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.

BU .png

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..)







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