James Saft

Column: Market turmoil could re-ignite euro zone risk – James Saft

Jun 13, 2013 19:58 UTC

By James Saft

(Reuters) – Right about now might be a good time to start worrying again about European peripheral debt.

Along with just about every other risk asset the debt of the weaker members of the euro has sold off in recent weeks, hit by rising yields in higher-rated government bonds and a general pullback from bonds.

If markets regain their equilibrium that’s all it may turn out to be – a short selloff in sympathy with global markets.

Arguably few markets, however, have as much to lose from an extended market downturn as bonds from Italy, Spain, Portugal and Greece, which have a number of structural and cyclical weak points which investors for the past 10 months have been mostly happy to ignore.

Ever since Mario Draghi made his famous “whatever it takes” statement about saving the euro, and the ECB unveiled its Outright Monetary Transmission (OMT) bond purchase program, calm has returned to European markets, so much so that they have traded often times in an almost normal way, being driven by large forces outside their immediate purview, such as Fed policy.

Bonds on sale but still too dear

Jun 12, 2013 20:55 UTC

June 12 (Reuters) – Sometimes, as with Treasury bonds right
now, a better deal just isn’t good enough.

A sharp selloff in Treasuries has taken yields higher,
theoretically offering better returns and better protection
against inflation. In fact, so-called real yields, meaning yield
adjusted for inflation, have actually gone into positive
territory. Benchmark 10-year Treasury Inflation Protected
Securities’ (TIPs) yields now stand at 0.13 percent, having
climbed into positive territory late last week after 18 months
in which investors paid for the privilege of getting some of
their money back later.

That’s better, but it is still not that good and does not
constitute much of a reason to load up on Treasuries.

Halfway to an emerging bear market: James Saft

Jun 11, 2013 04:05 UTC

By James Saft

(Reuters) – Already halfway to a bear market, emerging market stocks face slumping commodities prices and what looks very much like a global trade slowdown.

Benchmark shares in emerging markets are slumping, with the MSCI Emerging Markets index down 10 percent from its January peak, halfway to the 20 percent fall that qualifies as a bear market.

While this is in contrast to strong gains in developed markets, which have been well supported by quantitative easing by major central banks, a quick look at data released by China over the weekend reveals the underlying reasons.

As U.S. retools, commods, emerging markets lose: James Saft

Jun 6, 2013 19:50 UTC

By James Saft

(Reuters) – The rebirth of U.S. manufacturing may be the key which unlocks the puzzle of the divergence of commodity prices from equity markets.

If so, commodity prices may be in for more pain, U.S. growth may be better than expected over the longer term and U.S.-based companies stand to reap the benefits.

One of the most interesting trends over the past two years is the way in which agricultural, metals and energy prices have trended downward even as equity prices rise. This is especially hard to reconcile given that economic growth, while only moderate, has been positive. The Thomson Reuters CRB index of commodities and energy has fallen about 10 percent since last September, during which time Germany’s DAX is up 14 percent, the S&P 500 a bit more and the Nikkei 225 a whopping 50 percent.

The Abenomics effect deflates

Jun 5, 2013 19:39 UTC

June 5 (Reuters) – The Abenomics attempt to revive Japan is
already flagging, a development which will hurt equities

Nikkei 225 stock index futures fell another 4.22
percent ahead of Tokyo’s Thursday trading session, as investors
reacted with disappointment to Prime Minister Shinzo Abe’s plans
for structural reforms. That would take the index’s fall
well past the bear market barrier of 20 percent down from its
May 22 peak.

Any loss of faith in Abenomics, an ambitious cocktail of
fiscal and monetary stimulus poured over a base of reforms, will
not only reverse the stunning gains seen in Japanese markets but
crimp liquidity and stimulus which has been supporting growth
and risky assets elsewhere.

Economic tapering shackles Fed: James Saft

Jun 4, 2013 04:13 UTC

By James Saft

(Reuters) – The main thing tapering these days seems to be the global economy, punching a hole in expectations that the Federal Reserve will soon start to scale back its bond purchases.

San Francisco Federal Reserve President John Williams said on Monday that the U.S. central bank may in coming months start to ‘taper’ bond purchases, as part of a slow reeling back of monetary stimulus. Dennis Lockhart, president of the Atlanta Fed, held it out as a possibility, saying tapering might be considered as a possibility in August or September but stressed now was not the time.

It may happen, but if it does it will be the victory of hope over data.

Monday also brought news that orders at U.S. manufacturers were sharply lower in May, with a leading survey reporting its worst showing in four years, results consistent with an actual contraction of industrial output. And since the Fed must attempt to manage the U.S. economy in a global context, it is worth noting that this followed just hours after a similar survey in China showed very similar results.