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from Global Investing:
Weekly Radar: Watch the thought bubbles…
Far from the rules of the dusty old investment almanac, it’s up, up and away in May after all. And judging by the latest batch of economic data, markets may well have had good reason to look beyond the global economic ‘soft patch’ – with US employment, Chinese trade and even German and British industry data all coming in with positive surprises since last Friday. Is QE gaining traction at last?
Well, it's still hard to tell yet in the real economy that continues to disappont overall. But what's certain is that monetary easing is contagious and not about to stop in the foreseeable future - whether there's signs of a growth stabilisation or not. With the Fed, BoJ and BoE still on full throttle and the ECB cutting interest rates again last week, monetary easing is fanning out across the emerging markets too. South Korea was the latest to surprise with a rate cut on Thursday, in part to keep a lid on its won currency after Japan's effective maxi devaluation over the past six months. But Poland too cut rates on Wednesday. And emerging markets, which slipped into the red for the year in February, have at last moved back into the black - even if still far behind year-to-date gains in developed market equities of about 16%!
Not only have we got new records on Wall St and fresh multi-year highs in Europe and Japan, there’s little sign that either this weekend’s meeting in London of G7 finance chiefs or next weekend’s G20 sherpas gathering in Moscow will want to signal a shift in the monetary stance. If anything, they may codify the recent tilt toward easier austerity deadlines in Europe and elsewhere. But inevitably talk of unintended consequences of QE and bubbles will build again now as both equity and debt markets race ahead , even if the truth is that asset managers have been remarkably defensive so far this year in asset, sector and geographical choices ... one can only guess at what might happen if they did actually start to get aggressive! Perhaps the next pause will have to come from the Fed thinking aloud again about the longevity of its QE programme -- so best watch those thought bubbles!
Next week's big data and events:
G7 finance ministers and central bank governors meet in London Sat
EBRD meeting in Istanbul Sat
Pakistan general elections Sat
Bulgaria parliamentary elections Sun
China April Industrial output/retail sales Mon
France/Italy bond auctions Mon
Euro group meeting Mon
US April retail sales Mon
Indonesia rate decision Tues
EZ March industrial production Tues
German May ZEW sentiment Tues
ECOFIN meeting Tues
UK 5-yr gilt/Japan 30-yr JGB/Dutch DSL auctions Tues
EZ/DE/FR/IT flash Q1 GDP Weds
UK April jobless Weds
Iceland rate decision Weds
Greek PM Samaras in China Weds
Japan Q1 GDP Thurs
UK 30-yr gilt/Japan 5-yr JGB auction/German 2-yr auction Thurs
Spain’s Rajoy meets with unions on pension reforms Thurs
Draghi speech Milan Thurs
US/EZ April CPI Thurs
US April housing starts/permits, May Philly Fed index Thurs
Turkish rate decision Thurs
Turkey’s Erdogan in Washington Thurs
G20 sherpas meeting in St Petersburg Sat/Sun
from Global Investing:
Weekly Radar: Second-guessing Japan flows as global growth slows
Figuring out what was driving pretty violent market moves this week was trickier than usual – and that says something about how much the herd has scattered this year, with ‘risk on-risk off’ correlations having weakened sharply. Just as everyone puzzled over a potential "wall of money" from Japan after the BOJ’s aggressive reflation efforts, the bottom seemed to fall out of gold, energy and broader commodity markets – dragging both equity markets and, unusually, peripheral euro zone bond yields lower in the process. As dangerous as it may be to seek an overriding narrative these days, you could possibly tie all up these moves under the BOJ banner – something along these lines: the threat of a further yen losses pushes an already pumped-up US dollar ever higher across the board and undermines dollar-denominated commodities, which have already been hampered by what looks like yet another lull in global demand. Developed market equities, whose Q1 surge had been reined in by several weeks of disappointing economic data and an iffy start to the Q1 earnings season, were then hit further by a lunge in heavy cap mining and energy stocks. The commodities hit may also help explain the persistent underperformance of emerging markets this year. What's more the lift to Italian and Spanish government bonds comes partly from an assumption any Japanese money exit will seek U.S. and European government bonds and relatively higher-yielding euro government paper may be favoured by some over the paltry returns in the core ‘safe havens’ of Treasuries or bunds. The confidence to reach for yield has clearly risen over the past six months as wider systemic fears have receded – something underlined in dramatic style this week by a huge lunge in gold, now lost almost 20 percent in the year to date.
While all that logic may be plausible, there have been dozens of other reasons floating around for the seemingly erratic twists and turns of the week.
from Global Investing:
Weekly Radar: Q1 earnings test as the herd scatters
US Q1 EARNINGS START/DUBLIN EURO GROUP MEETING/US T-SECRETARY LEW IN BERLIN-PARIS/US-FRANCE-ITALY GOVT BOND AUCTIONS/FRANCE NATL ASSEMBLY VOTES ON LABOUR REFORM/VENEZUELA ELECTIONS
World markets have started the second quarter in an oddly indecisive mood given that Q1 turned out to be yet another bumper start to the year, looking to extend record stock market highs on Wall St but lacking the juice of new information to make a decisive break while Europe splutters and emerging markets and commodities head south. Two important pieces of the U.S. jigsaw will likely emerge over the coming week with this Friday’s US employment report and the start of the Q1 corporate earnings season next week.
from Expert Zone:
Low-key outcome as Singh meets Xi on BRICS sidelines
(The views expressed in this column are the author's own and do not represent those of Reuters)
The BRICS summit in Durban last week, which brought the leaders of Brazil, Russia, India, China and South Africa together, is best recalled for the rich visual imagery that Russian President Vladimir Putin invoked. Putin suggested that the five countries were like the lion, elephant, buffalo, leopard and rhinoceros. Notwithstanding the normative vision for the developing world that was outlined by the leaders, the subtext is a logical extension of this animal metaphor.
from The Human Impact:
India’s growing global humanitarian role: Is it enough?
India is increasingly seen as an important player when it comes to supporting nations hit by disasters or conflict, as well as for development, but given its size and influence, is it really doing enough to help resolve global crises?
Many, like the International Committee of the Red Cross (ICRC), think not, especially when it comes to addressing humanitarian issues at an international level.
from John Lloyd:
Bureaucracy will set you free
Two movements, fundamentally opposed, are at work in the world: corruption and anti-corruption. The marketization of the economies of China, India and Russia in the past two decades has exacerbated the corruption in those countries. Businesspeople and politicians, often hardly distinguishable, become billionaires in tandem.
But corruption is falling out of favor in more and more countries as more and more governments realize that while it may get things done in the short term, it corrodes everything in the long term. As public anger rises everywhere against the grossest inequalities the modern world has seen, it provides the fuel for future fires. Bribes, the most common form of corruption, are a crime not just against the law but against the public. Those states now climbing the wealth ladder will risk worse than poverty if they do not grasp that truth.
from Global Investing:
Of snakes, dragons and fund managers
The Year of the Snake is considered one of the less auspicious in the 12-year Chinese zodiac cycle. And 2013 is the year of the Black Water Snake, which comes around once every 60 years and is seen as the least fortuitous. How China's stock markets turn out after years of poor performance remains to be seen but the snake is providing banks and asset managers with plenty of food for thought. Many of them have been gazing into the crystal ball to see what 2013 may hold for Chinese markets.
Fidelity Worldwide investments highlights the ‘Snakes and Ladders’ that could influence Chinese equities this year. (They have a great accompanying illustration)
from Global Investing:
Russia’s consumers — a promise for the stock market
As we wrote here last week, Russian bond markets are bracing for a flood of foreign capital. But there appears to be a surprising lack of interest in Russian equities.
Russia's stock market trades on average at 5 times forward earnings, less than half the valuation for broader emerging markets. That's cheaper than unstable countries such as Pakistan or those in dire economic straits such as Greece. But here's the rub. Look within the market and here are some of the most expensive companies in emerging markets -- mostly consumer-facing names. Retailers such as Dixy and Magnit and internet provider Yandex trade at up to 25 times forward earnings. These compare to some of the turbo-charged valuations in typically expensive markets such as India.
from Global Investing:
Clearing a way to Russian bonds
Russian debt finally became Euroclearable today.
What that means is foreign investors buying Russian domestic rouble bonds will be able to process them through Belgian clearing house Euroclear, which transfers securities from the seller's securities account to the securities account of the buyer, while transferring cash from the account of the buyer to the account of the seller. Euroclear's links with correspondent banks in more than 40 countries means buying Russian bonds suddenly becomes easier.And safer too in theory because the title to the security receives asset protection under Belgian law. That should bring a massive torrent of cash into the OFZs, as Russian rouble government bonds are known.
In a wide-ranging note entitled "License to Clear" sent yesterday, Barclays reckons previous predictions of some $20 billion in inflows from overseas to OFZ could be understated -- it now estimates that $25 to $40 billion could flow into Russian OFZs during 2013-2o14. Around $9 billion already came last year ahead of the actual move, Barclays analysts say, but more conservative asset managers will have waited for the Euroclear signal before actually committing cash.
from Global Investing:
Weekly Radar: Market stalemate sees volatility ebb further
Global markets have found themselves at an interesting juncture of underlying new year bullishness stalled by trepidation over several short-term headwinds (US debt debate, Q4 earnings, Italian elections etc etc) – the net result has been stalemate, something which has sunk volatility gauges even further. Not only did this week’s Merrill funds survey show investors overweight bank stocks for the first time since 2007, it also showed demand for protection against a sharp equity market drops over the next 3 months at lowest since at least 2008. The latter certainly tallies with the ever-ebbing VIX at its lowest since June 2007. Though some will of course now argue this is “cheap” – it’s a bit like comparing the cost of umbrellas even though you don’t think it’s going to rain.
Anyway, the year’s big investment theme - the prospect of a “Great Rotation” back into equity from bonds worldwide - has now even captured the sceptical eye of one of the market’s most persistent bears. SocGen's Albert Edwards still assumes we’ll see carnage on biblical proportions first -- of course -- but even he says long-term investors with 10-year views would be mad not to pick up some of the best valuations in Europe and Japan they will likely ever see. "Unambiguously cheap" was his term - and that's saying something from the forecaster of the New Ice Age.
