A few items worth keeping track of.
Tomorrow I will come back to those pain-in-the-neck macroeconomic equations in yesterday's Thaler's, which raised a good number questions among clients, but for today, I would like to focus on the topics which will surely be the focus of our attention in the coming months.
- US unemployment is a big one, with the publication of NFP tomorrow. The consensus is looking for 0, but the estimate range is once again extremely wide, with some rumours suggesting the creation of several hundred thousand jobs!
- Commercial Real Estate (CRE), which some say is the next shoe to drop, although its total risk is in fact below that of residential property, is beginning to show a certain resurgence in risk appetite, with the loan restructuring in progress.
- Then there is the continued turbulence on the eurozone, as Juergen Stark delivered another whacky comment yesterday morning about Greek debt, provoking a rebuke from Greek Finance Minister, Mr Papaconstantinou.
- And let's not forget the bank restructuring moves to come in the German Landesbanks allemandes, and especially those of the Spanish cajas, our European version of Fannie Mae and Freddie Mac.
I still do not understand why the Italy-Spain interest rate spread has not returned in favour of Italy.
- And the European economy just does not look that good, as illustrated by this morning's release of mediocre statistics in Germany, with retail sales down 1.1% in November(-2.8% YoY) vs expectations of +0.3% (-1.7% YoY) and industrial orders at +0.2% vs expectations of +1.5%.
- The problems of peripheral nation sovereign debt, with that of Iceland on the front page, but there also remains questions about the incredible plan to eliminate private debt voted (or vetoed( in Koweit.
- The virulent debate continues about a potential repetition of the 1994 route on government debt markets.
It is also interesting to note that the cash managers of US businesses carried out Tuesday the 2nd largest day of bond issues ever ($24.1B).
They are based on a fairly simple principle.
Either the US economy will pick up with it, pulling up interest rates, or it will fall back, leading to a new widening of corporate spreads.
- The more general state of credit markets:
*Our longtime prognosis of a second QE round in the US has just taken on some wind with the publication of FED minutes, revealing that some Fed board members wanted to continue purchasing MBS so as to avoid an overly steep hike in interest rates on this segment of the debt market, which would knock the daylights out of the real estate market!
Indeed, it is hard to imagine that the Fed's sudden disappearance from this segment on which it bought more MBS stocks than it issued in the year would not have a major impact on this asset class!
* Some of our longtime readers will recall the importance we attached at the beginning of the crisis (13 August 2007: very difficult, beware of Conduits) to the behaviour of the Commercial Paper market in the United States, which we view as an advanced indicator of money velocity (MV=PQ).
The Fed just a few minutes ago released the latest available data on this market -- for the week of 6 January.
Unfortunately, the catastrophic contraction is continuing, with a plunge of $94.2bn in CP, bringing total outstanding CP to $1.075.8 T, i.e. close to the lows of six months ago and of … 1998 !
As such, I have attached the updated outstanding CP graph, which is pretty impressive.
And to think that I thought that the Fed had resolved the problem with the establishment of the CPPF...
Given that this programme is supposed to expire in less than a month 2010, we wonder about the real feasibility of the exit strategies., i.e. on 1 February
Outstanding commercial paper in the US
Disclosure: Long 20 years OAT 0% Coupons, EDF Corp 5 Years 4.5%.