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The Squeaky Wheel Gets the Grease

February 26, 2010
Pessimism pervades discussions of Europe today. Optimists are not to be found. Many warn that the entire economic and monetary union project is likely to falter over the large deficit and debt burden of the Mediterranean members.
We have written much about the sticky wicket Europe finds itself in today: moral hazard and lack of political will on o…
The Squeaky Wheel Gets the Grease The Squeaky Wheel Gets the Grease Reviewed by Marc Chandler on February 26, 2010 Rating: 5
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What I am Going to Worry About This Weekend

February 26, 2010
Perhaps it is because of the snow storm here on the East Coast of the US today; perhaps it is because of the weather may have played in a role in depressing some recent economic data, including consumer confidence, weekly initial jobless claims and some chain store sales, but it strikes me that the market has yet to take aboard the impact this on …
What I am Going to Worry About This Weekend What I am Going to Worry About This Weekend Reviewed by Marc Chandler on February 26, 2010 Rating: 5
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Greek Woes

February 25, 2010
One of the key drags on the euro remains the Greek situation. Greek 2-year yields are up roughly 75 bp on the day (US 2-year yield is near 82 bp and Germany's 2 year yield is near 93 bp). A key driver today appears to be a Market News International story revealing that a draft of a joint report by the EC, ECB and IMF find that the Greek budget…
Greek Woes Greek Woes Reviewed by Marc Chandler on February 25, 2010 Rating: 5
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G20 Deputies Meeting This Weekend in Korea

February 25, 2010
The G20 meet this weekend and it has drawn little attention thus far. South Korea heads up the G20 this year and this meeting of deputy finance ministers and deputy central bankers will be held in Incheon, South Korea Feb 27-28. This is the first G20 meeting of the year. The IMF and World Bank will also be represented. The foreign exchange market …
G20 Deputies Meeting This Weekend in Korea G20 Deputies Meeting This Weekend in Korea Reviewed by Marc Chandler on February 25, 2010 Rating: 5
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Swedish Risks

February 23, 2010
Many investments houses have been extremely bullish on the Swedish krona. Swedish shares have generally outperformed most European bourses thus far this year, with the exception of Switzerland. Swedish bonds have also fared fine, with 10-year yields falling 7 bp this year and at 3.21% is between the two pillars of the euro zone--Germany (3.16%) an…
Swedish Risks Swedish Risks Reviewed by Marc Chandler on February 23, 2010 Rating: 5
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Yen, Deflation, and Labor

February 23, 2010
Three month LIBOR fixings, if they are still meaningful, are poised to cross in the yen and dollar, with latter set to rise above the former. Recall that on August 24th US 3 month LIBOR was fixed below 3-month yen rates. Today the spread stands at less than 1 bp.
Even though other parts of the dollar LIBOR fixing term structure was above LIBOR yen…
Yen, Deflation, and Labor Yen, Deflation, and Labor Reviewed by Marc Chandler on February 23, 2010 Rating: 5
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United Kingdom

February 22, 2010
There appear to be only two factors that are weighing on sterling: politics and economics. The weekend polls show the risks of a hung parliament continue and the market sees this as sterling negative. Despite last week’s poor retail sales data and speculation that Q4 GDP may be revised lower when it is reported at the end of the week, gilts contin…
United Kingdom United Kingdom Reviewed by Marc Chandler on February 22, 2010 Rating: 5
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Chinese Markets Open Once More

February 22, 2010
Chinese markets have re-opened from the week long New Year's celebration. Chinese officials have reiterated their message that their desired goal of monetary policy is "appropriately loose" and the 7-day repo rate, eased 2 basis points to 1.48%. This suggests there is plenty of inter-bank liquidity. Participants will be watching to s…
Chinese Markets Open Once More Chinese Markets Open Once More Reviewed by Marc Chandler on February 22, 2010 Rating: 5
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Japan

February 22, 2010
The LDP beat the government's candidate for governor of Nagasaki over the weekend. Public support for the DPJ government appears to have fallen below 50. Prime Minister Hatoyama blames the recent scandals for the poor showing and this is likely to increase pressure on DPJ-kingpin Ozawa to resign. It is among his aides that the recent scandal h…
Japan Japan Reviewed by Marc Chandler on February 22, 2010 Rating: 5
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Bernanke Update

February 22, 2010
Federal Reserve Chairman Bernanke is widely expected to reassure Congress (and the markets) this week that last week's discount rate hike does not signal a tightening of monetary policy. Nor does it signal an imminent Fed funds rate hike. This has been a consistent message from Fed officials. The Fed funds futures and the overnight index swaps…
Bernanke Update Bernanke Update Reviewed by Marc Chandler on February 22, 2010 Rating: 5
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Greece Today

February 22, 2010
Interest rate spreads are steady at the start of the week. The details on the currency swaps that Greece was to provide at the end of last week appear to have been partial, according to reports, as strikes in the finance ministry prevented accessing all the data. The EU has now given Greece until February 19 to provide the rest of the information.…
Greece Today Greece Today Reviewed by Marc Chandler on February 22, 2010 Rating: 5
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Little Impact From Dutch Government Collapse

February 22, 2010
The Dutch government collapsed over the weekend as the Labor Party withdrew from the government as it refused to agree to the NATO request to extend Dutch troops stay in Afghanistan.

The spread between Dutch and German 2-year and 10-year bonds today widened by a single basis point, suggesting no real market impact. On Tues, the Dutch government is…
Little Impact From Dutch Government Collapse Little Impact From Dutch Government Collapse Reviewed by Marc Chandler on February 22, 2010 Rating: 5
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CNBC: The Fed's Current Impact CNBC: The Fed's Current Impact Reviewed by magonomics on February 19, 2010 Rating: 5
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Dollar Slips on Soft Core, but Look for it to Bounce Back

February 19, 2010
The dollar was initially sold on the softer than expected CPI data, but market sentiment is such that it is inclined to buy dollar dips rather than to sell into strength.

The core measure fell 0.1%, the first decline since the early 1980s. Trend measures of core CPI show a sharp deceleration. Home owners equivalent rent fell 0.1% and is an importa…
Dollar Slips on Soft Core, but Look for it to Bounce Back Dollar Slips on Soft Core, but Look for it to Bounce Back Reviewed by Marc Chandler on February 19, 2010 Rating: 5
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Why I'm Not Worried About China

February 19, 2010
A Real Pig’s Eye
The end is nigh. The irresistible force encountered the immovable object. We learned this week that China reduced its Treasury holdings in December for the second consecutive month. Is it really true, as one analyst was quoted on the front page of the Financial Times claiming that China was “saturated” with US paper? Is this yet an…
Why I'm Not Worried About China Why I'm Not Worried About China Reviewed by Marc Chandler on February 19, 2010 Rating: 5
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Turkey Upgraded By S&P

February 19, 2010
S&P upgraded Turkey's long-term foreign currency rating to BB from BB- and a positive outlook which suggests the likelihood of additional rating increase. S&P says this can happen in the next year or two. Our proprietary model is consistent with a BB+ rating. The reduced debt burden and the stability of Turkish banks were behind the S&…
Turkey Upgraded By S&P Turkey Upgraded By S&P Reviewed by Marc Chandler on February 19, 2010 Rating: 5
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Fed Hikes Discount Rate

February 18, 2010
The timing has caught the market off guard. The Federal Reserve announced it was lifting the discount rate to 75 bp from 50 bp. Fed Chairman Bernanke had hinted this was coming rather soon. However, even though the discount rate hike is a Federal Reserve Board decision, that the Fed would make such an announcement at an FOMC meeting. We had though…
Fed Hikes Discount Rate Fed Hikes Discount Rate Reviewed by Marc Chandler on February 18, 2010 Rating: 5
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Candian Dollar and Data Update

February 18, 2010
Canada reported an acceleration in inflation and strong capital inflows at the end of last year. The Canadian dollar, like the other major currencies, are recovering against the US dollar in the North American morning. The US dollar approached the CAD1.05 objective noted yesterday and has turned back to retes the CAD1.04 area. Although minor penet…
Candian Dollar and Data Update Candian Dollar and Data Update Reviewed by Marc Chandler on February 18, 2010 Rating: 5
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Italy Update

February 18, 2010
The revelations about Greece's currency swap, fuller details are expected in the coming days, have raised questions about Italy.
First, there was some concern that Italy Central Bank Governor Draghi may have involved with the swaps with Greece when he worked for the US investment house that has been linked to the transactions. The Bank of Ital…
Italy Update Italy Update Reviewed by magonomics on February 18, 2010 Rating: 5
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Canadian Dollar Update

February 17, 2010
February has been kind to the Canadian dollar so far. It is the second strongest major currency, gaining about 2.5% against the US dollar, and lagging a little behind the top performer the Swedish krona.
The relative healthy Canadian banking system and relatively stable debt to GDP ratios, which became more salient in the face of pressure in Europe…
Canadian Dollar Update Canadian Dollar Update Reviewed by magonomics on February 17, 2010 Rating: 5
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Rand Bounces Back

February 17, 2010
The South African rand is benefitting from two forces. The first is the generalized recovery in risk appetites, illustrated by rising equity and commodity prices. The second force is special to South Africa. After a slow start the rand rallied in the European morning, even as the euro slipped to session lows. The proximate cause of the rand's …
Rand Bounces Back Rand Bounces Back Reviewed by magonomics on February 17, 2010 Rating: 5
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Broad Dollar Sell Off

February 16, 2010
Relatively constructive US economic data in the form of a better than expected Feb Empire Manufacturing Survey and a stronger than expected capital inflows (Dec TIC report) has seen the dollar humbled under broad based profit taking. Although there did not seem to be a trigger for the price action, there are a couple things to note. First, as ment…
Broad Dollar Sell Off Broad Dollar Sell Off Reviewed by magonomics on February 16, 2010 Rating: 5
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Greek Update

February 16, 2010
Greek debt instruments were sold off on Tuesday amid some disappointment that the EU finance ministers failed to provide more detail or color on official support for Greece. The most likely reason for the lack of detail is that that is the extent of the agreement: Wait and see. 
Officials seem committed to verifying that Greece is implementing its …
Greek Update Greek Update Reviewed by magonomics on February 16, 2010 Rating: 5
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Japanese GDP Preview

February 12, 2010
Japan will report the Oct-Dec GDP figures on Monday. The pace of growth looks to be closer to the US than to the euro zone, which essentially stagnated (+0.1%). A news wire consensus is for Japanese growth to be around 3.6% (0.9% q/q) at annualized pace. And the risk seems to be on the upside after those spectacular jump in machine orders (+20.1% …
Japanese GDP Preview Japanese GDP Preview Reviewed by Marc Chandler on February 12, 2010 Rating: 5
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Long Term Dollar Outlook

February 12, 2010
The great Lebanese poet Khali Gibran once wrote that sometimes the mountain is clearer from the plain than the summit. This insight maybe applied to the foreign exchange market. Currencies in the modern era, not backed by gold or silver as was traditionally the case, have no intrinsic value. They are accepted because the governments have commanded…
Long Term Dollar Outlook Long Term Dollar Outlook Reviewed by Marc Chandler on February 12, 2010 Rating: 5
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A Way Out?

February 11, 2010
We have argued that the EU faces a horrible dilemma. One horn is the moral hazard inherent in support for a profligate agent, while not necessarily putting a firewall around the other weaker credits in Europe. The other horn is to do nothing, risking the rout turns into a capital strike.
What is needed is not only a solution for this particular cr…
A Way Out? A Way Out? Reviewed by magonomics on February 11, 2010 Rating: 5
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Bernanke

February 11, 2010
Federal Reserve Chairman Bernanke's written testimony provided yesterday is very important. There are three key take aways. First, investors should be prepared for a hike in the discount rate relatively soon (in what Fed-speak is "before long"). As part of the normalization of monetary policy the Fed wants to widen the spread between…
Bernanke Bernanke Reviewed by magonomics on February 11, 2010 Rating: 5
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Implications of US Trade Data

February 11, 2010
The US deficit widened in December and by more than expected. The deterioration was largely a function of oil imports. Simply put, the US imported for oil products and at higher prices. The non-energy deficit was largely steady at $16.7 bln from $16.5 in Nov. 
One important implication of the wider real trade deficit is that the 0.5% the net export…
Implications of US Trade Data Implications of US Trade Data Reviewed by magonomics on February 11, 2010 Rating: 5
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Czech Auction Failed

February 10, 2010
No doubt the focus is on attempts of Western Europe to address the Greek debt/deficit crisis. One knock on effect of the woes is that many suspect the bar to entry of future members has been raised.
While Greek, Portugal, Spain, Ireland and Irish bonds have extended yesterday's rally, absorbing the new Portuguese supply today, the Czech Republ…
Czech Auction Failed Czech Auction Failed Reviewed by magonomics on February 10, 2010 Rating: 5
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CNBC: Debt & Currencies CNBC: Debt & Currencies Reviewed by magonomics on February 10, 2010 Rating: 5
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Spiegel Online Warns of More Accounting Gimmickry

February 09, 2010
German-based Spiegel Online has an article that is attracting market attention.
It claims that a large US investment house helped arrange a cross currency swap for Greece that helped to conceal another $1 bln in debt. Although this amount seems relatively small given the huge debt and deficit problems, many suspect it could be just the tip of the …
Spiegel Online Warns of More Accounting Gimmickry Spiegel Online Warns of More Accounting Gimmickry Reviewed by magonomics on February 09, 2010 Rating: 5
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EU Bailout--Don't Believe It

February 09, 2010
As US players return to their posts, the have taken the euro higher amid speculation that the EU is about to announce some sort of deal for Greece. No fat wedding, but fat chance. Leave aside for the moment that Portugal's finance minister has already denied the speculation and Greece has been adament that it is not seeking external assistance…
EU Bailout--Don't Believe It EU Bailout--Don't Believe It Reviewed by magonomics on February 09, 2010 Rating: 5
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Bullard ahead of Bernanke

February 08, 2010
Much attention will be given the Federal Reserve Chairman Bernanke's mid-week testimony before the House Finance Committee. He is expected to provide more details about the Fed's exit strategy.
Atlanta Fed President Bullard is quoted on a news wire that might be anticipating Bernanke's testimony. First in terms of the economy itself, B…
Bullard ahead of Bernanke Bullard ahead of Bernanke Reviewed by magonomics on February 08, 2010 Rating: 5
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Notes on IMM Positioning

February 08, 2010
The weekly Commitment of Traders from the IMM currency futures were reported just before the weekend. There are several noteworthy developments.
First, as of last Tuesday, the net short speculative position was a record at 43.7k contracts. The subsequent price action and open interest warns that the net short were extended in recent days.
Notes on IMM Positioning Notes on IMM Positioning Reviewed by magonomics on February 08, 2010 Rating: 5
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Amor Fati: Moving toward Our Maximum Regret

February 05, 2010
The risks are asymmetrical. Many of the world’s national economies, in various stages of recovery, are still highly dependent on government support. While it is possible that the combination of aggressive fiscal and monetary policy responses have put the economies on a strong growth path, there remains a much greater risk that as the stimulus is r…
Amor Fati: Moving toward Our Maximum Regret Amor Fati: Moving toward Our Maximum Regret Reviewed by magonomics on February 05, 2010 Rating: 5
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China

February 05, 2010
The combination of earlier than expected tightening by China reflected in bill rate increases and reserve requirement increases (and in India as well), coupled with the growing anxiety over sovereign credits in Europe has encouraged risk reduction and this is evident in flows into emerging market equity funds. In the week ending Feb 3, EPFR Global…
China China Reviewed by magonomics on February 05, 2010 Rating: 5
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Sweden's Riksbank Joins Normalization Efforts

February 04, 2010
The focus was on the BOE and ECB today, but little fresh has been revealed by them. One central bank that did do something was Sweden's Riksbank. It indicated that it will no longer be proving 12-month loan to banks. Shorter term duration loans will still be provided. This is not a very big deal, as the ECB and other central banks have already…
Sweden's Riksbank Joins Normalization Efforts Sweden's Riksbank Joins Normalization Efforts Reviewed by magonomics on February 04, 2010 Rating: 5
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Canada Today

February 04, 2010
The Canadian dollar has been no match for its US counterpart and has declined by about 1% against the greenback thus far this year. However, it has held up better than the other major currencies, except the Japanese yen. This seems rather typical of the Canadian dollar's performance in a strong US dollar environment. Ahead of the G7 meeting an…
Canada Today Canada Today Reviewed by magonomics on February 04, 2010 Rating: 5
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CNBC: Sovereign Debt Threat CNBC: Sovereign Debt Threat Reviewed by magonomics on February 04, 2010 Rating: 5
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Greece is not the Word, But Portugal is Today

February 03, 2010
Greece who has been the center of the financial storm in Europe got a cautious vote of confidence from the EC today. It 2 and 10 year bond yields are slightly lower on the day. The lightening rod has been passed to Portugal today and this appears to be one of the factors weighing on the euro and in general helping lift the US dollar. Portugal 10-y…
Greece is not the Word, But Portugal is Today Greece is not the Word, But Portugal is Today Reviewed by magonomics on February 03, 2010 Rating: 5
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More on the G7: Yuan Debate?

February 03, 2010
There will not be a statement after this weekend's G7 meeting, but officials will likely take to the microphones and wax on global developments and their pet issues. Host Canadian Fin Min Flaherty says that foreign exchange issues will be discussed, but this seems to be normally the case, especially given that central banks will be represented…
More on the G7: Yuan Debate? More on the G7: Yuan Debate? Reviewed by magonomics on February 03, 2010 Rating: 5
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Careful with the Zloty

February 03, 2010
The Polish zloty has been a market darling. We have liked it as well. It is among the best emerging market currencies over the past week, gaining nearly 2.25% against the dollar and nearly 2.75% against the euro. Caution is in order now. After funds poured into Poland, one of the few countries to avoid an outright recession, the market is now vuln…
Careful with the Zloty Careful with the Zloty Reviewed by magonomics on February 03, 2010 Rating: 5
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EC Verdict on Greece Wednesday

February 02, 2010
The European Commission will give its verdict on Greece's new fiscal initiatives tomorrow. There are two main issues. The first is the credibility of Greece's macro-economic statistics. Some reports suggest that the new commission established to ensure accuracy of Greece's statistics has covered another 40 bln euro shortfall. To be sur…
EC Verdict on Greece Wednesday EC Verdict on Greece Wednesday Reviewed by magonomics on February 02, 2010 Rating: 5
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Preliminary Thoughts about the Upcoming G7 Meeting

February 02, 2010
There have been suggestions that the G20 becomes the basis for a new governance structure of the IMF. If if this does not come to pass, it is clear the the G7 has been downgraded to a caucus within that larger group. Canada heads up this year and its influence is greater in the G7 than in the G20 so it is little wonder that it is trying to build a…
Preliminary Thoughts about the Upcoming G7 Meeting Preliminary Thoughts about the Upcoming G7 Meeting Reviewed by magonomics on February 02, 2010 Rating: 5
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Phillippines

February 02, 2010
While attention has been focused on Europe's fiscal challenges, developments in the Philippines today is a good reminder of the global nature of problem. It experienced its second failed auction here at the start of 2010. Today it rejected all the offers for PHP8.5 bln (~$183 mln) 2016 bonds that had produced an average yield of 7.465%, which …
Phillippines Phillippines Reviewed by magonomics on February 02, 2010 Rating: 5
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Dollar Carry Trade and Positioning

February 01, 2010
Three important developments to note:
1. In our discussion with clients and policy makers over the past 3-6 months we argued that one of the potential surprises that few were prepared for was a stronger dollar. The Deputy Governor of the PBOC was quoted from Davos making a similar assessment. "To me, the big risk this year is the dollar carry…
Dollar Carry Trade and Positioning Dollar Carry Trade and Positioning Reviewed by magonomics on February 01, 2010 Rating: 5
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Thailand Joins the Club, Encouraging Capital Outflows

February 01, 2010
Apparently learning for the fiasco in 2006, when it imposed controls to limit the Thai baht appreciation, by limiting inflows, Thailand announced today measures to liberalize outflows. The goal appears largely the same. Reduce the upside pressure on the currency. 
The steps announced today include abolishing the cap on overseas investments by Thai …
Thailand Joins the Club, Encouraging Capital Outflows Thailand Joins the Club, Encouraging Capital Outflows Reviewed by magonomics on February 01, 2010 Rating: 5
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