US Treasury yields jumped higher (Treasury prices continued to fall on Friday) as a pickup in US wage growth and formally initiating a tax reform process. The rise in US bond yields since the FOMC meeting in September is reflected in the long run of the yield curve, although it is lagged. The 10 year interest rate, which often faces resistance in 2.35% of the region, should be followed as a risk factor for the short term in terms of developing country assets. With a psychological above the threshold 2.30%, there is some deterioration in risk perception for some emerging countries. By the way, the Fed is trying to remain loyal the way they want to proceed as long as the circumstances have not changed. Rising US treasury yields have strengthen the Fed’s intent to hike rates in December.
The US payrolls shrank for the first time in 7 years because the effects of the hurricanes. The jobless rate fell to a 16 year low while wage growth picked up. The US trade deficit also narrowed (fell to 11 month low) on goods and services in August as exports rose. The dollar index rose with Treasury yields on strong US economic data this week.
Meanwhile, the CBOE Volatility Index, Fear Index, closed at a record low this week, going back to to 1990.
I like this graph from the Marketwatch:
US markets are underperforming (YTD): The U.S. stock market is up 13.3% so far in 2017, but other markets have done even better.
Meanwhile, Euro fell below USD 1.17 after US strong data and Catalonia’s political chaos. After the victory of Macron in France, the possibility of being exposed to the idea that ‘the reduction of political risks in the euro would be positive in terms of region assets’ maybe will not be easy to provide after Spain’s Catalonia independence and also Italy’s potential politic elections in 2018.
Venezuela’s chaos !
Stocks in Venezuela(IBC Index) hit all time high. Venezuela CDS(Credit Default Swap) spreads 5y have widened quite dramatically over the past few weeks because of sales of Venezuelan crude to the United States fell to a 14-year low in September as US Gulf Coast ports closures due to Hurricane Harvey and US sanctions.
The Venezuela’s state-owned oil producer PDVSA has a lot of debt to pay in coming weeks and investors have lost their confidence for this company will make payments, so PDSVA bondholders escaped from shortest bond to secure notes.
According to the Reuter’s new, Venezuela’s oil minister confirmed on Wednesday that state oil company PDVSA is negotiating to swap Russian oil producer Rosneft’s collateral in Venezuelan-owned, US-based refiner Citgo, adding that results are expected “very soon.” The head of PDSVA company has also invited 10-12 more oil-producing countries at energy forum in Moscow to join OPEC-led output cuts on oil prices turn back towards $55 a barrel as rising concerns about the growth of US crude production (US oil exports keep rising). Most importantly, Russia and Saudi seems that they made an agreement on OPEC oil supply cut pledge to rebound the oil prices above $50 a barrel this year.
Catalonia political crisis!
Source : https://amp.ft.com/content/bd777293-272f-342c-81d4-50319f82b18f
The risk premium investors demand to hold Catalonia government bonds went up to a new 2017 high on Friday as investors worry about the political chaos in Spain. According to the Bloomberg data, the difference between the 10 year yield Catalonian bond maturing in 2020 and Germany’s 10 year went up to 2,52% on Friday.
Catalonia’s bond yields have risen, reached 3% and are still under pressure. (Yields rise when prices fall.)
Spain’s IBEX 35 stock index which has plunged by more than 3% this week, saw the biggest single session decline in 15 months which showing investors’ concerns.
The Spanish 10-year bond yield reached its highest level since March (French election) this year and Spain’s sovereign default probability has risen in these days as rising political concerns.
Meanwhile, Standard & Poor(the international credit rating agency) put Catalonia’s B+ rating on credit watch negative this week and added that they may downgrade the sovereign debt rating of Catalonia in the coming weeks as rising tensions with Madrid. Therefore, they’ll review its rating after potential referendum.
DBRS Rating Limited has confirmed Spain’s long-term foreign and local currency issuer ratings at A(low). According to DBRS, the Spanish economy has become more competitive, flexible, and resilient since the crisis.
Moody’s and Fitch rating agency warned that escalation of conflict over Catalan independence would have negative effect for Spain.
According to the IMF, the outlook for the Spanish economy is strong for now, but it expects Spanish growth to slow this year and next because uncertainty and political tensions related to Catalonia affect the investment decisions in Spain.
The price of gold has increased by over 10% since the start of the year. Copper’s long term outlook has also looked positive.
Lastly, there is a nice article by @zerohedge:
‘This Is The Elephant In The Room”: ‘Even SocGen Is Now Calling It A Bubble’