week in review


Moody’s downgraded China’s sovereign credit rating to A1 from Aa3 and changed outlook to stable from negative. Leverage, high debt and slowing growth are the trio concerns for Moody’s China downgrade. Moody’s expect direct government, indirect and economy-wide debt to continue to rise. According to Moody’s rating agency, China’s structural reforms will not enough to prevent its rising debt.

China’s credit rating history by Rating agencies below…


We all know that debt in China has been increasing since the financial crisis and the credit risk of companies keeps on rising. There are companies which have very high debt levels in China. It’s not easy to assess them because of the expansion of shadow banking in China.

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Here is very interesting article about China’s credit rating :

4 Reasons Why Moody’s Is Wrong About China !


According to Kenneth Kim,

1-The concerns of China’s “economy-wide” leverage is misplaced.

2-It is okay if China’s growth rates fall.

3-It is okay if China mostly relies on debt financing instead of equity financing.

4-China’s financial sector is growing..

Equity markets in China fell sharply on the news. China stocks and currency hit  after Moody’s downgrade the country’s rating.

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China yields rose after Moody’s downgrade, China’s yield curve rallied, signaling further trouble

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The Fed minutes signaled rate hike very soon and mentioned that economic weakness is transitory and focused on significant uncertainty about Trump’s economic policies. Fed officials also discussed plans to reduce the central bank’s 4.5 trillion US dollar balance sheet.

Federal Reserve Balance Sheet

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US labor market strength

US jobless claims rose slightly, but remained below expectations this week.

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US GDP growth revised up to 1.2% in Q1.

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US corporate profits unexpectedly fell in Q1



Very useful article here:


This special feature aims to explain the decoupling of economic policy uncertainty and financial conditions. Shocks to uncertainty and shocks to financial conditions are strongly.



According to the Markit Economics, the composite Purchasing Manager’s Index (PMI) remained steady at 56.8 in May from April in Eurozone. Business activity is expanding at its fastest rate for 6 years so far in the second quarter, consistent with 0.6-0.7% GDP growth in Eurozone.

There are faster expansions in France and Germany

Business activity growth was recorded in both Germany and France. On the other hand, Italy manufacturing confidence fell unexpectedly fell in May.

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However, Eurozone still has some problems about non-performing loans.(especially in Greece/Portugal/Italy). Debt to GDP ratio in Portugal is the highest in the Eurozone after Greece.


As you can see from the table below, the relationship between US dollar index(DXY) and USD/EURO has a very strong positive correlation in the last month since the value is so close to +1.




Euro advanced against US dollar after dovish Fed minutes. According to calculations by Reuters and Commodity Futures Trading Commission data released on Friday, net long positions on the euro rose to its highest than 3 years.


UK GDP growth

UK V15kbomb7.png

UK growth slowed sharply in the first quarter of 2017. On the other hand, business investment rose  in the first 3 months of 2017 compared with the previous quarter.

Economic policy uncertainty peaked around the UK referendum and the US presidential election. On the other side, UK economy is still affected by the uncertainty about Brexit and early General election in UK.


              via @Rupert_Seggins

Weak Q1 UK GDP was driven by falling exports and consumption slowdown.


Output components of UK GDP growth

Within services, the largest contributor to growth was business services and finance.





FTSE 100 closed record high as pound fell  to a 1 month low ahead of the early general election in UK.


Bitcoin reached a record high on Thursday amid increased political risk in the US and Brazil. Bitcoin’s value has nearly doubled since the start of May.

Bitcoin is twice as valuable as gold now!

In spite of Bitcoin’s volatility, some investors prefer Bitcoin to run away from increased geopolitical risk.

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Sovereign Risk and Credit Ratings

BlackRock Sovereign Index – Quarterly Update – April 2017


The BSRI breaks down the data into four main categories that each count toward a country’s final BSRI score and ranking: Fiscal Space (40%), Willingness to Pay (30%), External Finance Position (20%) and Financial Sector Health (10%).

As a result of this, Venezuela has the highest sovereign risk while Norway has the lowest.

Countries with Highest Rating (latest April 2016)


Countries with Lowest Rating (latest April 2016)

LOWEST RATING Untitled.png

Source: Trading Economics


Emerging Markets are not all created Equal!

Great graph by Visual Capitalist !

From the graph below, you can see that emerging markets have different risks.  For example, Turkey, Russia, South Africa, Thailand, Brazil, Chile, Colombia, Mexico, Peru are most affected by changes in currency markets. On the other side, China is so sensitive to domestic economic forces and developed markets. Interestingly, Mexico, Hungary, Taiwan, South Korea and Czech Republics  are also so vulnerable to developed markets. Moreover, Brazil, Chile, Peru, Russia, Qatar, South Africa and Indonesia are sensitive to commodity markets.



Moody’s changed on May 26th the outlook for Brazil from stable to negative, while leaving the credit rating unchanged at Ba2. In other words, Moody’s kept Brazil’s rating at two levels below investment grade at Ba2, that’s a notch below Turkey and Russia.  Moody’s mentioned the uncertainty rise for reforms following recent political events and its threat to the economic recovery as the two factors considered for the outlook downgrade. In addition to this, Standard & Poor’s credit rating for Brazil stands at BB with negative watch outlook. Fitch’s credit rating for Brazil was last reported at BB with negative outlook.

Brazil’s sovereign credit rating history by Rating agencies below.

bRAZİL RATİNGSUntitled.png

As we remember from the last week, after the corruption allegations scandal, Brazil’s country risk has risen the most since 2008 and sovereign bond yields followed higher. (so borrowing gets more expensive)


Brazil Yield Curve Rally


Meanwhile, Brazil government budget deficit widened 16.7% YoY in April.


According to Standard and Poor, 38 Brazilian banks & Sovereign face rising debt risk.

You can reach the banks name here:


Brazil equities edged down amid political tension.



Oil prices fell sharply last Thursday after OPEC decided to extend the output cuts for nine months rather than six in an effort to rise oil prices. It seems to me that there is still a room to rise oil prices until the end of the year.

Here is very useful article about oil prices:




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Performance charts of the week



Lastly, Brazil, Chile, Mexico, Japan and Venezuela credit default swap(CDS) 5Y spreads have widened this week as rising oil prices pressure and political risks.

cds Untitled.png

Source: MarketWatch

Markit CDX credit default swap indexes cover North America and emerging markets. Markit iTraxx credit default swap indexes cover Europe, Asia, Australia and Japan. The indexes are owned, calculated and administered by Markit. For more information visit http://www.markit.com/cds



week in review

The dollar and US stocks fell sharply on Wednesday as rising concerns of political turmoil after a bombshell report. According to this report,  Donald Trump  had asked former FBI Director James Comey to end an investigation into Michael Flynn.  As a result of this, the Standard&Poor’s 500 index had its biggest drop since September. The Dow also lost 1.8% points. The 10-year Treasury yields fell to 2.21% from 2.33 % on late Tuesday.

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All of them have sent the dollar to a six-month low and investors turned into haven assets/alternatives, such as treasuries, gold, euro and yen. The greenback was down 1% against the Euro, 0.2% against the Yen and 0.8% against the Pound. In other words, the dollar erased all gains since the US presidential election amid political turmoil and concerns over President Trump’s ability to put into practice promised reforms. (such as tax cuts and big government spending)

Recently, investors also have been focused on Donald Trump’s possible impeachment. It seems that the dollar will suffer next days as a result of Trump’s possible impeachment.  (even if there is only a small chance)

FOREX Untitled



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Source: https://www.ft.com/content/812ce43b-5e76-3e57-b976-c910d6cbd73a

The difference between the yield on the two-year and the yield on the 10-year Treasury has dropped to just over 1% point, reached its lowest level since November 8.

 The indicator is a measure of the “slope” of the Treasury curve. A steeper curve suggests a more positive view of future economic conditions, meaning interest rates will rise more quickly. A flatter curve implies a more shallow trajectory for future interest rates.

ÖNEMLİ 1600x-1


On Wednesday, the VIX Volatility index (is known as the market’s ”fear gauge”), which measures US equity market volatility, increased to its highest level since last September and the second sharpest increase since the Brexit vote in June as political concerns.

2CBOE Untitled.png


Here is very useful article:


Unemployment in the US is falling, so why isn’t pay rising?



Brazilian president Temer is facing new corruption accusations in these days. Temer has denied any crime and refused to resign on Thursday. Although Temer has denied, Brazilian real posted biggest decline since January 1999. After that, the country risk surged most since June 2013 and Brazil sovereign spread has blown out as rising political crisis.



Moreover, US-listed Brazilian stocks crashed. These US stocks below have the most at risk from the emerging Brazil crisis.



Volatility up in Brazil

Brazil’s Bovespa gained 1.7 %, a day after the benchmark index fell by 8.8% as a bribery scandal in Brazil. After Thursday sell-off, Brazil shares rebounded.

Lastly, Fitch Ratings agency affirmed Brazil at BB investment grade rating with a negative outlook as high and rising debt burden, weak growth and political instability.


Thursday’s stronger-than-expected retail sales moved sterling to $1.30 for the first time since October. Meanwhile, UK consumer Inflation hit the highest level in four years during April and unemployment hit at its lowest level in more than 40 years, according to Office for National Statistics.

Annual consumer price growth rose to 2.7 % from 2.3 per cent in March, driven by higher air fares, energy, clothing and food costs  in April, according to the Office for National Statistics.

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FTSE 100 closed above 7,500 for first time as UK inflation jumps to 2.7%  and gained after CBI data showed the weaker pound continued to boost British factory exports in May.
FTSE 1000Untitled.png



The euro rose to a six-month high as political event risk diminished after Germany’s  Christian Democrats (CDU) party performed well in recent elections.

On the other side, the euro still continues to be supported by the results of the French election.

According to the Eurostat, Euro area annual inflation was 1.9% in April 2017, up from 1.5% in March.

The lowest annual rates were registered in Romania (0.6%), Ireland (0.7%) and Slovakia (0.8%). The highest annual rates were recorded in Estonia (3.6%), Lithuania (3.5%) and Latvia (3.3%).

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According to preliminary data for 2016, the European Union’s (EU) exports of services to the rest of the world decreased by 1.4% between 2015 and 2016, while imports grew slightly +0.6%. As a consequence, the EU trade surplus in services, which had steadily increased between 2010 and 2013, has decreased for the third consecutive year in 2016.

The United States, top partner for both exports and imports…

In 2016, the main partners for EU exports of services remained the United States (€219.0 billion, or 27% of extra-EU exports) and Switzerland (€118.6 bn, 14%), well ahead of China (€38.0 bn, 5%), Japan (€29.4 bn, 4%) and Russia (€23.8 bn, 3%). The main partner for EU imports of services also continued to be the United States (€207.2 bn, 30% of extra-EU imports), followed by Switzerland (€93.9 bn, 14%), China (€27.1 bn, 4%), Japan (€16.3 bn, 2%) and India (€14.7 bn, 2%).

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Source: Eurostat

Meanwhile, Greek and Portuguese yields slide on brighter future.

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Peripheral bond yields dropped as a positive political climate in Europe contrasted with turmoil in the United States.

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The Organization of Petroleum Exporting Countries(OPEC) and other  producers will meet next week Friday to discuss supply reduction. Oil prices hit 3-week high on Thursday as US oil inventories fell again. Oil prices have affected by the Russian and Saudi energy ministers about the possibility of extending a deal that cuts oil production.





week in review

The US economy grew at its slowest pace in three years during the first quarter of this year as a sharp slowdown in consumer spending.

The Federal Reserve left interest rates unchanged as widely expected at its May 2017 meeting on Wednesday. According to the Fed policymakers, the labor market has continued to strengthen despite a slowdown in economic activity during the first quarter, see as ‘transitory’ and inflation will stabilise around 2% over the medium term.


Meanwhile, US economy added 211K jobs in April, higher than 79K in March. US unemployment rate fell to 4.4% in April 2017 from 4.5% in the previous month. Therefore, US unemployment reached the lowest jobless rate since May 2007.


US trade deficit improved slightly in March in 2017 to the lowest level since October 2016 as both exports and imports fell.


It seems that the Fed will raise rates again at its June meeting. In other words, June rate hike odds jump to 94% after the Fed meeting.


On the other hand, US corporate debt-to-asset ratio rises sharply !

Very interesting article here:



Société Générale’s Albert Edwards, who noted “higher US leverage is another key reason why US profitability is higher than elsewhere”, reflecting years of ultra-low borrowing rates set by the Federal Reserve. “Even the IMF has recently warned, in its own understated coded way, that the Fed has created a time-bomb waiting to blow up.

Very nice another article here: America needs more Foreign Direct Investment(FDI)! 


The graph below shows that there is a lack of consistency on foreign direct investment inflows to the US.


Very useful research:

The Determinants of Foreign Direct Investment: http://www.nber.org/papers/w1670

Standard approaches to boosting FDI include cutting corporate taxes, building infrastructure and entering into multilateral trade agreements. Certainly, the U.S. should try all of those, initiatives that would be useful for domestic investment as well.

But according to research by economists Bruce Blonigen and Jeremy Piger, those factors are not quite as important as one might think. Instead, Blonigen and Piger find that one of the most important ways to attract FDI is simply to have a big market that is close to other big markets. They also find that cultural distance is important, having a common language, for example, facilitates investment. That’s why the U.K. and Canada are two of the U.S.’s main investors. Regional trade agreements, like the North American Free Trade Agreement (NAFTA), are also useful.

Another interesting article from the Economist about the Britain’s Foreign Direct Investment:

Take away Finance, and Britain’s FDI figures collapse!

The graph below shows that finance was unusually dominant in 2015 in Britain!



The US Treasury yield curve flattened after strong jobs data in April, the unemployment rate fell to a nearly 10-year low and rising rate hike expectations in June by Fed.

In other words, The US 10 year Treasury yields hit a 3 week-high and turned to one month ago  after Fed left rates unchanged, increased the expectations of rate hike in June and US strong jobs report.

US 10Y Untitled.png


The US dollar strengthened after the US Fed left June hike on table on Wednesday.


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Gold prices hit six-week low on Thursday as Fed rate hike expectations in June grew and euro-zone political risk decreased.

(Gold is so sensitive about the US government bond yields)

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According to the Eurostat preliminary flash estimate results, the Eurozone economy advanced 0.5% for the first quarter of the year 2017, was in line with expectations. In addition to this, the Eurozone growth overtook the UK for only the 3rd quarter since the Eurozone crisis.

GDP growth picked up in Spain, Austria, Belgium and Latvia but eased in France and Lithuania.

The Eurozone manufacturing sector continues improving. The final Markit Eurozone Manufacturing PMI also increased to a six-year high of 56.7 in April 2017 from 56.2 in March.

The unemployment rate in the Euro Area fell to lowest level since 2009 and remained at 9.5 % in March 2017, unchanged from the previous month’s figure. Greece, Spain, Cyprus, Italy, Croatia and France have the unemployment rate above 10 %. (EU28=8%)

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Latest polls show that Macron will win the French 2nd round of presidential election on May 7.


Source: The Bloomberg Composite Indicator of French polls takes the average of polls data from surveys including OpinionWay/Orpi, IFOP/ Paris Match, Harris Interactive, Kantar Public and BVA.

Therefore, Euro-break up risk and French 2 year risk spread has fallen this week after a brutal French debate on Wednesday as Macron’s vote against Le Pen has widened in France. Most importantly, the spread between the French 10-year yield and the German 10-year yield is narrowing.

Chart of the week!



France 10-year yields have increased as Frexit fears decreased after Macron won for the first round of presidential election. Therefore, France’s CAC(the benchmark French stock market index) jumped to a new high this week, has gained 4.5% in a period of less than two weeks and climbed to its highest level since 2008. The Euro Stoxx 50(stock index of Eurozone stocks) has rallied and gained on positive PMI’s and the French presidential elections near.

1o year franceUntitled.png

CAC Untitled.png



Surging share prices for Eurozone banks show that how strongly investors believe France will elect the centrist candidate Macron as the next president in France.


Graph source: https://www.ft.com/content/c4de73e2-17a1-11e7-9c35-0dd2cb31823a


Euro soared ahead of the French presidential elections.


By the way, I liked this graph below!




Oil prices has rallied after hitting 5-month low earlier on Friday as rising expectations of further production cuts from OPEC and strong US jobs data.


On the other hand, oil tumbled to 5-month low this week as US production rose and rising worries about Chinese economic growth. Most importantly, US crude production climbs as OPEC continues to cut.


All commodities were terrible this week. The price of copper has seen the worst drop since September 2015 on concerns over growth in China. (China is the world’s largest consumer of copper).


China is also the world’s top crude oil consumer and importer. This week, Chinese stocks dropped on decreasing commodity prices.


Meanwhile, China manufacturing growth fell to slowest pace since September 2016.


Yield premium over Chinese sovereign debt has widened to a record.



China’s bond yields are surging…China’s 10 year government bond yields have increased and reached the highest rate since late 2015 as rising concerns over the Chinese government regulatory and policy tightening.

CHINA Untitled.png

chına 10 year yieldUntitled.png

Lastly, the graph below shows that the latest 5-year credit default swap(CDS) spreads (risk of default) during this week…

French, Italy, Spain, Ireland and Portuguese CDS spreads have tightened while Colombia, Chile, Mexico, Peru and Venezuela have widened.


Source: MarketWatch / Markit

Markit CDX credit default swap indexes cover North America and emerging markets. Markit iTraxx credit default swap indexes cover Europe, Asia, Australia and Japan. The indexes are owned, calculated and administered by Markit. For more information visit www.markit.com/cds

week in review

The first round of French presidential election is done. Emmanuel Macron and Marine Le Pen won the first round of French presidential election. According to the Interior Ministry’s final result, Macron won with 23.8% of votes while Le Pen won 21.5%. The second round of the French presidential election is scheduled for May 7. Early polls showed Macron is expected to win calmly in the second round.


Source: http://www.telegraph.co.uk/business/2017/04/25/world-stocks-record-high/

Meanwhile, French business confidence for April remained strong while reaching a new high at 108.


Chart of the week!


This week, Macron’s optimism about Europe and Trump’s big tax reform announcement led world stocks to set fresh record highs.


Nasdaq, home to many of the biggest technology companies in America,  hit the 6,000 for the first time ever on Trump’s tax talk and the results of French election. It has taken 17 years for the Nasdaq to climb from 5,000 points to 6,000.

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Nasdaq’s Big Five : via @zerohedge


The Dow Jones industrial average also jumped more than 200 points, (Caterpillar and McDonald’s the most gains) broke above the 21,000. In addition to this, S&P 500, as a leading indicator of US equities, climbed above its record this week.

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The MSCI All-Country World Index jumped to all time high as Macron’s win for the first round and Trump’s tax plan.

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Meanwhile, the MSCI emerging markets index also rose to its highest level since June 2015 after French vote and Trump’s tax plan.

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Very useful article here:

Why Emerging Markets Have Become an Unlikely Haven From Global Risk..



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On Thursday, the Mexican peso jumped after Trump said he won’t terminate NAFTA and a strong budget surplus in Mexico in March.

usd Untitled.png

By the way, oil’s slide has not stopped the emerging-market rally.


Trump’s tax plan is to slash the corporate tax rate from 35% to 15%. The US has one of the highest marginal corporate tax rates in the world. (35% currently). That rate rises to nearly 39% if taxes levied at state level are included.

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The European Central Bank (ECB) kept the key ECB’s record-low interest rates and mass bond-buying program unchanged as widely expected on Thursday.

After the first round of French election optimism, the euro rose sharply against the most major currencies. However, cautious Draghi sent the Euro lower after the announcement. On Friday, the euro jumped again as Euro zone core inflation hit 4-year high.


Draghi: We are not in the situation of 2011, when we had inflation figures above 2% for several months consecutively. French election wasn’t a factor! In the Governing Council meetings we discuss policies, not politics. Threat of trade protectionism has fallen!

In summary, the ECB president sounded dovish on inflation!

Draghi: The risk of deflation had largely disappeared. The cyclical recovery of euro area economy is becoming increasingly solid and downside risks have further diminished. Underlying inflation has not shown a convincing upward trend.

They continue to expect interest rates to remain at present or lower levels for extended period of time.

According to a flash estimate from Eurostat, Euro area annual inflation is expected to be 1.9% in April 2017, up from 1.5% in March 2017. Energy is expected to have the highest annual rate in April.




Big spreads for non-core countries is still a major problem for ECB to control!

According to the Eurostat, the regional unemployment is higher in Greece, Spain, Italy and France in 2016, comparing to other EU countries.


Source: Eurostat

Public debt problem in Italy!


Italy’s public debt rose 132.6% of the country’s gross domestic product last year.



UK GDP growth slowed to 0.3% in the first quarter of 2017. However, UK deficit fell to lowest level since 2008.


Nice article here: UK GDP figures are not as bad as they might seem… http://uk.businessinsider.com/uk-gdp-figures-arent-as-bad-as-they-might-seem-2017-4

Growth in British private sector firms picked up strongly in the three months to April.



US economy grew 0.7% in first quarter by weaker consumer and government spending, the weakest in 3 years.


US Treasury yields rallied near 2 week highs ahead of Trump tax plan.

US 2Untitled.png


US Dollar index (DXY) erased gains after weak US Q1 GDP data.



This week, oil fell to one month low as Libya restarts its biggest field. After that, oil rose above 50$ a barrel as US inventories fell more than expected. Oil is still under pressure as concerns about OPEC production cut.


week in review



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The first round of the French presidential election will be held this Sunday.

Le Pen or Macron?


Source: The Economist /KAL’s cartoon this week

Latest poll suggests that Macron overtakes Le Pen in France for the first round of presidential election, but there is little difference in the voting rate between Macron and Le Penn for now.

Le Pen stands for national identity and culture, against ‘massive immigration’  and she wants France to leave the EU’s zone. and exit the euro.  According to her, the European Union is a failure. On the other hand, Macron stands for globalism, equality and free movement.

Therefore, after the Paris terrorist attack on Thursday night, the probability of Le Pen’s victory could increase and this lead some investors to be cautious ahead of French vote.

Uncertainty still continues ahead of the election in France. Donald Trump also says that Paris terrorist attack will have a big effect on presidential election in France.


 FRENCH UntitledFrance 5Y CDS spread has tightened in recent days, but ahead of the political election and terrorist attack, it has increased quite a bit recently as concerns over political risk continue to dominate. Moreover, French 10 year government bonds have rallied and turned higher on Friday.

Source: Bloomberg

France 10 year bond yield – Yield curve

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Very nice reading about the French Presidential election by Chris Bailey @financialorbit:

Will the French Presidential election hurt the value of your pension fund?

We could draw a line here and conclude it is all up in the air.  But this is a column and you want an investment view.  My continuing thought (as originally published here) remains that populists are not going to crash and burn global markets in 2017.



Theresa May’s statement on 18th April 2017: Britain’s Prime Minister Theresa May has called a snap general election which is needed for ‘Brexit stability’ in Britain on 8 June. If Brexit talks go well to provide political unity and the conditions necessary for economic development, it will be good for pound.

The pound climbed to a 6-month high on Tuesday while FTSE 100 suffered the worst day since Brexit. The yield on the benchmark 10 year gilts jumped after May’s speech on Tuesday.

The pound also passed through its 200-day moving average – a key resistance level – for the first time since the EU referendum last June.

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Nice summary here about the pound and politics from Financial Times:


1. Theresa May’s “citizens of nowhere” speech leads to start of sterling sell-off
2. Philip Hammond and David Davis meet bank chiefs at the Shard in a “reassurance exercise”
3. May’s Sky TV interview leaves markets unimpressed; pound falls again
4. Sterling retreats after Downing Street briefings on May’s upcoming speech on Brexit
5. May’s Lancaster House Brexit speech contributes to pound’s 3 per cent bounce
6. Bank of England meeting prompts sterling fall
7. Article 50 is triggered, starting a two-year exit negotiation process
8. May seeks early election to take UK through Brexit
Meanwhile, UK receives biggest upgrade to 2017 growth from the IMF despite Brexit uncertainty.

According to the IMF report, there are two interesting points: the first one is, emerging markets corporate debt are under rising risk premiums and protectionism, the other one is that deflation risks have also fallen, except in Japan.

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Credit:IMF http://www.imf.org/~/media/Files/Publications/GFSR/2017/April/chapter-1/text.ashx?la=en


Oil prices fell on Friday as rising US production balanced against OPEC cuts, geopolitical risk, political instability and Chinese economy .

According to the International Energy Agency (IEA), the oil market is slowly but surely reaching a balance as a result of success of the OPEC production deal. By  the way, OPEC oil production cuts continue and it seems to me that oil prices will continue to increase until the end of 2017.

Useful article here : https://www.ft.com/content/93554036-25ab-11e7-8691-d5f7e0cd0a16



Russian Energy Minister said that Russia reduced oil production by 250000 barrels daily in April as compared to its October output. They will discuss oil cut extending with OPEC on May 24.

Russia plans to increase oil production if no new agreement is reached with OPEC. Therefore, Russia’s participation in the agreement will be so essential for oil prices’ future.


week Untitled.png

This week, gold prices started to erase a loss for the week as investors seek safe-haven assets like gold after the French presidential election risk and Korean tensions.


Euro zone composite, services and manufacturing PMI data at 72 month high!

According to the Markit, Euro-zone PMI rose to 56.7 in April.  In other words, Euro-zone business activity hit a six year high in April on strong demand. Moreover, job creation has reached to the highest for almost a decade. However, euro dips with French election in focus next week.

forex Untitled.png

US 10-year bond yields dropped to lowest level since November as rising geopolitical risks. However, Trump told to the Associated Press today that he will unveil tax plan next week that includes “massive” tax cut for individuals and businesses. After that, US bond yields increased and dollar rose from 3 week-low. In addition to this, US federal reserve vice- chair sees two more US rate increases rest of 2017. This will lead dollar to be stronger than before.

bond yieldsUntitled.png


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Ratings agency Fitch downgraded Italy’s sovereign debt on Friday because of the country’s weak economic growth, fiscal slippage, weak government, banking problems and political risk ahead of elections due in 2018. Fitch reduced the rating to “BBB” from “BBB+”.

Source: https://www.fitchratings.com/site/pr/1022569 /  @Schuldensuehner



week in review

The European Central Bank (ECB) kept its bond buying programme and interest rates unchanged as widely expected.

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The threat of deflation continues?

Draghi said that headline inflation increased mainly due to rising energy and food prices. However, underlying inflation pressures remain subdued.


Draghi :

Single currency is irrevocable and euro is here to stay. Euro needed for single market.

The euro rose and  Euro-area bond yields climbed on Draghi optimism on the outlook for the Eurozone.


The euro rallied on Friday after a report appeared that the European Central Bank policy makers had discussed the question of whether interest rates could rise before their bond-buying program comes to an end.

By the way, I like this cartoon!




According to Eurostat, GDP up by 0.4% in the euro area and by 0.5% in the EU28 during the fourth quarter of 2016, compared with the previous quarter. In the fourth quarter of 2016, Estonia (+1.9%), Poland (+1.7%) and Lithuania (+1.4%) recorded the highest growth compared with the previous quarter, while Greece recorded negative growth (-1.2%) and GDP in Finland remained stable.


Germany current account surplus narrowed in January of 2017 in the same month a year earlier. It was the smallest surplus since May 2015. However, Germany trade surplus rose in January of 2017, reported a EUR 14.8 billion trade surplus in January of 2017, widening from EUR 13.2 billion a year earlier. It is the highest surplus for a January month since 2015.

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Greece’s trade deficit problem!

Greece’s trade deficit increased sharply by 91.7% in January 2017 in the same month a year earlier.


Trade imbalances


According to the IMF report, some statistics above show that  there is a huge gap  in current account ratios between Germany and the USA.



According to a Credit Suisse, Le Penn is the biggest risk to European financial stability. By the way, you can easily see from the graph below that France 10Y bond yields has increased sharply in one year due to rising political uncertainty. Rising concerns about euro breakup under Le Penn leads to increase credit default swap spreads (CDS) spreads much higher in France.

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US non-farm payrolls rose more than expected, beated expectations. US unemployment rate fell to 4.7% in February 2017 from 4.8 % in the previous month, in line with market expectations.

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Dollar is under pressure again as Friday’s strong job report increased the expectations of rate hike soon. Thus,  treasury yields started to decrease on Friday. However, Fed’s rate hike decision is not only depend on jobs, but also uncertainty about fiscal policies under Trump.

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Chart of the week!

This map below shows US states renamed for countries with similar GDPs via @visualcapitalist

Fascinating graph!



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Rising rate hike expectations leads gold to be less attractive metal.


United Kingdom

After the UK budget failed to support for the pound, pound fell to a seven-week low on Wednesday. The gilt curve steepened after long-dated sales for FY 18-18 were above expectations..


Very nice read via Chris Bailey @financialorbit : The really big message from the UK Budget (that people are not talking about)…


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After Draghi offered optimistic outlook  and raised growth and inflation forecasts at conference on Thursday, euro gained against the dollar and pound.



Oil fell this week as US crude stockpiles rose to a record high in ninth consecutive week of gains. Number of US oil rigs continues to rise as price starts to drop.


week in review


According to the Eurostat, Euro area annual inflation rose to 1.8 % in January. The most important thing is that Italy’s inflation revised up to 1% in January of 2017- it’s the highest inflation rate since August of 2013.

In January 2017, the lowest annual rates were registered in Ireland (0.2%), Romania (0.3%) and Bulgaria (0.4%). The highest annual rates were recorded in Belgium (3.1%), Latvia and Spain (both 2.9%), and Estonia (2.8%). 



Potential of a Greece default- An  Italian bail out – Alarm from Spain and Portugal

German bond market yields fell as rising predictions of Le pen victory. The European Central Bank’s bond-buying speculation led to a two-year German bond yields down. Therefore, two-year German bond yields reached at new low. In addition to the strength in German bonds, German 5Y Credit Default Swap (CDS) spreads are narrowing while Portugal, Italy and France 10Y spreads are widening over Germany. In other words, their borrowing costs are rising versus Germany.



The euro break-up risk led the french yields to set for biggest weekly fall in 7 months. You can see the chart below that there is  some panic between the bond investors as Le Pen, who has plan  to break-up the euro, narrows gap.


A very interesting chart from @joshdigga !

It seems that Fillon’s presidential election odd leads to increase the 10Y spread much more than the Le Pen’s.




The euro remained under pressure this week as rising euro break-up risk and French political election uncertainty. Political uncertainty in EU and US impact the prices and dollar fell on US policy doubts this week.


Upward Revision

Britain’s economy grew 0.7 % in the fourth quarter of 2016.

Britain’s economy grew 0.7 % in the fourth quarter of 2016  because of the sharp depreciation of the pound which leads to import more expensive in the UK, but business investment (firms’ demand for capital) in the UK  decreased by 1% in Q4 2016.

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How the FTSE and pound have changed since Brexit…


That view was echoed by Howard Archer, an economist at IHS Global Insight.

Source: http://www.independent.co.uk/news/business/news/brexit-gdp-growth-final-quarter-2016-07-per-cent-revision-a7592751.html

You can see from the graph above that the value of pound fell sharply against the dollar after Brexit.

Chart of the week!


The US is still the world’s biggest economy..

The four biggest economies in South America (Brazil, Argentina, Venezuela and Colombia) produce only about 4% of global GDP, while Africa’s three biggest economies (South Africa, Egypt and Nigeria) produce no more than 1.5%.

Source: https://howmuch.net

China produces about 14,84 of global GDP, while Germany, France, Spain, Italy and United Kingdom all produce 15,73 of global GDP.


Gold reacted negatively to interest rate hikes, so gold prices rose this week after Fed minutes suggested interest rate hike later.

Concerns over rise in US crude supply !

Oil prices were down after US crude inventories rose for a 7th week..

Useful article here:

With shale oil production like this, who needs Trump?



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week in review




According to the Eurostat, seasonally adjusted GDP rose by 0.4% in the euro area (19) and by 0.5% in the EU(28) during the Q4 of 2016.


France 5Y Credit Default Swap (CDS) spreads have blown out this week as rising in populism risks. France 5Y CDS spreads reached their highest level after the Brexit.

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Greece Inflation – 10y Bond Yields


Greece consumer prices rose in January, led by transport, housing, alcoholic beverages and tobacco costs. It was the first increase in consumer prices since February of 2013. According to the IMF, Greece has massive public debts and  needs to lower pensions and cut tax rates.

Greece needs help!

Here’s the chart from  Moody’s: Trouble!


Italy- return on assets is low!

According to the OECD, Italy is one of the few OECD countries where the tax administration agency does not have a staff development plan and does not regularly evaluate staff. Moreover, Italy’s non performing loans (NPL) ratios have been historically higher than in other European countries as the banking sector has long faced structural challenges due to poor governance, especially among many cooperative banks, high fragmentation and operating costs.

You can read the full report here:



Very useful article from ValueWalk:  I Agree!

Greece has one foot out EU door, but Italy where concern should be focused:



Emerging Market Currencies


Russian rouble performs very well in 2017, comparing the other emerging currencies. Ruble is led by slightly increased oil prices. The Brazilian real also continues to perform well under a rebalance government spending, rising commodity prices. South Africa’s rand reached its best levels in 15-months against the US dollar on Tuesday, after the data showed that the country’s unemployment rate fell to 26.5 % in the last three months of 2016 after reaching a 12-1/2-year high of 27.1 % in the previous period.

The russian ruble appreciated as oil rose from 2014 to 2016, but this usual relationship broke down in early 2017.

Good article here:



In 2017, Brazil economy started to perform well as rising commodity prices and falling inflation rate in response to the weak economy, comparing to its emerging peers.



However, Brazil’s economy is still suffering. There is still a political uncertainty, downgrade risk and huge government debt burden in Brazil. Therefore, the 5Y  Brazil CDS spreads have become wider again and the risk of default probability is higher than the South Africa and the Russia. In Emerging Economies, sovereign yields spreads narrowed since June as rising commodity prices.

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The emerging markets debt asset class has grown tremendously in the past two decades.

Useful article here: http://marketrealist.com/2017/02/case-emerging-markets-bonds/

Growth in market size has been driven primarily by the increased issuance of local currency-denominated sovereign bonds, as well as corporate bonds.




Retail sales in the United Kingdom fell unexpectedly by 0.3 % month over month in January 2017, due to increased prices in fuel and food.



US Federal Reserve chair, Janet Yellen, said it may be “appropriate” to raise interest rates at one of its upcoming meetings and signals March rate hike is possible. Us treasury yields decreased on Friday, but they will increase  as inflation picks up  if the Fed hikes rate in March.  (Yield curve is flattening as rising the fed rate hike probability)..




Performance of 10 year Bond Yield Chart today..

Bond yields moved higher this week  after Yellen said March hike is on the table.


TREASURY SELL-OFF / Chart of the week!


As you can see the chart above, foreign holders hold a smaller amount of US government debt than before.

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The Euro gained against the pound this week despite of French election and Greece concerns. The pound dropped against the dollar on Friday after the economic data showed UK’s monthly retails sales fell unexpectedly in January, leads to increase concerns that higher consumer prices may weigh on consumer-driven growth.


Gold prices edged lower as the potential fed rate hike in March. Oil was lower this week as EIA (Energy Information Administration) said that US stockpiles of crude and gasoline hit record highs.

Latest5Y CDS spreads..

Mexico 5Y CDS spreads have widened quicker this month. The insurance cost against European sovereign debt is rising as French election risk, Italy’s high non-performing loans ratio and Greece debt concerns.


Markit CDX credit default swap indexes cover North America and emerging markets. Markit iTraxx credit default swap indexes cover Europe, Asia, Australia and Japan. The indexes are owned, calculated and administered by Markit. For more information visit www.markit.com/cds

Source: Deutsche Bank/Marketwatch

week in review

Euro area

Germany Trade Surplus hit record in 2016

German Trade Surplus reached a new record high at EUR 252.9 billion in 2016, surpassing the previous high of EUR 244.3 billion in 2015, as exports rose more than imports.


Record German trade surplus add to political risk…German 5Y Credit Default Swap (CDS) spread has widened after the Brexit and Italian Referendum..Now, German CDS spread started to price the French presidential election..


France 5Y CDS spread is still widening as rising concerns/uncertainty over the impact of elections. France’ default of risk probability for now is higher than the Brexit referendum.

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Source: Deutsche Bank

This chart below shows the bond market volatility around national elections and EU-scepticism. Anti-EU sentiment in elections has had a greater impact on market volatility over time.



Target2 balance is a key indicator of Europe’s balance of payments crisis. Very good article here by Valuewalk:


The excess liquidity created by the ECB’s QE program is not staying in peripheral countries but leaking out to creditor nations such as Germany, leading to rising Target2 balances, the JP Morgan said.

When the Bank of Italy, via its QE program, buys bonds from a German bank or a U.K. bank with an account in Germany, this flow causes a rise in Bank of Italy’s Target2 deficit and an increase in Bundesbank’s surplus, Morgan explained. Similarly, when the Bank of Italy buys bonds from a domestic investor who uses the proceeds to buy a foreign asset, the Bank of Italy’s liability with the euro system grows.

Several Italian banks are still suffering.

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Portugal and Italy /Non Performing Loans (NPLs) are still not dropping. On the other side, Ireland NPLS fell sharply between 2013 and 2016. According to the OECD, Portugal investment is still very low, comparing the periphery countries. It seems to me that it is difficult to improve profitability for Portuguese banks. The second graph below shows the how Portugal’s growth and net savings contracted from 2007 to 2016. For the link:


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According to the IMF, Greece still faces fundamental challenges: (i) a vulnerable structure of the public finances; (ii) significant tax evasion and an ineffective tax administration; (iii) impaired bank and private sector balance sheets; and (iv) pervasive structural obstacles to investment and growth. Moreover, its public debt remains highly unsustainable, despite generous official relief already provided by its European partners.

Greece says that the IMF is too pessimistic about the future, but the data shows that the IMF is right.

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Of course, Greece CDS 5y spread (or the cost of insuring Greek government debt against default) has blown out and Greece 2-year bond yields hit 10% yesterday as creditors continue to disagree.

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According to Fitch Ratings, number of ‘AAA’ rated countries lowest since 2003, reflecting the longer term impact of the global financial crisis. Fitch’s AAA sovereigns are : Australia, Canada, Denmark, Luxembourg, Netherlands, Norway, Singapore, Sweden, Switzerland and the United States.


However, if you can stomach the risks, big upside is seen in European stocks..Europe is the cheapest it has been to US in nearly 40 years..

Very useful article here : http://www.cnbc.com/2017/02/09/these-stocks-havent-been-this-cheap-in-40-years.html


Very nice Euro area overview that is written by Chris Bailey @financialorbit:

Populists are not going to crash and burn global stock markets


Chart of the day!

Foreign governments have been selling US Treasury bond and notes at a record pace..


The  US  dollar started to increase from 2014, so global central banks have been selling treasuries in order to defend their currencies. Moreover, global uncertainties and inflation expectations play a major role in these selloffs.

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The difference between the VIX and the Global Economic Policy Uncertainty Index is now at the highest level on record.


Keep watching bond yields and gold.. They will signal approaching the market volatility..


Euro under pressure during this week against the dollar as rising political risks in EU.

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Lastly, copper, oil, US wheat, silver, corn, coffee and cotton gained during this week. Oil prices rose as OPEC output cuts at record compliance 90% says: IEA (lifted global demand forecast.)

Copper tends to move in line with Chinese industrial activity.




week in review


According to the Eurostat, Euro area annual inflation up to 1.8% in January of 2017, it is the highest inflation rate since February 2013, boosted by energy prices. Euro area GDP growth advanced by 0.5%  during the Q4 of 2016, compared with the previous quarter and unemployment reached at 9.6% in December 2016, it is the lowest rate since May 2009. Industrial producer prices rose by 0.7% in the euro area in December 2016, compared with November 2016. The seasonally adjusted volume of retail trade fell by 0.8% in the EU28 in December 2016, compared with the November 2016. According to Markit Economics, Eurozone Manufacturing PMI hits 69-month high at start of 2017. National PMI data shows  that growth was fastest in Austria, the Netherlands and Germany.

You can read the full report here:


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Spain inflation reached the highest since October 2012. Consumer prices in Italy are also expected to rise 0.9% YOY in January 2017, following 0.5% increase in the previous month. German inflation is so close to 2% which the European Central Bank (ECB) aims at inflation rates of below, but close to, 2% over the medium term. In summary, inflation is rising in Europe..


However, unemployment rates are still high for Greece, Spain, Cyprus, Italy, Croatia and Portugal. Germany’s unemployment rate fell to a record low this week. The gap between Germany and these European countries  unemployment rates continue to rise. For example, Italy’s unemployment is rising sharply after 2012 which ECB started bond buying program. As I always say, the European QE is not effective as it seems, created the imbalances in Euro area.

Graph source: Zerohedge/EuroStat

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VSTOXX, Euro STOXX 50 Volatility Index, is the ‘European VIX’ which measured the volatility, seems low in Euro Area for now, but rising political risk and uncertainty over the European elections in 2017 will cause the Euro Stoxx 50 Volatility Index (VSTOXX) to go higher than its average. For example, France 5Y Credit Default Swap (CDS) spreads continue to rise as growing political risk. Moreover, the gap between March and April volatility shows depression about France’s election when you look at the Euro Stoxx futures volatility curves below.


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Low Volatility by Historical Standards, But High Political Risk

Very useful article here about volatility : The average US VIX level in January (11.6) was the third lowest  January on record..Trump policy uncertainty will also continue and trade protectionism will have a negative impact on global financial markets.



It seems to me that the spread between the European VSTOXX and the US VIX will widen in next few months. Euro are growth advanced, but new bond supply is not growing..



Ten of European bond issuances had a ‘C’ rating by S&P metrics in 2016..


Euro Periphery Bond Yields

The yield between Italy and Germany has widened again as political concerns despite of ECB’s bond buying program (QE). Portugal 5Y CDS spreads continue to blow out dangerously. Spain 5Y CDS spread is going well, comparing to other periphery bond yields. After rising political concerns, Germany 5Y CDS spreads  also start to rise..

You can see the detail below from the latest CDS spreads.. Turkey 5Y CDS spread is tightening..Ireland and Austria CDS spreads has widened from a little this week.


 Japan and UK 5Y CDS spreads are so close to each other again and both of them are tightening. (the perceived risk of default is decreasing)


CHINA reweb2.pngChina’s risk is widening and China’s central bank raised a key lending rate for the first time in 6 years as worrying about the movement of credit growth.

Markit CDX credit default swap indexes cover North America and emerging markets. Markit iTraxx credit default swap indexes cover Europe, Asia, Australia and Japan. The indexes are owned, calculated and administered by Markit. For more information visit www.markit.com/cds

CDS source: Market Watch/ Markit Economics/ Deutsche Bank

Black Rock Sovereign Risk Index include different results for some countries in December 2016. BSRI is looking at the: Fiscal Space (40%), Willingness to Pay (30%), External Finance Position (20%) and Financial Sector Health (10%) for countries. You can read here: https://www.blackrockblog.com/blackrock-sovereign-risk-indicator/

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For example: Turkey scores most highly on Fiscal Space  while China scores most highly on External Finance.

Talk effect on the Dollar : Keep on talking..




Euro gained again against the US dollar this week..Australian Dollar hit to a 3 month high against the US dollar as exports boom.

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Gold gained while copper and natural gas weakened this week. Gold demand increased to 3 year high as political disruption. Oil also gained after first month of OPEC cut..



Global reflation has been good for Emerging assests historically.. US Sovereign yields and equities are still rising. Dollar – Treasury positive correlation continue to weaken in 2017.

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Lastly, according to S&P ratings, 9.6$ trillion in rated corporate debt is scheduled to mature globally through year end 2021…(Credit conditions affected from Brexit, geopolitical concerns, growing populism, rising interest rates and volatile currencies..)