Wednesday 16 May 2018

Euro tumbles, German export competitiveness rises

At EURUSD 1.07 last year the Deutschmark and French Franc were at more or less REER all-time lows. Italy is not much more expensive. The ECB is still printing and we may be seeing the re-emergence of the Eurozone crisis. Put another way could we see new all time highs for German export competitiveness? What will the Fed and Trump do with a blow off top for the USD?

Italy, oil, US muni taxes

The EU crisis was always going to be politically triggered, not economics or markets triggered, something many finance people could not understand for years. David Cameron got a zero when asking for reforms. But Italy is big enough to trigger an existential showdown with the European Commission and their compromised politician front men. 

Italy's TARGET2 imbalance is already €444bn, or 24% of GDP on €2.1Tn of debt and a €1.9Tn economy. As Varoufakis said, Greece's mistake was not defaulting on the ECB. Italian government spends over 48% of GDP and is in breach of Maastricht debt levels by more than 2x, having run >3% deficits many years since joining the EZ. 

The two parties seem to have agreed on a further stimulus plan so far as the high debt levels are currently showing up as deflationary. 

Nevertheless, if you are bored of London, they are offering a Non-Dom deal.

Looks like shale growth will overtake demand growth with the former revising higher and the latter set to be revised lower on EM wobbles... Hard to understand why oil is sitting at $78 or so right now. Could plunge back to the 50s to choke off shale growth easily enough.

Illinois and other bankrupt municipalities

What is Illinois considering to do to plug a huge pension deficit? Hint: it's not reducing spending or gilt edged pension benefits.  People are moving out of high cost and high tax areas already.  Amusingly Puerto Rico is now the lowest tax place you can go to in the US.

Wednesday 9 May 2018

Fading consensus trades over the summer

Oil is up about $30 since last June and is probably a fade from here for a few months on high supply levels. USD rally recently should also subdue import price inflation. Just need some weaker growth numbers for a lot of consensus macro trades to be run over during the summer. Political problems in Europe or China slowing headlines could also be a catalyst.

Long EM has already been run over by the USD rally. But long oil and short bonds, long equities, in paricular European ones stand out as vulnerable to me. 

Tuesday 1 May 2018

PCE numbers topping out?

PCE slowed to zero in March as Core-PCE pushed up to recent highs. Seems an industrial slow down may be on, lot of PMIs are off their peaks. Set against record short bond positioning a growth/ Iran conflict scare could trigger a clear out of the bond bears, although I do think yields will be higher and perhaps the curve steeper later in the year.