Eurozone PMI accelerated in November and points to strong recovery despite of a political uncertainty in Eurozone. Both manufacturing and services output growth rose to highest level since December 2015.
On the other hand, Euro is still under pressure..European Central Bank (ECB) warned that rising protectionism and a slowdown in growth in emerging markets could still derail the eurozone’s recovery and Italy’s vote could spark fresh eurozone financial crisis. According to ECB, political uncertainty is putting the eurozone’s financial stability at risk. After the Brexit vote and Trump’s victory, the risk started to rise in Eurozone…
The referendum on constitutional reform in Italy will be the key for the euro’s future. Italy’s money is still cheaper than the average in recent years. Italy has already excessive debt and high unemployment compared to other European countries. In addition, Italian banks are still in trouble. The large current account surplus in Germany limits the growth in other European countries and create some imbalances between them. Therefore, some Southern European countries had to face deflation in the long-term.
On Thursday, Turkey’s central bank has raised benchmark interest rate and overnight borrowing rate for the first time since 2014 after Turkish lira sinks to record low against the US dollar. If Turkey Central Bank cut the interest-rate this time, it would lead to further depreciation in the Turkish lira. Trump’s unexpected victory, a stronger US dollar and increasing expectations of a December by the Fed caused the emerging market currencies become more vulnerable. Therefore, Turkey’s central bank decision did the right move in the global economic conditions in order to control inflation and turkish lira despite of the government is uncomfortable with high interest rates. However, Turkish lira has hit new record low against the dollar on Friday after the deterioration of Turkey-EU relations and political uncertainty. The decision of the central bank will show its positive effect more on turkish lira clearly next week. On the other side, Turkey credit default swap (CDS) spreads have blown out in these days.
RISK OF DEFAULT : VENEZUELA
Venezuela’s currency has lost 45% of its value this month and saw the biggest monthly decline ever. Inflation continue to rise significantly and it’s money supply has risen 127% over the past year. In addition, Venezuela CDS spreads are the highest ratio in the world..
Japanese 10 year bond yields reached the highest in 9 months on Friday.
It seems that inflation expectations (%2 inflation target) with lower yields has not worked in Japan. Moreover, Japan has extremely low yields with high debt to GDP. Public debt has grown to 246% of GDP, it’s the highest ratio in the world. It’s difficult to reduce debt with stagnant economic growth and declining population in Japan.
This week, the yen saw the worst weekly performance among major currencies. Japan’s Nikkei climbed the 10 month high as a weaker yen. Japan october exports fell 10.3% in yoy and trade surplus widens less than expected. In other words, this means a sign of slowing foreign demand.
CONTINUE TO YIELD CURVE CONTROL
According to this article below : Japan’s core inflation measure has edged higher, and there is a good chance that it will land in positive. In other words, there is a good chance the benchmark index will crawl back into positive territory early next year..
Japan’s inflation problem is best illustrated in the chart shown below:
Source: Bank of Japan
OPEC DEAL OR NOT
Crude oil prices are falling as a strong dollar, high crude supplies, lower Chinese imports and OPEC cut uncertainty ahead of meeting. OPEC will meet next week. According to me, OPEC will reach output deal next week and the oil prices are going up again.
Lastly, gold hit a 9 month low and mostly affected by the strong US dollar..