Avoiding for now all comment on the ongoing Eurozone schism, we start by taking a look at the UK where, conveniently in the run-up to the May election, everything seem to be coming up roses for the incumbents. Retail sales are strong, CBI output intentions are comfortably back inside the upper decile of the last 20 years’ readings and – perhaps most politically heartening of all – real wages are at last rising while both numbers employed and hours worked are making new, all-time highs with the ratio between the two suggesting the proportion of those working full-time is back at pre-crisis highs.
Category Archives: Fixed Income
Macro & Market Update
More than half a century ago, in his role as an advisor to the men responsible for trying to set Taiwan on the road to prosperity, a redoubtable economist called Sho-Chie Tsiang argued that the monetary authorities should stop suppressing interest rates and directly rationing credit and should move instead toward a more market-oriented system where real rates were sufficiently elevated to encourage productive saving.
His reasoning was that the existing combination of what we might call Z(Real)IRP with ‘macro-prudential’ control was plagued with several significant drawbacks.
One Leg to Stand on
Here’s a question for all the cheering QEuro fans out there. If you came across a country where both real and nominal money supply were growing at rates in the low teens – something its people had not experienced for almost a decade and close to the fastest seen in the last four – would you consider it to be a victim of ‘deflation’? If not, what help do you suppose an expansionary central bank would be to it?
Technical Update
Wracked by the actions of the various central banks – which gave us another key reminder that volatility does not equate to risk – yet not wishing to start rethinking their entire thesis, a characteristic loss confidence has started to set in among those who were telling themselves over the Christmas trukey just what geniuses they were. We could have an interesting couple of weeks in store – not helped by the fact that we are about to enter the great Chinese data avoid as the lunar new year approaches.
The End of Exuberance?
Back in the halcyon days of summer, it seemed nothing could go wrong.
Commodities were still things it was not utterly disreputable to own. Base metals had shaken off a springtime swoon to hit 18 month highs. Though still suffering from that enervating, post-bubble flatness, precious metals had just enjoyed a neat little 10% rally. Energy was threatening to print new 2 ½ year highs as WTI sold for more than $107 at the front and $86 at the back of the curve. Nor were people much interested in paying for downside protection: across the complex, options premia were as low as ever they had been in recent years.