted long enough in the 1970s that it's hard to believe that people were shocked by the continually repeated outcome. I think if TIPS had been offered at that time, we would have seen a negative real yield then, too.
Nos recuerda de su opinión (que coincide con la de Krugman) en torno a Relajamiento Cuantitativo 2 (QE2): ayudará pero probablemente poco. Hamilton menciona QE2 en una discusión sobre rendimientos reales de TIPS negativos porque precisamente lo que está comprimiendo los rendimientos de los TIPS (inflando sus precios) es el que los inversionistas anticipen que el iminente QE2 cause tasas de inflación más altas a futuro. Me imagino que por eso Hamilton prevé alzas en los precios de las materias primas:

Even so, within those models, there's an incentive to buy and hold those goods that are storable. And in terms of the historical experience, episodes of negative real interest rates have usually been associated with rapidly rising commodity prices.

Hamilton evita caer en el error de varios analistas señalado hoy por Krugman, de decir que, como QE2 puede conducir a precios de materias primas más altos y esto puede deprimir la demanda, QE2 podrá resultar contraproducente para el crecimiento.

Krugman aclara que esto se dará sólo si los precios de las materias primas suben en términos reales:

Higher commodity prices will hurt the recovery only if they rise in real terms. And they’ll only rise in real terms if QE succeeds in increasing real demand. And this will happen only if, yes, QE2 is successful in helping economic recovery.

What this official is saying is a version of the classic freshman mistake: an increase in demand leads to higher prices, and higher prices make people buy less, so an increase in demand leads to lower sales.

En realidad, Krugman omite mencionar un escenario en el que los precios de materias primas no suben en términos reales mas sí en términos nominales frena el crecimiento. El escenario se da cuando las alzas en materias primas aceleran cambios en los índices de precios al consumidor tanto que el banco central se siente obligado a aplicar política monetaria restrictiva.

El riesgo de este escenario es particularmente alto en economías emergentes cuyos bancos centrales han adoptado el régimen de política monetaria por objetivos de inflación.

24 October 2010

A nice week-ahead calendar for EM followers. Lindo calendario para seguir mercados emergentes.

I'm now following the EM blog called beyondbrics at FT.

On Sundays they post a neat week-ahead EM calendar that includes release dates for both macro indicators and and corporate earnings reports.


Ya estoy seguiendo un blog enfocado en mercados emergentes de FT llamado beyondbrics.

En domingo se publica ahí un lindo calendario semanal que incluye fechas no sólo para indicadores macro sino también para reportes de ganancias corporativas.

G20 communiqué and Geithner's letter. Comunicado G20 y carta de Geithner.

Por alguna razón, no encuentro la carta de Geithner a los ministros de finanzas G20 en el sitio del Tesoro de EEUU así que proporciono vínculo a la carta proporcionada por WSJ ($). También el comunicado de los ministros G20 resultado del cumbre que se sostuvo este fin de semana.

Mañana daré mi reacción a ambos en relación a su probable impacto en México y en los mercados.

Somehow I can't find Geithner's letter to G20 ministers on the Treasury Web site, so here's the WSJ link ($) to it. And while I'm at it, here's a link to the full G20 communiqué that came out of this weekend's summit.

Tomorrow I'll react to both: What do they mean for Mexico? For markets?

Follow Genevieve Signoret on Twitter: @gsignoret.

09 October 2010

¿Desendeudamiento: cuánto tiempo más? Deleveraging: how much longer?

Gillian Tett de Financial Times se preguntó antier cuánto falta para que termine la fase de desendeudamiento:
What is not evident, however, is how much further that debt now needs to decline to produce any sense of normality. We do not know, in other words, how far along we are into this “deleveraging” process, nor what this might mean for growth or asset prices.

The current data on the issue looks mixed. In some respects – and in some sectors – there might seem to be reason for cheer. The latest capital markets monitor from the Institute of International Finance, published this week, reports a “sharp decline in the liabilities of the US shadow banking system this year”, amid “ongoing deleveraging – in particular by US households”.

Total liabilities of the shadow banks have dropped from almost $22,000bn two years ago, to nearer $17,000bn, or where it was five years ago. “Debt levels for US households, businesses and particularly financial institutions continue to decline” the IIF notes, as a proportion of gross domestic product, towards levels seen earlier in the last decade.

A separate recent report from Citi’s European credit team reinforces that point. This data also suggests that a sharp deleveraging has already occurred for banks. And in the non-banking corporate world, net debt to ebitda for S&P non financials is now running at around 140 per cent, down from 210 per cent at the peak in late 2008. For the EuroStoxx non-financials, the ratio has moved from around 230 per cent to 170 per cent.

If the pattern seen in earlier economic cycles were to play out, investors should welcome this news. With debt levels suitably reduced, banks and companies should now feel confident enough to start borrowing again – and thus raising investment, spending and so on. But that does not appear to be occurring: after cutting debt, companies are still (for the most part) sitting on vast piles of cash; so, it seems are households. Meanwhile banks are resolutely refusing to make large volumes of new loans.

Why? One reason may be that the household sector is still running a big debt burden by historical standards, and is beset by unemployment. Another is that regulatory uncertainty is sapping corporate nerves. However, the Citi team thinks the biggest issue is that rising public sector debt is undermining confidence too, or creating a climate of “fear”, as Alan Greenspan wrote in the FT yesterday. Most notably, even as the private sector has delivered, public debt has exploded.

Termina en una nota pesimista:
Thus the total scale of leverage in the system – namely the sum of both non-financial public and private debt – has not fallen markedly in the last two years (in America, for example, it is now running at around 220 per cent, compared to 170 per cent at the start of the decade.). Hence, Citi argues, investors cannot expect a “normal cycle”; companies and consumers alike are too shell-shocked by the recent past – and so uncertain about how governments will deal with all that public debt in the future. The most likely path for the next few years therefore is one of sluggish growth at best.

13 August 2010

Financial Market Team update (English, 13 Aug 2010)

Since last Friday, stocks around the globe have fallen by about 4%. The next figures represent changes since last Friday. The DJIA fell 3.3%; the S&P, 3.8%. In Europe, UK's FTSE 100 fell 1.1% while the German DAX fell 2.4%. In Asia Japan's Nikkei 225 fell 4% while Hong Kong's Hang Seng fell 2.8%. In Latin America Mexico's IPC fell 2.5% and Brazil's Bovespa fell 2.7%.

The yen and the euro weakened against the dollar.

The European Central Bank revealed today that the number of Spanish banks that borrowed from the ECB grew in July. Investors are being driven to German bonds. German 10-year Bund yields are at 2.39%, their all-time low. US 10-year Treasury yields are also lower, at 2.68%.

(Read more about financial markets in this FT article $)

Patrick Signoret and Georgina Lara

Financial Market Team update (data for 13 Aug 2010)

16:30 ET

DJIA: -0.16% to 10303
S&P 500: -0.4% to 1079
Mexico IPC: +0.18% to 32100
Brazil Bovespa: +0.45% to 66264

FTSE 100: +0.18% to 5275
DAX: -0.4% to 6110

Nikkei 225: +0.44% to 9253
Hang Seng: -0.16% to 21072

US$1.00= 0.78 euros
US$1.00= 12.73 Mexican pesos
US$1.00= 86.2 yen (+0.3%)
EUR$1.00= 1.28 USD (-0.6%)

WTI crude 1m: -0.46% to 75.39 USD/bbl.
Corn 1m: +1.3% to 427 USD/bu.
Wheat 1m (CBT): -1.28% to 734 USD/bu.
Gold 100 oz 1m: -0.01% to 1217 USD/t oz.

Aug 13 (Aug 12)
Ted spread: 21 (22)
T bill 3m: 0.15 (0.16)
USD Libor 3m: 0.37 (0.38)

12 August 2010

Power and Policy Team update (English) , 12 Aug 2010

Korea's monetary policy decision
The Bank of Korea maintained the Base Rate unchanged at 2.25%. A 25bp increase had been expected. (Read the BoK's statement.)

U.S. border security
U.S. Senators approved unanimously a new border security bill which gives the federal administration 600 million dollars which will allow, among other things, to send 1,500 more troops to the southern border. According to this article published by the La Times, lawmakers think that securing the border is the first step to a more comprehensive immigration reform.

Israel and Iran
According to this month’s Atlantic Monthly magazine there is a 50 percent probability that Israel will attack and destroy Iran’s nuclear program by next summer. However, according to The Christian Science Monitor, these allegations are only rhetorical games to pressure Obama to attack Iran.

Patrick Signoret and Isabel Gil

Financial Market Team update (data for 12 Aug 2010)

13:51 ET

DJIA: -0.69% to 10307
S&P 500: -0.69% to 1082
Mexico IPC: +0.06% to 32078
Brazil Bovespa: -0.04% to 65765

FTSE 100: +0.4% to 5266
DAX: -0.31% to 6135

Nikkei 225: -0.86% to 9213
Hang Seng: -0.89% to 21106

US$1.00= 0.78 euros
US$1.00= 12.74 Mexican pesos (-0.07%)
US$1.00= 85.86 yen (+0.63%)
EUR$1.00= 1.28 USD (-0.28%)

WTI crude 1m: -2.24% to 76.27 USD/bbl.
Corn 1m: +3.22% to 424 USD/bu.
Wheat 1m (CBT): +3.86% to 753 USD/bu.
Gold 100 oz 1m: +1.46% to 1217 USD/t oz.

EMBI+Mex: 137
Cetes 28d: 4.5%

Patrick Signoret and Georgina Lara

Financial Market Team update (English, 12 Aug 2010)

13:37 ET

Yesterday, the S&P 500 and the DJIA reached their lowest level since July 23. Today, both have been trading steadily below yesterday's close. At the end of the day, the FTSE100 managed to pare earlier losses. Major American, European and Asian markets fell today, continuing yesterday's trend.

After reaching a 15-year high, the yen is being closely monitored by Japan's central bank although no specific action has been mentioned.

Oil continues to fall for the fifth straight day. Gasoline futures reached a five-week low. Gold continues to rise and has reached its highest for a month. Floods in Pakistan are making sugar prices climb since 200,000 acres of cane were destroyed.

Patrick Signoret and Georgina Lara

11 August 2010

Choices in Economic Policy (USA...)

The IMF's Chief Economist and head of fiscal affairs argue in today's FT that 'measures that improve the long-term fiscal outlook in those countries with high deficits and debt' should receive top priority, and they suggest that reforms of pensions and health are among the politically feasible options. The only economist who has not jumped in to the debate on Stimulus vs. Austerity must be Karl Marx, and he is indisposed. I would like to see a requirement that all writers of Op-Ed pieces on this subject be required to suggest just how their proposals could actually become reality in the current dysfunctional US political system? What sort of crisis that cannot be foreseen (a 'Black Swan Event' ?) will it take to bring about the needed political consensus? A grandes males, grandes remedios?

Financial Market Team update (data for 11 Aug 2010)

16:30 ET

DJIA: -2.49% to 10379
S&P 500: -2.82% to 1089
Mexico IPC: -1.92% to 32059
Brazil Bovespa: -2.13% to 65790

FTSE 100: -2.44% to 5245
DAX: -2.1% to 6154

Nikkei 225: -2.7% to 9293
Hang Seng: -0.83% to 21295

US$1.00= 0.78 euros
US$1.00= 12.75 Mexican pesos (-0.01%)
US$1.00= 85.28 yen (-0.05%)
EUR$1.00= 1.29 USD (-0.02%)

WTI crude 1m: -3.54% to 77.41 USD/bbl.
Corn 1m: +0.49% to 411 USD/bu.
Wheat 1m (CBT): -0.24% to 725 USD/bu.
Gold 100 oz 1m: +0.18% to 1200 USD/t oz.

EMBI+Mex: 134
Cetes 28d: 4.53%

Aug 11 (Aug 10)
Ted spread: 23 (25)
T bill 3m: 0.15 (0.15)
USD Libor 3m: 0.38 (0.4)

Patrick Signoret and Georgina Lara

Financial Market Team update (English)

15:09 ET

Monetary policy statements depress markets
The Bank of England's Mervin King said that "the UK recovery is likely to continue, but the overall outlook is weaker". (Read Mervin King's statement here.) The Fed and the Bank of England determined that quantitative easing would continue but would not be expanded. Major American, European and Asian stock markets fell today by more than 2%.

The euro is at its lowest level for a month. It was down by more than 2%, representing its steepest one-day drop since January 2009. Although the yen reached its lowest level against the dollar earlier today (Y84.79), it is paring losses.

Treasury bonds
2-year, 5-year, 7-year and 10-year Treasuries have been falling; at one point during the day they reached record-low yields.

According to the International Energy Agency's Oil Market Report released today, global demand for 2010 and 2011 is expected to rise as a result of an expected GDP increase. However, because of the BP's oil spill, a supply shortage is expected in 2011. Crude oil continues to fall for the fourth day and is now below US$80. Wheat futures are slightly down while corn futures are rising. After sugar rose yesterday on speculation that Russia's production of beets would be affected by the drought, it fell today on expectations of Indian exports.

(Read more about global markets in FT $ )

Patrick Signoret and Georgina Lara

Power and Policy Team Update (Español)

Recortes presupuestales en Europa
Los recortes presupuestales se han convertido en estrategia común entre los países afectados por la crisis bancaria reciente de acuerdo al artículo publicado hoy en Le Monde. Los “planes de ajuste” han implicado la disminución del gasto en diversos sectores de las economías nacionales. En España, por ejemplo, se han congelado cerca de 200 proyectos que incluyen carreteras y ferrocarriles; en Gran Bretaña, los proyectos afectados son principalmente cárceles, colegios y hospitales. (Le Monde)

México: Lucha contra el narcotráfico
El ex presidente Vicente Fox publicó su carta “Momento de reflexión y propuestas” en la que critica la estrategia de Calderón en la lucha contra el narco. Bajo reserva del Universal habla de las críticas del ex mandatario a la estrategia del actual y de las posibles fracturas dentro del PAN.

Ley Antiinmigrante en Florida
Bill McCollum, fiscal general de Florida, propuso una ley contra la inmigración ilegal en su estado. De acuerdo con su despacho, la ley va un paso más allá que la propuesta en Arizona. (Más de esto en Reforma.)

Patrick Signoret e Isabel Gil

Power and Policy Team Update (English)

U.S. Mid-term elections
Several states held primary elections. There was no clear trend in the results: incumbent candidates, candidates backed by party establishment, Tea Party candidates, outsiders, candidates endorsed by Obama...all kinds of candidates won. Read about the mixed results in the Washington Post. On the other hand, Politico says it was a good night for Democrats, because their big establishment candidates won, while the Republican's winning candidates were mostly outsiders who don't look strong for the general election (November 2).

In other election analysis, The Economist warns that the ethics trials of two senior Democrats could spell trouble for the party in November. Congressmembers Charles Rangel and Maxine Waters' districts are safely Democratic, but other districts are not.

Turkey: emergency security summit
Days before the upcoming referendum, Turkey’s Prime Minister convened an emergency security summit in response to information received by the government about plans to create chaos in 30 districts prior to the September 12th referendum. More about the summit and the events leading to it in this Sabah article.

Iraq’s new government
In its Weekly Geopolitical Update, Barclays discusses the absence of a new government in Iraq as the withdrawal of U.S. troops approaches. No alliances have been made, violence has risen, and relationships between Iraq and its neighbors are growing more and more tense.

Patrick Signoret and Isabel Gil

10 August 2010

Global indicators published 10 Aug 2010

Click on the table to enlarge it.

Power and Policy Team Update (español)

Venezuela y Colombia restablecen relaciones
Hugo Chávez viajó a Colombia para reunirse con el nuevo presidente de Colombia, Juan Manuel Santos. Acordaron restablecer las relaciones diplomáticas. Entre otros acuerdos, Chávez dijo que no tolerará a las FARC en su territorio. Habían cortado las relaciones cuando Colombia acusó formalmente a Venezuela de apoyar a los guerrilleros colombianos, hace menos de un mes. (Vea las declaraciones de Santos, y las declaraciones de Chávez.)

Patrick Signoret e Isabel Gil

Power and Policy Team Update (English)

Monetary policy decisions
The Bank of Japan agreed unanimously to leave its rates unchanged. (See the bank's statement.)
The Federal Reserve maintained the federal funds rate at 0-0.25%. The FT, among others, interpreted the decision and the statement as a) a downgrade in the Fed's economic outlook; b) a move towards monetary easing by "reinvesting proceeds from expiring mortgage-backed securities in longer-term Treasuries, thereby preventing a natural shrinking" of the central bank's balance sheet. (Read the Fed's statement.)

Afghanistan civilian deaths
The first six months of 2010 have seen an increase of 31% in conflict-related civilian deaths compared to the same period in 2009, according to a United Nations report published today. According to the report, two critical developments increased harm against civilians: anti-government elements (AGEs) "used a greater number of larger and more sophisticated improvised explosive devices (IEDs) throughout the country; and, the number of civilians assassinated and executed by AGEs rose by more than 95 per cent and included public executions of children." (Hat tip: NYT)

The World Health Organization declared on Tuesday that the H1N1 influenza pandemic is officially over. The H1N1 virus killed 18, 499 people. (We read this in this LA Times article.)

Colombia and Venezuela restore diplomatic ties
Hugo Chávez went to Colombia, met with Juan Manuel Santos, Colombia's new president, and they restored diplomatic relations. Chávez had broken ties with Colombia when the latter formally accused Venezuela of supporting leftist Colombian guerrillas, less than a month ago. (See the video of Santos' statement.)

Patrick Signoret and Isabel Gil

Financial Market Team update (data for 10 Aug 2010)

14:06 ET

DJIA: -0.88% to 10605
S&P 500: -1.01% to 1116
Mexico IPC: -0.82% to 32568
Brazil Bovespa: -1.05% to 67151

FTSE 100: -0.63% to 5376
DAX: -1.03% to 6286

Nikkei 225: -0.22% to 9551
Hang Seng: -1.5% to 21474

US$1.00= 0.76 euros
US$1.00= 12.67 Mexican pesos (+0.36%)
US$1.00= 85.8 yen (-0.16%)
EUR$1.00= 1.31 USD (-0.82%)

WTI crude 1m: -1.98% to 79.87 USD/bbl.
Corn 1m: -1.61% to 411 USD/bu.
Wheat 1m (CBT): -1.85% to 730 USD/bu.
Gold 100 oz 1m: -0.36% to 1198 USD/t oz.

Patrick Signoret and Georgina Lara

Financial Market Team update (English)

Commodities are falling. Gold prices fell for the second straight day. Copper prices are down, reaching a one-week low. Russia's drought has affected beet production and beets are used to make sugar, so sugar prices are rising. However, wheat and corn prices are down about 1.5%. A wheat producing region in Australia, the world's fifth exporter of wheat, is forecast to receive much needed rains. Read about Australia's wheat situation, in this FT article ($).

WTI prices fell the most in five weeks, despite a storm forming in the Gulf of Mexico which made drilling on a BP relief well stop.

The dollar is rallying against the euro and the pound, although it is weaker against the yen.

Fixed income and credit
5-year and 10-year Treasuries are reaching their lowest yields for the year.

(Read more about today's financial data in this FT$ article, and in this Bloomberg webpage)

Patrick Signoret and Georgina Lara

09 August 2010

Financial Market Team update (data for 9 Aug 2010)

16:03 ET

Aug 9 (Aug 6)
Ted spread: 25 (26)
T bill 3m: 0.15 (0.15)
USD Libor 3m: 0.40 (0.41)

DJIA: +0.42% to 10698
S&P 500: +0.55% to 1127
Mexico IPC: -0.24% to 32837
Brazil Bovespa: -0.34% to 67862

FTSE 100: +1.47% to 5410
DAX: +1.47% to 6351

Nikkei 225: -0.72% to 9572
Hang Seng: +0.57% to 21801

US$1.00= 0.76 euros (+0.36%)
US$1.00= 12.62 Mexican pesos (-0.57%)
US$1.00= 85.88 yen (+0.43%)
EUR$1.00= 1.32 USD (-0.36%)

WTI crude 1m: +0.98% to 81.49 USD/bbl.
Corn 1m: -0.48% to 418 USD/bu.
Wheat 1m (CBT): +0.1% to 734 USD/bu.
Gold 100 oz 1m: -0.15% to 1203.5 USD t/oz.

Patrick Signoret and Georgina Lara

Financial Market Team update (English)

The Federal Reserve will announce its monetary policy decision tomorrow. Markets are expecting the Fed to keep interest rates at their current level, 0-0.25. However, FT and Bloomberg report that they anticipate some kind of measure to release more cash into the economy to provide a stimulus. Bloomberg believes this is the reason both American and European stocks advanced today.

Crude oil remains near $81 as it went up in today's trading session. Grain prices continue to rise after the export ban in Russia. This has not only affected wheat but other grains as well. (Read about the grain prices in FT$.)

Patrick Signoret and Georgina Lara

Power and Policy Team Update (English)

UK budget cuts
Budget cuts in Great Britain, $130 billion over the next five years, have been labeled by a UK think tank as the “longest, deepest sustained period of cuts to public services spending since World War II.” (Hat tip: NYT.)

North Korea
Tensions escalated between North and South Korea as the North fired more than 100 rounds of artillery in response to war drills performed by the South last week. (Read about it in the LA Times.)

This LA Times article describes how China, Russia, India and Turkey are seizing opportunities in Iran and are undermining the sanctions imposed on Iran by the West. “Efforts by the United States and its European allies to build a united front to halt Iran's nuclear program are facing increasingly bold resistance from China, Russia, India and Turkey…”. Sanctions took effect on July 1st.

Patrick Signoret and Isabel Gil

06 August 2010

Lengua incógnita


Parece castellano, pero no lo es. Y de existir, existe. La gracia es descubrir qué idioma o dialecto es sin seguir ningún enlace revelador en la página propiamente tal.

Financial Market Team update (data for 6 Aug 2010)

17:07 ET

DJIA: -0.2% to 10654
S&P 500: -0.37% to 1122
Mexico IPC: +0.03% to 32918
Brazil Bovespa: -0.46% to 68095

FTSE 100: -0.62% to 5332
DAX: -1.17% to 6260

Nikkei 225: -0.12% to 9642
Hang Seng: +0.59% to 21679

US$1.00= 0.75 euros
US$1.00= 12.69 Mexican pesos (+1.02%)
US$1.00= 85.51 yen (-0.36%)
EUR$1.00= 1.33 USD (+0.69%)

WTI crude 1m: -1.34% to 80.91 USD/bbl.
Corn 1m: +0.48% to 420 USD/bbl.
Wheat 1m (CBT): -7.36% to 755.25 USD/bbl.
Gold 100 oz 1m: +0.67% to 1207.3 USD/bbl.

Aug 6 (Aug 5)
Ted spread: 26 (27)
T bill 3m: 0.15 (0.15)
USD Libor 3m: 0.41 (0.42)

Patrick Signoret and Georgina Lara

Financial Market Team update (English)

U.S. unemployment was higher than expected, and German industrial production fell in June. Markets fell in America and Europe. (Read about this in Bloomberg.)

The dollar reached its lowest point of the year against the yen, and is approaching a 15-year low against the Japanese currency.

WTI oil prices fell along with the Western markets, but remained near their highest level since May.
Gold continued to rise, reaching its highest price in a month.
Russia banned wheat exports, making wheat prices reach their highest level in two years. The move “caught traders and food producers by surprise”, says FT ($).

Patrick Signoret and Georgina Lara

Power and Policy Team Update (English)

Global Report on Terrorism: Mexico section
The U.S. Department of State published its Country Reports on Terrorism. It states that there is no reason to believe there are terrorist organizations operating in Mexican territory. However, it warns that rising violence in Mexico, especially along the U.S. border, could give terrorists opportunities to slip into the U.S. among the chaos, confusion and vacuum of power. (Hat tip: Reforma.)

Patrick Signoret and Isabel Gil

Power and Policy Team Update (español)

Seguridad en la frontera México- EUA
Un proyecto de ley que contempla 600 millones de dólares para mejorar la seguridad en la frontera de México fue aprobado por unanimidad en el Senado de Estados Unidos. (Hat tip: Reforma)

México: Narcotráfico
A demás de reconocer la colaboración de México con Estados Unidos en la lucha contra el crimen organizado y el terrorismo; el Reporte Anual de Terrorismo en el Mundo, publicado por el Departamento de Estado de los Estados Unidos, afirma que no hay indicios de que en México existan organizaciones terroristas. Sin embargo, resalta la creciente tendencia de los cárteles mexicanos a recurrir a tácticas terroristas. (Leer sobre el reporte en El Reforma $.)

El día de ayer concluyó la sesión anual del Consejo Supremo Militar turco. Lo que normalmente era considerado un trámite meramente burocrático y militar se convirtió en un suceso político importante para el gobierno de Erdogan. Este consejo es para decidir la renovación de la cúpula militar de acuerdo con los valores heredados del fundador de la República de Turquía, Mustafá Kemal Atatürk. El primer ministro logró que el general Hasan Igsiz, acusado de la trama golpista Ergenekon, no subiera al poder. (Leer sobre esto en El País.)

Patrick Signoret and Isabel Gil

05 August 2010

Indicadores globales publicados 5 agosto 2010

Hacer click en la tabla para ampliarla.

Power and Policy Team update (English)

U.S. midterm elections polls
These New York Times Senate Race Ratings and House Race Ratings suggest that the Senate will remain Democratic and the House will be divided. In the Senate, 51 seats are solid or leaning Democratic, 39 seats are solid or leaning Republican, and 10 are tossups. RealClearPolitics’s poll average gives a similar picture. In the Senate: 49 seats are likely/leaning Democratic, 43 seats are likely/leaning Republican, and 8 seats are tossups. In the House: 202 seats are at least leaning Democratic, 201 seats are at least leaning Republican, and 32 seats are tossups. A party needs 218 seats in the House to have the majority.

Monetary policy decisions in Europe
Both the Bank of England and the European Central Bank maintained their monetary policy rates (0.5% and 1%, respectively). No rate change had been expected. See the UK decision and the ECB decision. In his speech today, Jean Claude Trichet said that economic forecasts for the third quarter of 2010 look better than expected.

Greek crisis
According to the report released today by the EC, ECB and IMF, Greece has made impressive progress in reducing its deficit. The first part of the program, the strong cuts in public spending and the structural reforms made it possible for Greece to reduce the first-half deficit by 45%. (Read about it in FT $.)

Israel and Lebanon
Fears of a bloodier and more destructive conflict between Israel and Lebanon had kept both countries relatively calm, says this International Crisis Group report, which was published the day before last week’s violent clash. Read about the conflict in this LA Times blog.

Patrick Signoret and Isabel Gil

04 August 2010

Conferencia de Prensa IMSS: Estabilidad en el cálculo de pensiones

Mi parte favorita viene al final, cuando Daniel Karam nos desea "Muchísimas tardes y que tengan muy buena tarde".

A ver quién me explica por qué entonces hace apenas unos días parecía que este resultado no se podría dar sin una reforma legal.

Why is deflation bad? (¿Por qué es mala la deflación?)

This is the question I am most often asked at my presentations. In the latest round, we increased the probability of our deflation scenario for advanced economies to 40%.

Krugman answers it here. I quote:

There are actually three different reasons to worry about deflation, two on the demand side and one on the supply side.

So first of all: when people expect falling prices, they become less willing to spend, and in particular less willing to borrow. After all, when prices are falling, just sitting on cash becomes an investment with a positive real yield – Japanese bank deposits are a really good deal compared with those in America — and anyone considering borrowing, even for a productive investment, has to take account of the fact that the loan will have to repaid in dollars that are worth more than the dollars you borrowed. If the economy is doing well, all this can be offset by just keeping interest rates low; but if the economy isn’t doing well, even a zero rate may not be low enough to achieve full employment.

And when that happens, the economy may stay depressed because people expect deflation, and deflation may continue because the economy remains depressed. That’s the deflationary trap we keep worrying about.

A second effect: even aside from expectations of future deflation, falling prices worsen the position of debtors, by increasing the real burden of their debts. Now, you might think this is a zero-sum affair, since creditors experience a corresponding gain. But as Irving Fisher pointed out long ago (pdf), debtors are likely to be forced to cut their spending when their debt burden rises, while creditors aren’t likely to increase their spending by the same amount. So deflation exerts a depressing effect on spending by raising debt burdens – which, as Fisher also points out, can lead to another kind of vicious circle, in which depressed spending because of rising real debt leads to further deflation.

Finally, in a deflationary economy, wages as well as prices often have to fall – and it’s a fact of life that it’s very hard to cut nominal wages — there’s downward nominal wage rigidity. What this means is that in general economies don’t manage to have falling wages unless they also have mass unemployment, so that workers are desperate enough to accept those wage declines. See Estonia and Latvia, cases of.