Global Investing

Three snapshots for Monday

Spanish 10-year bond yields hit 6%, around the levels seen in Ireland/Portugal and Italy/Spain at the start and resumption of ECB bond purchases.

U.S. retail sales rose more than expected in March as Americans shrugged off high gasoline prices.

Currency speculators boosted their bets against the euro in the latest week. Figures from the Commodity Futures Trading Commission released on Friday showed a jump in euro net shorts of 101,364 contracts this week from 79,480 previously.

 

Three snapshots for Thursday

U.S. jobless claims unexpectedly rose last week to their highest level since January:

The unemployment rate in Greece rose to 28.1% in January.

Gold mining equities continue to underperform the metal:

Hard times for EM in QE-less world of higher US yields

Now that the Fed appears to have dashed any lingering hopes for an imminent QE3, what’s next for emerging markets? Most observers put this year’s stellar performance of emerging bonds, currencies and equities largely down to the various money-printing or cheap money operations in the developed world. That’s kept core government bond yields bumping along near record lows and benefited higher-yielding emerging assets.

Many would add that in any case a solid economic recovery in the United States should be fairly good news for the rest of the world too. Not so, says HSBC. It argues that a better U.S. outlook is not necessarily good news for emerging markets simply because the side effect of economic improvement is a stronger dollar and higher Treasury yields and that’s an environement in which EM assets tend to underperform.

For an example, it looks back to the days between November 2010 and Feb 2011 when signs of improvement in the U.S. economy steepened the U.S. yield curve,  pushing the spread between 2-year/10-year Treasuries almost 100 bps wider.  Flows to emerging markets dipped sharply, the following graph shows:

Three snapshots for Monday

ISM report on U.S. manufacturing shows PMI at 53.4 in March against 52.4 in February:

Euro zone unemployment rose to 10.8% in February, with youth unemployment in Spain reaching 50.5%

China’s official Purchasing Managers’ Index (PMI) hit an 11-month high with a stronger-than-expected reading but a separate private survey by HSBC, which focuses more on smaller factories than the large state-owned enterprises captured in the official data, painted a gloomier picture:

March world equity funk flattered by Wall St

It was all about the United States last month as far as equity markets were concerned. S&P’s world equity index may have ended the month with a small gain of just 0.3 percent but that was down to a 3 percent rise on  U.S. markets, data from the index provider shows. Strip out the U.S. contribution and it would have been a pretty poor month for world equities. Beyond Wall St, there was a decline of 1.7 percent and $285 billion lost in market value. Instead, the $418 billion added to U.S. market capitalization dragged the global aggregate up by $132 billion.

Behind the robust U.S. equity performance was a steady flow of strong economic data which also pushed up U.S. 10-year yields 20 bps last month. S&P index analyst Howard Silverblatt writes:

The overall rationale for the U.S. outperformance is the perception that several parts of the world have re-entered a recession, while the U.S. continues to show a slow, but steady recovery.

Three snapshots for Friday

The correlation between individual country equity indices is rising again:

U.S. consumer spending jumps in February but income growth tepid.

Apple vs. RIM market value:

Three snapshots for Tuesday

Is now the time to shift to equities vs. bonds? Goldman Sachs think so and traditional valuation measures such as the equity risk premium (chart) make bonds look expensive relative to equities when compared to the average over the last 20 years.

It isn’t surprising that the performance of equities relative to bonds tends to be closely correlated with economic activity. However as the chart below shows this does break down from time to time, equities are currently still trailing bonds over a 12-month period while an ISM above 50 suggests equities should be winning.

Fed Chairman Ben Bernanke poured some cold water on the recent improvement in the U.S. jobs market yesterday. Today’s consumer confidence numbers were mixed, the “jobs hard to get” index rose to 41.0 per cent from 38.6 per cent the month before, but the “jobs plentiful” index also rose to 9.4 per cent from 7 per cent

Three snapshots for Friday

Yesterday’s much worse than expected PMI data from the euro zone has pushed the Citigroup economic surprise index for the region below zero.

Germany has been one of the strongest performing equity markets this year but is still in the middle of the pack compared to other European countries on valuation.

U.S. new home sales slipped 1.6 percent to a seasonally adjusted 313,000-unit annual rate. Economists polled by Reuters had forecast sales at a 325,000-unit rate in February.

Russia’s new Eurobond: what’s the fair price?

Russia’s upcoming dollar bond, the first in two years, should fly off the shelves. It’s good timing — elections are past, the world economy seems to be recovering and crucially for Russia, oil prices are over $125 a barrel.  And the rise in core yields has massively tightened emerging markets’ yield premium to  U.S. Treasuries, offering an attractive window to raise cash.  Russia’s spread premium over Treasuries hit the narrowest levels in 7 months recently and despite some widening this week it is still some 75 basis points below end-2011 levels.

Initial indications from the ongoing roadshow are for a two-tranche bond with 10- and 20-year maturities, possibly raising a total of $3.5 billion.

But market bullishness notwithstanding, investors say Moscow should resist temptation to price the bond too high, a mistake it made during its last foray into global capital markets in April 2010. Fund managers have unpleasant memories of that deal, recalling that Russia unexpectedly tightened the yield offered by 25-28 bps, making the bond an expensive one for investors who had already placed bids. The bond price fell sharply once trading kicked off and yields across the Russian curve rose around 25-30 basis points. Jeremy Brewin, a fund manager at Aviva said:

Three snapshots for Tuesday

U.S. February housing starts fall slightly to a 698,000 annual rate:

UK inflation edged down to 3.4% in February:

Spanish banks’ bad loans highest since August 1994