US econ growth gauge rises to 9 week high, ECRI - Reuters
Paralysis at the Fed - New York Times
Why Bernanke Isn't Doing More to Boost the Economy - Time
Negative TIPS Yields Provide Some Tips On The Economy - BondSquawk
Treasury's New Idea for Laggard Banks: We'll Sit in at Your Meeting - WSJ
Irish Banks Rattling Nerves - Wall Street Journal
Fiscal fundamentalists - Economist
Summer Employment All About Demand - Tim Duy's Fed Watch
Is Deflation Really Bad for the Economy? - Mises Institute

India: The liquidity outlook and its implications

- "The Reserve Bank of India (RBI) was one of the earliest central banks to start exiting from its accommodative monetary policy stance – not just in adjusting interest rates, but also in mopping up systemic liquidity. The overall liquidity position – defined as the sum of the liquidity adjustment facility, the market stabilisation scheme and the central government’s surplus at the RBI – has fallen from a peak of INR2.2trn in August 2009 to about INR200bn in July."
- "This tightening in liquidity owes its origin to both the endogenous policy-induced hike in the cash reserve ratio (CRR) as well as exogenous factors, such as one-off telecom payments and a larger-than-normal rise in currency in circulation. With inflation running at double-digits, transaction demand for money has picked up, increasing currency in circulation and adding to systemic liquidity tightness. The timing could hardly be better for the RBI, which is battling high inflation. At its 27 July policy meeting, the RBI officially announced a change in the rate corridor, indirectly targeting the overnight rate at repo rate rather than reserve repo rate - an effective tightening in overnight rates by 150bp, in addition to the 100bp of hikes in the repo rate since March. Short-term rates have risen by 150-230bp since end-May and this rise in the cost of funding should reinforce the monetary policy transmission."

Nomura Asia Economic Weekly 20100813

Fear of a slump

- Market Movers ahead
• "US Senior Loan Officer survey with details on credit conditions and demand for loans will be released on Monday. Local business surveys are expected to show some strengthening while housing starts and building permits are expected to fall."
• "The Euro area is facing a calm week in terms of macro data. ZEW expectations are likely to decline as market sentiment has turned more sour."
• "In Asia focus turns to Japanese GDP data for Q2. Consensus is for 0.6% q/q GDP growth but we see some downside risk to that forecast. USD/JPY has declined to a new low and speculation is rising over potential intervention from the Bank of Japan."
• "In Scandinavia attention will be on Norwegian Q2 GDP figures. We expect moderate growth."
- Global Update
• "Financial markets have become increasingly concerned about the risk of a slump with long-lasting repercussions. Data has turned softer in both Asia and the US."
• "The Fed decided to bring its exit to a halt and as a result we have postponed our expectations for a first Fed hike until Q4 11."
• "Euro area growth was strong in Q2, pulled up by Germany. Declining industrial production in June has raised concerns about growth in Europe too."
• "European government bond spreads widened. On Thursday the ECB was seen purchasing government bonds in the market and spreads began to narrow."
- Focus
• "Wheat prices have rallied since early July. We assess the fundamental situation in the grains market and conclude that the recent rally is overdone and that a global food crisis is not imminent. In an alternative ‘agflation’ scenario, the impact on inflation is notable – in particular in emerging markets."

DenDanske Weekly Focus 20100813

Oil market chartbook

- "Crude oil prices have dipped on growth concerns over the last couple of days, tracking equity markets lower. After a week-long rally above USD 80 per barrel (bbl) NYMEX WTI today dipped back below this level. While supplies are ample, we continue to expect macroeconomic sentiment to drive prices and for a continued close correlation between crude oil and equity markets. Weak macroeconomic sentiment was reinforced by a bearish set of weekly oil data from the US Energy Information Administration (EIA)."

StanChart Energy Weekly 20100811

The Fed gives a nod to the market

- Overview: "The Fed’s action should serve to pin Treasury yields below our expectations of fair value for a while longer. However, we doubt that bond markets can continue to rally off this news alone unless this is the first step in a series of additional QE measures."
- US Rates Strategy: "The Federal Reserve will begin purchasing Treasuries to offset the paydowns and maturities in the agency MBS and agency debt portfolio. We review the details and assess the implications."
- Euro Rates Strategy: "While peripheral swap spreads are currently broadly in line with their fundamentals, analysis of countries’ debt trajectories points to the increasing vulnerability of Ireland, Portugal and Spain and the improving outlook for Germany, Finland and the Netherlands."
- Sterling Rates Strategy: "We still believe the gilt curve is too steep versus fundamentals, but the severity of recent price action clearly needs respecting. It seems prudent to keep risk light during this whippy summer trading, but we will remain vigilant to opportunities to buy the long-end if sentiment improves."
- Global Inflation Strategy: "We continue to favour short positions in 5yr, 5yr forward TIPS break-evens, despite the modest extra stimulus from the Fed. In euro, we recommend selling BPTei19 versus OATei20 in a break-even inflation box to capture the relative value and position for upcoming supply."
- JGB Rates Strategy: "We see three sources of deflationary pressure which could impact long-term rates. We recommend adding to long 10yr JGB positions above 1%."
- Global Flow: "Strong demand for both Europe and the US in the week before the FOMC statement. Duration is still being extended."
- New Appendix: "We provide a schedule of coupons and redemptions for each of the EMU-11 countries for 2010-2015. This is in addition to the usual detailed analysis of upcoming coupons, redemptions, supply and net cash flows."

Citigroup International Interest Rate Strategist 20100812

Wheat scare unwarranted as stocks remain huge

- "Global wheat prices have rallied on weather-related supply concerns. We view the recent price surge as overdone, however, as the global wheat market remains well-supplied. The risk of a new global food crisis is small in our view."
- "Things to look out for include: further trade restrictions, contagion to other soft commodities and speculative flows."
- "On the whole, we look for Matif prices to retreat to EUR175 per ton before year end and see current levels as attractive for producers to lock in wheat prices."

DenDanske Commodities 20100812

UK versus Europe ex-UK

- "We think the UK market’s recent outperformance relative to Europe ex-UK has probably run its course."
- "The UK has benefited from “safe haven” status during the euro area’s sovereign crisis, while also enjoying better earnings momentum. An unwinding of a large speculative short position against sterling has also helped it rise against the euro."
- "All of these factors have now reversed, in our view. The euro area economy has proved to be more resilient than many had believe, while the impact of the UK’s fiscal consolidation has yet to be felt. There are signs of a slowdown in the UK housing market too."
- "Above all though, it is the shift in earnings momentum in favour of continental Europe that suggests to us that investors should now be overweighting continental European equities relative to the UK, in both local and common currency terms."

Nomura European Strategy Weekly 20100813

Bracing for the Fall of 2010

- "VIX is now trading in the low 20s as the SPX has rallied over the past six weeks despite a slew of weak macroeconomic data. Despite this headline normalization, under the hood, derivatives markets remain stressed across various metrics like skew, correlation and term structure. Indeed, Barclays U.S. equity strategist team believes that the summer rally in U.S. equity is ending and that the next significant move is more likely to be a return to early July lows rather than to April highs." - "Given this state of affairs, in our view, a somewhat bearish stance is warranted over the next few months. However, since a moderate pull back appears to some extent already priced in, we believe an outright short position is not advisable and we think put-spreads are a better instrument of choice."- "While put-spreads on SPX are an obvious liquid alternative, in this report, we attempt to quantitatively determine if other assets offer a better risk reward. Specifically, we make an assumption that various equity ETFs will return to their lows, reached in May or June 2010. We then compare the returns for a put spread position in each underlying asset to its cost to determine which one offers the best payout ratio."

Barclays Index Volatility Weekly 20100809

Wheat a minute

- "Recent increases in global wheat prices have reignited concerns about the economic impacts of high food prices. This article describes the economic channels through which rising wheat prices (and food prices more generally) can affect EEMEA economies, and highlights what we think will be relatively minimal short-term implications requiring limited policy response in most countries. In this context, we analyze sensitivities of inflation, balance of payments, and fiscal accounts to food price changes, particularly should the current wheat price spike translate into a broader increase in food prices."
- "We conclude that the policy responses are likely to be strongest in countries with significant economic sensitivities, relatively high poverty rates, and/or institutional challenges (Egypt, Ukraine, Kazakhstan and Russia). For the rest of EEMEA, the impact will likely be meaningfully felt only if policy-makers deem the price increases permanent, for example as a result of global structural shifts in the balance of food supply and demand."

Nomura Region View 20100812

To QE or not to QE, that is the question

- Macro viewpoint: To QE or not to QE, that is the question "The Fed has moved back into the spotlight. Here we address a number of the “frequently asked questions” about Fed policy."
- Fed watch: And now the hard part "While the Fed has not stated what would prompt renewed quantitative easing (QE), we expect it will act on sustained signs of weakness, and not just a couple of bad numbers. Hence we think the probability of a move at the next two meetings is low, but over the year ahead we see a 35 percent chance of QE."
- The week ahead: Softening manufacturing surveys "Sentiment takes center stage next week in the manufacturing and housing sectors. The Empire State and Philadelphia Fed manufacturing surveys will give an early indication of conditions in August. With the inventory cycle fading and the economy softening more generally, we expect both to paint of picture of slowdown but not outright contraction. Indeed, the industrial production report should show that manufacturing production continued to increase in July. In contrast, the housing data released this week is likely to be weak, with a decline in housing starts in July and depressed NAHB housing index. Homebuilders have kept construction at a feeble pace amid weak home sales and an uncertain economic outlook."

Merrill Lynch US Economic Weekly 20100813

Your 5-minute investment guide for Chinese equity markets: Aug 9 – 13

- "Chinese equities pulled back this past week, with MSCI China falling by 3% and CSI 300 by 1.5%. Market worries stemmed from slightly below expectation July macro releases and CBRC policy changes on moving trust instruments on-balance sheet, which is an incremental tightening move. Defensive sectors like consumer staples performed well onshore and offshore, while energy, financials, industrials suffered."

GoldmanSachs China Weekly Kickstart 20100813

Currency Converter - Rhapsody in Blue

Pan-European — Currency Converter
- Risk on — "European equities and the Euro have rallied c10% in recent months. Post Euro rallies, equities are usually weak, suggesting short-term caution."
- History suggests — "Cyclical sectors tend to outperform during periods of Euro strength while Tech, Health Care and Personal Goods more likely to underperform."
UK — Rhapsody in Blue
- Summertime — "Risk on has seen the market and Sterling rally 10%+ since April. Post previous Sterling rallies, short term equity performance has been weak."
- Dips and Rallies — "Ongoing economic recovery should support earnings growth in 2011. We continue to see this as a 'buy the dips, sell the rally' year."

Citigroup European Portfolio Strategist 20100812

Easing bias in EMEA monetary policy is back

- Market movers ahead: Turkish rate decision and Polish labour market data in focus "The Turkish rate decision is undoubtedly the key event next week. We don’t expect any change in the interest rate setting next week and the key borrowing rate should stay unchanged at 6.50%. We furthermore think that the Turkish central bank will stick to its dovish stance. In today’s EMEA Weekly we introduce the EMEA Monetary Policy Tracker (MPT) with focus on Turkish monetary policy outlook this week."
- Fixed Income Outlook: Return to monetary easing bias "As mentioned above, today we introduce the EMEA Monetary Policy Tracker (MPT), which is designed to give a signal on the direction or bias in monetary policy in the EMEA region. The message from our MPT is clear - in many EMEA countries the central banks should continue their monetary easing. In fact, our MPT now points towards further monetary easing in the Czech Republic, Israel, South Africa and Turkey. That is not to say that the central banks in these countries will in fact cut rates, but we now think that there is a higher likelihood that we will see cuts rather than hikes in these countries in the coming 9-12 months. We especially stress the downside risks to rates in Israel and Turkey where the markets are still priced for hikes. We would therefore recommend being positioned for lower rates and yields in the short end of the curve in the Czech Republic, Israel, Turkey but for higher rates in Hungary. Neutral in Poland."
- FX Outlook: Risk aversion is back "After a couple of weeks of budding improvements the signals from our EMEA FX Scorecard turned significantly more negative this week. The total score for the entire EMEA region has dropped to -0.3 from -0.1 last week as the global score plummets. This is usually a good indication that risk aversion is on the rise, which is negative for the EMEA currencies."
- Scorecard-based trade of the week: Buy CZK/ZAR "For the fifth week in a row the Scorecard-based trade of the week is buying CZK/ZAR with the Czech koruna still the highest scoring currency on our EMEA FX Scorecard and the South African rand the lowest."

DenDanske EMEA Weekly 20100813

Are economies destabilised by the effect of stock market and property wealth on real activity?

- "Changes in stock market and property wealth have had increasingly pronounced effects on demand and real activity in OECD countries over time, which can be ascribed to:
• the growing market value of equities and real estate;
• the growing importance of market valuation in companies’ choices;
• the link between capacity to run up debt and wealth (above all in Anglo-Saxon countries)."
- "This has created the risk of a destabilising process: a decline in wealth reduces growth, which in turn reduces wealth. How could wealth and demand for goods and services be decorrelated?
• by analysing borrower solvency based on their income and not their wealth, a development that is definitely under way;
• in countries with funded pensions schemes, by trying to obtain a lower variability in the value of pension funds’ assets;
• by having more investors with a genuinely long-term horizon who would bring stock market valuation closer to the fundamental value of companies."

Natixis Flash Economics 389 20100804

Can an even more expansionary monetary policy in the United States or the euro zone be efficient in the present situation?

- "The persistent problems of the US economy have led Ben Bernanke to talk about implementing a fresh monetary stimulus in the United States (further purchases of assets or even loan portfolios by the Federal Reserve?). The ECB, on the other hand, seems rather inclined to normalise its monetary policy (elimination of 1-year repos, and virtual halt to the government bond purchase programme). In order to ascertain whether it is the Federal Reserve or the ECB that is going in the right direction, we have to determine whether a more expansionary monetary policy can be efficient in terms of boosting growth in the present situation."
- "That is the case if:
• households or companies have the capacity and the will to run up more debt; which seems to be the case only in a few countries (France, Italy);
• the expansionary monetary policy enables banks to lend more (in countries where credit demand is sufficient); it does not seem that the banks are rationing credit; they are above all concerned about their additional capital needs;
• or if the expansionary monetary policy drives some asset prices upwards, which will trigger a positive wealth effect."
- "This is perhaps the case with property prices in a few countries (United States, France); but is it really desirable to jump-start the economies by triggering a fresh real estate bubble?"
- "All in all, we believe a changeover to an even more expansionary monetary policy implies risks (how will the excess liquidity thus created be used?) without any guarantee of a positive effect on real activity."

Natixis Flash Economics 388 20100803

Why companies in OECD countries will be taken over by companies from emerging countries

- "We believe that companies from emerging countries will increasingly make acquisitions in OECD countries."
- "The reasons are as follows:
• emerging countries have high savings and large reserves that are often invested poorly, while OECD countries have low savings that will, moreover, be consumed to finance fiscal deficits for many years:
• corporate valuations are higher in emerging countries, due both to the demand for equities and the growth outlook;
• emerging-country currencies should, in the long run, appreciate against the currencies of OECD countries."
- "The changing nature of capital flows from emerging countries to OECD countries should gradually lead to a rise in long-term interest rates and share prices in OECD countries."

Natixis Flash Economics 387 20100730