week in review

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. 

keh keh Untitled

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.

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No Fear!

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.

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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.

222CDS NEW Untitled.png

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.

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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!

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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.

spain historical@2x

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.

Commodities (YTD)

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’










week in review



This week has seen a dramatic escalation of tensions between North Korea and United States. North Korea has announced plans to fire nuclear missiles near the US territory of Guam. After that, the US president Trump warned that America will respond to North Korean threats with ”fire and fury” like the world has never seen. Donald Trump has also claimed on twitter that military solutions are now fully in place, locked and loaded, should North Korea act unwisely.



By the way, North Korea has already been the target of different financial and trade sanctions by the US. The rising tensions between the US and North Korea has impacted global financial markets. Global stocks have fallen in a short-time and had their worst days this week since May even if Wall Street closed in the green on Friday. If geopolitical risk continues, global stocks may lose further in market cap.

Fear index VIX(volatility index) has skyrocketed about 44% to close at the highest level on Thursday since November 8. (the US presidential election)

Meanwhile, stocks are trading at the third highest valuation in history, aside from 1929 and 1999.


Chart source: https://www.fool.com/investing/2017/08/10/keep-your-eyes-on-the-vix.aspx

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On the other side, The Swiss National Bank’s US equity holdings hit a record in the second quarter thanks to rallying market. Some stocks performed well despite of rising VIX.

Very nice article here : Facebook, EA, Biotechs Among Best Stocks to Buy After VIX Spikes


In summary, investors move to safe haven assets such as Gold, Silver, Ethereum, CHF and JPY as rising geopolitical risk.

Gold (long-term protection) surged about 2,3% during the week. Ray Dalio, who leads the world’s largest hedge fund at Bridgewater Associates, suggested investors consider placing 5% to 10% of their assets in gold as a hedge against current political and economic risks.



Some investors prefer to move cryptocurrencies even as bitcoin’s volatility is about 10 times that of gold.

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Charts source: Bloomberg and the link below:


Top-rated German bonds have also benefited this week from the geopolitical tensions, so German bond yields hit six week lows. (yields fall when prices rise). In addition, Italian/German yield gap reached the widest in over 3 weeks. (The Portuguese/German or Spanish/German bond yield spreads have also widened this week.)


Meanwhile, South Korean sovereign credit default swap(CDS) spreads have widened in July, reacting to North Korea’s threat to attack Guam.  According to IHS Markit data, 5 year CDS for South Korea has surged 11 basis points this week, and reached the biggest weekly rise since March 2016. A sharp further widening of the sovereign  CDS spread is a clear signal of rising investor anxiety. Moreover, South Korea ETF fell nearly %1 amid fears of an escalating North Korea nuclear threat.



US consumer prices increased by 1.7 % year-on-year in July 2017, below expectations. US inflation expectations’ problem still continues despite of strong US jobs and productivity growth data. It seems that US inflation target still needs some time. As a result of this, for now, odds of another FED rate hike this year tumbled to 35% probability from 40%.

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Markets are worried about debt ceiling issue in US and CDS spreads also confirm that there is a problem because  US 5Y credit default swaps(CDS) have risen at its most extreme levels to German 5Y CDS since Lehman.

Source: zerohedge




Chart of the week!

Very interesting chart about junk bond yields..  I also agree that this is a sign of bubble for junk yields.


Yields on high-yield euro bonds converge with US treasuries.

For the first time ever, bonds issued by junk-rated companies with weaker balance sheets are trading in line with debt from the U.S. government.

Lastly, here is a very nice article, but not include so optimistic results for the global economy since global financial crisis:

’10 years from the global financial crisis’


Global trade as a percentage of output and overall growth has recovered, but remains below its pre-crisis peak since global financial crisis.

Global inflation failed to pick up sustainably. There have been heavy central bank balance sheets after global financial crisis.

Global debt continues to balloon. Banks borrowing costs are rising and bank stocks have lagged the subsequent global equity rebound ever since.

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week in review

sThe dollar has suffered in recent months and dropped to its lowest level since May 2016 on Wednesday. After a while President Donald Trump sat in the Chairman’s chair, a conviction began to emerge that he could not do what he said and fulfill campaign promises. Therefore, the Dollar is heading towards losing the momentum as political chaos although the Federal Reserve Bank(FED) is expected to increase interest rates, along with the shrinking the size of the Fed’s bloated balance sheet. The Dollar has been losing its value (is down around %9 through the first seven months of the year) when it comes to expectation of Trump-related negativities that it has not been able to protect its position in the recent period. This can be seen in the chart below, which shows the trend of the Dollar Index, which measures the greenback against six major rivals, since Trump. 



Meanwhile, The U.S. dollar reached its biggest one-day gain on Friday against a basket of major currencies so far this year after a strong U.S July payrolls report (increased more than expected) and comments from National Economic Council director Gary Cohn about lowering the U.S. corporate tax rate.

Uncertainties about the impact of the sell-off

The Fed is shifting its focus on balance-sheet normalization and weak inflation at its July policy meeting. Balance-sheet reductions takes time and creates uncertainties about the impact of the sell-off and how well the economy responds.



How healthy is Trump’s economy?

These job and unemployment figures below, based on data from the Bureau of Labor Statistics, update on the first Friday of each month. Read: U.S. job growth surges in July


The US economy added 209,000 jobs in July, unemployment rate dropped to 4.3% and wages rose.

Jobs added under each president..


Moreover, you can see from the chart below that the US economy accelerated in the second quarter thanks to consumer spending and business investment, but it was below the expectations and seems not stable.



On the other side, stocks surged %20 under Trump. The Dow Jones Industrial Average has risen by a remarkable 40% during the last 18 months and hit above 22000 for the first time as Apple cash pile jumped to a record of 261.5 billion dollar (This is a very big number), compared with 256.8 billion dollar last quarter. The Dow hit another new record after strong US job reports. The technology sector has jumped 22 % this year.

I really like these charts below about Apple’s strong potential and the Dow’s tumultuous 120-year history in one chart..

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The Dow’s 120 history in on chart shows that the market always recovers.

Greenspan: Bubbles are functions of unchangeable human nature..

While stocks hit new records and everything seems perfect, Alan Greenspan, the former Federal Reserve chairman, warned and repeated that the real problem is that when the bond market (bubble not in stock prices, bubble in bond prices) bubble collapses, long-term interest rates will rise.  I always say that long-term interest rates are the key for the coming recessions and need more attention.


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Euro traded above 1,18$ in July for the first time since January 2015.  Euro/USD is moving towards to a 1.20 in the short-term. Euro/dollar’s future depends a lot on the US economy. ECB President Mario Draghi’s meeting at Jackson Hole on August 24th will also be critical for euro.

The US-German yield spread signals USD weakness.



US yield curve has started to flatten..

us us Untitled.png

Chart of the week!


As you can see from the chart above, inverted yield curve predicts coming recession.


According to the Eurostat, Euro-area unemployment rate reached the lowest recorded since February 2009.  The highest unemployment rates were observed in Greece, Spain and Italy. Seasonally adjusted GDP rose by 0.6% in both the euro area (EA19) and in the EU28 during the second quarter of 2017, compared with the previous quarter, according to a preliminary flash estimate published by Eurostat, the statistical office of the European Union. In the first quarter of 2017, GDP had grown by 0.5% in both zones. 

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European Union countries has still different problems/imbalances inside. Italy and Portugal still have high debts. Italy has the highest amount of non-performing loans(NPLs), following France and Spain. Some European countries’ perceived risk of defaults have begun to climb in recent weeks, such as Estonia, Latvia, Poland and Romania.

Here is very nice article that was prepared by Deutsche Bank Research: http://www.dbresearch.de/MAIL/DBR_INTERNET_DE-PROD/PROD0000000000448426.pdf

Even Germany has the strongest and most stable economy in Eurozone, he has some important problems. For example, automotive and pharma sectors are affected most by Brexit in Germany because the UK is Germany’s third largest export market.

The Brexit decision has significant political and economic effects for Germany. Germany has also immigration problems.

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On the other side, UK credit default swap(CDS) spreads have outperformed despite of Brexit this year. UK Default swaps have dropped about 14 basis points this year and reached the lowest since 2015.


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Venezuela’s chaos!

Venezuela is a member of OPEC and owner of the largest oil reserves in the world.  Venezuela’s oil sector is at risk of potential US sanctions now, such as ban on Venezuelan crude oil imports into the US. This potential sanctions are important for Venezuela and oil price because The United States is Venezuela’s biggest customer and imports which is about 8% of total US imports, according to EIA report. Besides, Venezuela CDS spreads have blown out in recent months, in other words, Venezuela is so closer to default on its bonds as political risk and potential US sanctions.

Very nice another article here : http://www.marketwatch.com/amp/story/guid/BA06FB3C-76ED-11E7-882B-3F2F1C615E72

Further deterioration of Venezuelan production is undoubtedly bullish for all crudes, but incrementally more constructive for North American balances and unquestionably most bullish for Canadian and Mexican crudes..

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Venezuela has rich oil reserves as a golden bracelet, but this is not enough for them. In this case,  Venezuela needs a new regime and new approaches to get out of this risk, such as the newly-established government and economic ties with various countries. 

Commodities monthly performance 


Commodities year to date performance 

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week in review

US dollar supported by Friday’s US strong jobs data and Federal Reserve Bank(FED) minutes  during this week. FOREXXX Untitled.pngGlobal higher bond yields panic!


Graph source: https://www.seeitmarket.com/global-bond-yields-rally-is-the-reflation-trade-back-on-17036/

Global bond yields have been on the rise (which drive global borrowing costs) and are affected by the speculations about major Central banks’ (Federal Reserve-European Central Bank-Bank of England-Bank of Canada) signal a shift toward tighter monetary policy taper and more rate hikes. As a result of this, Germany bond and US treasury yields are going higher. Moreover, Germany bond yields have climbed to highest level in 17 months. According to the Goldman Sachs strategists, the key is the speed of the move higher in developed market yields.  The bank’s projections  are for yields to rise only slowly. (A speedy climb could be distress for emerging nations by lifting the cost of dollar-based debt).

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An MSCI, index of emerging market currencies, flowed near a seven-week low on Thursday as yields on Treasuries and bonds rose to fresh highs.


Russia’s rouble, Turkey’s lira, South Africa’s rand and Argentine’s peso were down during this week. The Turkish lira, which is the most vulnerable emerging currency to higher US interest rates, touched 6-week lows.


Year to date(YTD) % change in Emerging Markets Country Indices-MSCI ($)

Poland, Greece, South Korea and Turkey have strong performances while Russia is the worst performer compare with other emerging markets. In other words, capital access has tightened in Russia.

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Nice read here about additional risk in Emerging Markets


As you can see from the chart below, the higher volatility and deeper drawdowns of stocks  attributed to non-US stocks can come from several different reasons: Emerging markets(EM) risks are: currency fluctuations, local economic policies and different forms of state-owned enterprises (additional risk for EM markets)

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The risk here is that government stakes in a public company can introduce conflicts of interest between the government and public shareholders. Publicly traded companies like these are prevalent in emerging markets. Examples include Gazprom (Russia), China Construction Bank, and Petrobras (Brazil). Investors that own shares of an emerging-markets fund likely hold these types of companies. Exhibit 2 outlines several emerging-markets ETFs and the number of SOEs in their top 10 holdings.


Gold and oil are under pressure. Gold(long-term protection) was down as US government bond yields are going up during this week. Quantitative Easing(QE) program in the US created commodities bubble between 2009 and 2014.  Therefore, the bond yields with QE are the key for the gold. After 2011, there is a strong negative correlation between gold and US bond yields.

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There are two nice graphs about oil price future:

Russia’s deeper production curbs (if Russia is agree) are also the key for oil price.

Source: Bloomberg


Reflationary environment again?



Equities expensive, commodities so cheap !

Commodities are getting cheaper and the sector has never been cheaper relative to equities.


Source: VisualCapitalist

Credit Default Swap(CDS) SPREADS


Argentine’s 5 year CDS spreads have blown out as rising mid-term election risks and huge debt. In other words, Argentina’s default risk is rising. On the other hand, Argentina Merval stock index has gained 24% in dollar terms this year.

South Africa’s perceived risk of default is also rising and IMF warned South Africa over economy’s vulnerability to external shocks and funding shortfalls.

Qatar’s negative rating outlook by Fitch, Standard & Poor’s and Moody’s, following the imposition of diplomatic and economic sanctions by a coalition of Arab States  have affected  the investors’ confidence negatively in Qatar. CDS spreads have widened in Qatar.

These Are the Sanctions Levied on Qatar by Gulf Rivals So Far:

Meanwhile, emerging sovereign bond spreads over Treasuries were at the highest in two weeks.  Hong Kong’s CDS 5y have risen as rising global bond yields and  a geopolitical tensions in Asia during this week.

On the other side, Germany’s CDS spreads have performed very well in recent months.  According to the IMF report, Germany has low unemployment and a strong economy.

Source: 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: Marketwatch



Euromoney’s latest Country Risk Survey shows a gradual rebalancing of risk scores this year, as the aftershocks of the global banking and sovereign debt crises wear off, political risks tied to the European electoral cycle fade, and capital access improves for EMs.

Typically, the global picture is varied, with low oil prices, inter-state conflict, and domestic political upheaval among the many factors affecting sovereign borrowers, bank stability, currency volatility and debt-dynamics influencing yields. Elections in Germany and Italy are tail-risk events for Europe, US president Donald Trump’s policies remain a concern, and with Brexit, the Qatar crisis, and weakened economies caused by the commodity prices.
Full article:





week in review

The Europe’s common currency, the euro, tested over 1.14 after a long session against the US dollar during this week.
To put it briefly, the main trigger was the French elections and the political risks in Europe. However, there has been an appreciation movement in the euro since April. After the Fed meeting in June, the picture has changed dramatically. The expansion of the line of insecurity about macroeconomics between monetary policymakers and market players in the US has laid the groundwork for the desire for position to increase for the euro. In addition to this, the speculations have been increased after the president of European Central Bank (ECB) Draghi’s speech during this week.
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  two months since the correlation coefficient value is so close to +1. In other words, euro is depend on the US dollar.

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Euro is the winner (year to date) !
Euro is the winner against the US dollar during this week!
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I don’t think there is anything new in Mario Draghi’s messages. There is no different signal about the future of the monetary policy that we have not heard before. In fact, on Wednesday, the ECB made a public announcement that the President’s messages could be misunderstood by the markets.

When I look at the speculative positions announced by the Commodity Futures Trading Commission(CFTC) on Friday, I have seen investors close their long positions in the euro / dollar parity for the first time since May. (It is likely that 1.13 resistance). 
EURO Untitled.png
In addition, the ECB administration’s messages are still clearer for me: an environment of monetary expansion is needed, the deflationary zone in Europe is extinguished, but there is still pressure on energy prices, which makes it more difficult to reach short-term inflation targets than to divert the main trend.
As we remember, The ECB started buying assets from commercial banks in March 2015 as part of its non-standard monetary policy measures. These asset purchases, also known as quantitative easing or QE, try to support economic growth across the Euro Area and help inflation levels to return below, but close to, 2%. After that, European Central Bank said that they will extend QE program until December 2017, but cut bond purchases from €80bn to €60bn per month.
The European Central Bank has doubled its balance sheet in 2.5 years.
ECB’s aggressive bond purchases affected the markets. ECB announced that it would receive regular national bonds every month, causing the deposits of these countries in the Euro Zone to go down in the second market. This situation has become such a madness; Germany became the second G-7 nation after Japan to issue 10-year bond yields with a negative yield. 
Today, the ECB president has stated that the normalization of balance sheet is approaching and growth expectations in Eurozone are accelerating to 2% while low commodity prices cause low inflation in the Eurozone. In other words, he wants to finish the monetary expansion at the end of this year as expected.
I don’t think that the ECB will exit from the monetary expansion program so fast before the end of year. Maybe, there will be a decrease in the asset purchase program in the last quarter of the year, but there is still a protection of the existing program (Quantitative Easing). Maybe, the interest rate on the deposit can be adjusted technically, but there will be no more at the end of the year.

The movement in bond yields is remarkable!
After Draghi’s speech, the bond yields in Europe began to rise rapidly as investors believe that tapering will happen soon. As a result of this, bond yields are 22 bps higher on the week and reached the biggest jump since December 2015.
BOND YIELDS euro-area-government-bond-yield@2x.png
Biggest weekly jump in German bond yields since 2015!
The movement  in German bond yields is a trigger factor.  The Germany yield curve has risen compare with the previous year.
GERMANY Untitled.png
On the other side, the ECB hit the issuer limit of all German debt finally. The growing scarcity of German government bonds makes any major extension of the European Central Bank’s asset buying scheme difficult and this will be a key consideration when policymakers decide whether to extend the buys, three sources told Reuters. 
More than 60% of German’s bonds yield less than the ECB deposit rate of minus 0.4%

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However, the real concern will be in Spain, Portugal and Italian’s bond yields when the QE program is finished in Europe.  If the bond yields rise by 30-50 bps in Europe, this will be not good for these countries which have high debt and banking problems.
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The US bond yields have increased sharply on this week as rising expectations that the Fed and ECB will soon cut back on stimulus. Therefore,  it is a negative situation for developing countries in terms of the assets in mid-long term.
US BOND Untitled.png

Meanwhile, it will be a busy week in the US. The most important releases include the FOMC minutes; nonfarm payrolls; unemployment rate; ISM manufacturing and non-manufacturing PMIs next week.

Right question at the right time…
So how high might the federal funds rate go with low long-term yield?
The low long-term yield might affect the FOMC’s decision making on the federal funds rate target. If a series of rate hikes were to increase short-term rates, with little change in long-term rates, short-term rates could surpass long-term rates. This phenomenon is referred to as the inverted yield curve and is believed to be a strong indicator of recessions. It occurred before the 2001 and 2007-09 recessions, as shown in the figure below. The Federal Reserve quickly responded in each instance by dropping the federal funds rate target, explaining why the federal funds rate did not exceed the long-term yield by a large margin for extended periods. Hence, it is unreasonable to expect the federal funds rate to reach 5 or 6 % during the current rate-hike cycle because of the low long-term yield. The projections of the federal funds rate for the next few years seem to be consistent with this discussion. The median projection of FOMC participants is 2.1% and 2.9% by the end of 2018 and 2019, respectively, which is close to the long-term yield. Using federal funds rate futures, the market’s prediction of the federal funds rate is even lower for the same periods-only 1.5% and 1.65 %, respectively.
Chart of the week!
This chart above proves that long-term interest rates need more attention by Fed. In addition to this, the US yield curve has increased compare with the previous year.
2US Untitled.png
Lastly, Eurozone Credit Default Swap(CDS) 5Y spreads have tightened in recent month. In other words, the perceived risk of default is falling in Eurozone. On the other hand, CDS spreads in Qatar and Argentine have suffered and blown out in recent month.
CDS SPREADS Untitled.png
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: Marketwatch

week in review

The Federal Reserve Bank (FED)


The Fed raised its benchmark interest rate  by 25bps from 1 % to 1.25 % during its June 2017 meeting as very much expected and maintained outlook for one more increase in 2017. In addition to this, Yellen said that the Fed will normalize its balance sheet once it’s appropriate. Meanwhile, US consumer price index unexpectedly fell in May and weak inflation has created doubts in  the market, but policymakers added that inflation is well below the Fed target of 2% (both Consumer Price Index-CPI and Personal Consumption expenditure-PCE inflation are now below 2%). Fed Chair Yellen focused more on economic growth, low unemployment rate and strong labor data than weak inflation during the meeting. In other words, Fed is not more worried about low inflation due to tight labor market.

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Yellen added that the weakness in inflation likely is driven by factors that won’t persist!


US 10-year Breakeven Inflation Rate


The breakeven inflation rate is a market based measure of expected inflation. As we remember, many investors believed that Trump administration’s policies would increase the inflation. As a result of this, US inflation expectations had reached the highest in January after the US election. However, the 10-year break-eve rate, a gauge of expectations for prices over the next decade, has fallen from a peak of over 2% in January  to their lowest level in June 2017.

US retail gasoline prices and inflation expectations moved in tandem in general.

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US import prices fell below expectations in May on fall in imported petroleum prices.

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In addition to this, after weak data on retail sales and consumer price on Wednesday led US inflation expectations to fall sharply again.

US retail sales posted biggest drop in 16 months and US consumer confidence fell to 7 month low.

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US 10-year yields moved lower after markets interpreted Yellen’s comments hawkishly on Wednesday and US May disappointing housing data on Friday

us Untitled.png

Yield Curve Flattening !

US Treasury yields are getting flatter, the two year yield continues to rise as the Fed is expected to increase rates again in the second half of 2017.


Technology Crush!

Nice article about 19/73 Technology Select Sector by CNBC here: http://www.cnbc.com/2017/06/12/more-than-a-quarter-of-technology-stocks-are-already-in-a-correction.html

19 of 73 Technology Select Sector SPDR(XLK) components were in correction territory. (A correction is a decline of at least 10% from a high).

The technology sector now accounts %23 of the S&P 500 Index, up from %15 in 2008. As a result, decline in technology shares has caused S&P 500’s rally.

Technology sector is important for investors as some technology firms have the most popular stocks are held by mutual funds, such as Apple, Microsoft, Alphabet, Cisco, Facebook and Amazon.


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Division on interest rates

Bank  of England(BoE) held steady interest rates (at 0.25%). However, BoE edged closer to increasing UK interest rates this time as three officials sought rate hike. These three members focused on more inflation and unemployment figures(Philips curve) rather than wage growth. (opposite of Fed’s attention)

Meanwhile, UK inflation rate reached at 4-year high as weak pound led cost of imports to increase.

uk Untitled.png

Pound jumped on BoE’s interest rate decision and rose against the US dollar and yen this week, but still remained under pressure ahead of Brexit talks.



It seems to me that euro is depend on more US economy than EU.

POUND Untitled.png


In 2016, price levels for consumer goods and services differed widely in the European Union (EU). Denmark (139% of the EU average) had the highest price level, followed by Ireland (125%), Luxembourg and Sweden (both 124%), Finland and the United Kingdom (both 121%). At the opposite end of the scale, the lowest price level was found in Bulgaria (48%), while Poland (53%) and Romania (52%) were just above 50% the average.

price levels Untitled.png

Very expensive city – Denmark in EU!

-Restaurants and hotels more than 3 times more expensive in Denmark than in Bulgaria.

-Alcohol and tobacco most expensive in Ireland and the United Kingdom 

-Food price levels highest in Denmark, lowest in Poland and Romania 

Euro area annual inflation was 1.4% in May 2017, down from 1.9% in April

In May 2017, the lowest annual rates were registered in Ireland (0.0%), Romania (0.5%), Denmark and the Netherlands (both 0.7%). The highest annual rates were recorded in Estonia (3.5%), Lithuania (3.2%) and the United Kingdom (2.9%).

EU Untitled.pngSource: Eurostat

Imbalances in labor costs in EU

According to Eurostat, the only decrease in labor costs was observed in Italy and labor costs increased by over %17.2 in Romania, following Hungary and Bulgaria in Q1 2017

LABOR Untitled.png


Nice article from the Economist about Spain: Spain’s reforms point the way for southern Europe


Having tackled its problems earlier than Italy or Greece, Spain is now seeing results!

Spain’s central bank has increased its 2017 growth forecast from 2.8% to 3.1% due to strong consumer demand and exports. Spain’s growth is going well and faster than expected, compare with Italy and Greece.


Unemployment in Spain is still high, but Spain manufacturing jobs growth reached at 19-year high as strong output expansion and has experienced strong recovery after 2014.



Spain has also lower government debt to GDP, compare with other peripheral European countries. (ES=Spain, GR=Greece, IT=Italy, IE=Ireland, PT=Portugal)

kıh kıh H1cEXbEmZ.png


Meanwhile, Fitch credit rating agency revised Portugal’s credit outlook to positive, citing tighter fiscal policy, narrowing deficit, and faster GDP growth as main drivers behind the improved outlook. However, Portugal has still lower rating than Italy and Spain by Fitch.

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Portugal’s credit rating history



Eurozone lenders and the International Monetary Fund(IMF) seem that they have agreed to a bailout for Greece. The Eurozone will provide Greece with a total of euro 8.5 billion. The IMF will also provide funds, but not before it received details of Greece’s debt sustainability.

‘Long way to repay ‘ !


European Central Bank(ECB) president Draghi had said that ECB won’t buy greek bond before debt deal.

Now, it’s time to buy Greek debts by ECB ?!

ECB is still looking for more clarity on Greek debt relief before buying government bonds, Reuters source says.

Debt deal led short-dated Greek bond yields to reach lowest level since 2014.


Greece credit rating history

Greece Credit Default Swap(CDS) 5Y spread has started to tighten after debt deal. However, the risk of default is still high for Greece in EU.

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Most Eurozone yields moved lower after heavy selling on Thursday due to the tighter monetary policy in the UK and US.



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Totally agree with him about oil !



Chart of the week from Bloomberg!

Source: https://www.bloomberg.com/news/articles/2017-06-13/synchronous-global-recovery-masks-a-deepening-asset-imbalance

China and other developing nations are accumulating wealth, but failing to create sophisticated local markets that feature their own risk-free instruments. That’s left a dangerous reliance on U.S. Treasuries, according to Jen’s argument, perpetuating a bond bubble and pushing investors into riskier assets.















week in review


UK Election ends in hung parliament !

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British Prime Minister Theresa May has called an early election in order to strengthen her hand in negotiations for Brexit. However, Theresa May’s Conservative party has lost its majority in an early election on Thursday in England and a hung parliament has been confirmed in the General Election. In other words, no party has an overall majority, so there is no clear prediction of who will form Britain’s next government.

May has told the Queen she has the numbers to form government and will provide Brexit and anti-terror certainty. She added that what the country needs now more than ever is certainty.

Pound is under pressure!

A hung parliament created uncertainty(markets hate uncertainty) and pound hit seven-week low against the dollar on hung parliament surprise.

GBP EUntitled

Benefit from the fall in the pound!

On the other side, the FTSE 100 surged higher on weaker pound  and reached the biggest one-day gain since April 24th. Meanwhile, the FTSE 250, which involves more UK-focused companies, recovered from early losses and finished 0.1% higher at 19,770.

FTSE 100 posted best day in 7 weeks !

FTSE 100Untitled.png



How did UK stocks fare under former prime ministers?


Source: https://www.theguardian.com/politics/ng-interactive/2017/jun/08/live-uk-election-results-in-full-2017?CMP=share_btn_tw

The pound was also weaker against the euro during this week.

GBP EURO Untitled


British economy grew strongly at the end of 2016, but sign of weakness emerged in 2017 because of Brexit uncertainty and its effect on household spending. Therefore, UK economy may slow in 2017.

uk growth r1m3S_qzZ.png

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Wait and See!

The UK government 10 year bond yields have been outperforming (very low) in recent weeks. It seems that uncertainty is good for bond markets. Gilts have rallied as increased political uncertainty in the short term.

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The pound is surely driven by politics inside!

As you can see from the table below, the relationship between US dollar index(DXY) and USD/GBP has a very weak positive correlation in the last month. (while GBP/USD has a negative weak correlation)




UK trade deficit narrowed in April as imports fell on mechanical machinery, oil and gas.

GB TRADE Untitled.png

UK industrial output rose less than expected in April. UK construction output fell the most since 2013, but UK construction new orders rose 3.7% in Q1.UK ByX8lg9f_



US dollar strengthened against the pound and euro during  Comey Testimony.(James Comey, who is the FBI director, was fired by US president Trump because of his efforts to investigate the new administration over ties to Russia. Comey Testimony pushed more investors into safe haven assets, such as US treasuries and Yen. In the end, his testimony was not enough to impeach US president Donald Trump, so markets weren’t affected by Comey testimony. US stocks and bond yields rose after Comey statement and US stocks ended mixed amid technology stocks sell-off during this week.

The Chicago Board Options Exchange(CBOE) Volatility Index, US fear index VIX, held at historically low levels and suggested market certainty in spite of global uncertainty is still high. (Movements of the VIX are largely dependent on market reactions).


Meanwhile, Dow Jones hit record highs again.

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The Federal Reserve(FED) is expected to increase the interest rates next Wednesday.

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Waiting for the hike rates by Fed!

However, the difference in yield between 2 and 10 year Treasury notes dropped on Tuesday to an eight-month low after reports that China is one of the largest holders of US government debt, pressuring lending shares and highlighting the deterioration of the reflation trade.  A flat yield curve is an indication investors and traders are worried about the macroeconomic outlook.

US yield curve measure flattens to new 8-month low!


Source: https://www.ft.com/content/d4b195c8-14d5-35fb-96ed-4a0df6ff8d8a




Moody’s downgraded on June 9th, 2017 its sovereign credit rating for South Africa to Baa3 from Baa2 with a negative outlook on growth worries.

SOUTH AFRICA Untitled.png

South Africa’s GDP growth rate is the lowest, compared with fragile other 4 countries.  (such as, Indonesia, Brazil, India and Turkey).


Brazil equities dipped 0.9% amid political uncertainty !

Major losers on Friday were Natura (-7.7%), Suzano (-4.0%), and Santander Brazil (-3.4%). Among other stock markets in America, Argentina’s MERVAL lost 315 points or 1.4 percent to 21614. Chile’s IPSA dipped 13 points or 0.3 percent to 4846. Contrastingly, Canada’s TSX gained 50 points or 0.3 percent to 15473. Mexico’s IPC and Colombia’s COLCAP closed flattish.

The Brazilian real fell by 1%, as the selloff across the US tech sector and emerging markets enlarged an uncertain political climate in South America’s largest economy. During the week, the World Bank reduced to 0.3% Brazil’s GDP estimate for 2017.

Source: Trading Economics

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Brazil inflation rate fell to 10-year low of 3.6%. Brazil central bank continues rate cuts amid political uncertainty and low inflation.

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Mexican peso hit 30-week high!

The currency has lately been nudged by better economic data, less uncertainty coming from US trade policy.

PESO historical@2x.png

On the other hand, Mexico industrial output fell the most since 2009.

mexico SyDYb3YfZ.png


Seasonally adjusted GDP rose by 0.6% in both the euro area (EA19) and the EU28 during the first quarter of 2017, compared with the previous quarter. In other words, economic growth in the Euro Area is getting stronger.

In the first quarter of 2017, Romania (+1.7%), Latvia (+1.6%), Slovenia (+1.5%) and Lithuania (+1.4%) recorded the highest growth compared with the previous quarter, while the United Kingdom (+0.2%) recorded the lowest growth.


Source: Eurostat

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The EU28 unemployment rate was 7.8% in April 2017, down from 7.9% in March 2017 and from 8.7% in April 2016. This is the lowest rate recorded in the EU28 since December 2008.

The lowest unemployment rates in April 2017 were recorded in the Czech Republic (3.2%), Germany (3.9%) and Malta (4.1%). The highest unemployment rates were observed in Greece (23.2% in February 2017) and Spain (17.8%).

Moreover, Euro area annual inflation is expected to be 1.4% in May 2017, down from 1.9% in April 2017. These figures are published by Eurostat, the statistical office of the European Union.

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European Central Bank(ECB) closed door on more interest rate cuts and kept interest rates unchanged on Thursday, but warned of weak inflation. ECB’s goal is to achieve an inflation rate of under 2% that can be maintained over the medium term without monetary support.



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ITALY (special report)

Italy has been gaining from a weak euro and stronger-than-expected economic growth in Europe, with exports jumping by 14.5 % from the previous year to an all-time high of €42.4 billion in March.

Italy’s inflation picked up to a four-year high of 1.9 %  more than estimated in April, and core inflation, which excludes volatile items such as energy, unprocessed food and tobacco, rose to 1.1 %, the highest since the end of 2013.

In May, both the index of consumer and business confidence worsened in Italy.

Italy debt burden has been steady rising since 2007 and reached a record high of 132.6 % of GDP in 2016, the second-highest in the Eurozone. On the positive side, the fiscal deficit has shrunk to 2.4 % of GDP in 2016 from 2015’s 2.7 percent, well below the upper limit of 3 percent set by the EU. 

The balance sheets of Italian banks have been benefiting from the economic recovery, which has brought households and firms’ default rates down close to pre-crisis levels. Still, banks are exposed to significant risks, as profits remain low. On June 1st, the European Commission announced that it reached an agreement with Italy’s government on a rescue of Monte dei Paschi di Siena, the country’s oldest bank. Also, Banca Popolare di Vicenza and Veneto Banca have requested for a state bailout, and are waiting for the approval of European authorities.

Source: Trading Economics

ITALY Untitled.png


Banking stocks in Italy have continued to rally. Italian bonds outperformed other European yields after ECB cut its forecasts for inflation. In addition to this, italian bonds have rallied over the last few weeks as concerns over an early election in Italy and recorded biggest weekly fall of 2017 during this week.





Finally, German trade surplus reached the smallest in 3 months. It still ranks as the world’s 3rd highest recorded balance of trade.

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European stocks closed higher after UK election result .


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Japan GDP growth revised down  to 1% as an unexpected decline in oil inventories. Bank of Japan(BOJ)’s Kuroda said that it is still far to go to reach 2% inflation target.


Yen hit 7-week highs on concerns ECB, UK pre-election and US yields rally.




Next week, the most important event is the Fed monetary policy decision. The Bank of England and the Bank of Japan are expected to leave monetary policy on hold.


Central Banks Balance Sheet


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

Performance of major commodities this year

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And in a week:

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Oil dropped to the lowest level in 5-weeks as an unexpected surprise in US crude stockpiles, increased concerns on OPEC’s ability to rebalance world crude markets and rising Middle East tensions. (Saudi Arabia, Egypt, the United Arab Emirates and Bahrain cut ties with Qatar on Monday). Meanwhile, Qatar, the country is a member of OPEC, renews commitment to OPEC oil-cutting strategy.


Crude Oil

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Lastly, Qatar, Saudi Arabia, Russia, Lebanese and Cyprus  5y Credit Default Swap(CDS) spreads have widened during this week as rising geopolitical risk.


Source: 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


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.

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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.
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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.

RISK ON 1600x-1

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.


BOND US DOLLARhistorical@3x.png

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.

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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

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