Jan 26. Deflation pressure only intensifying

–After initial spikes related to Syriza’s victory in the Greek elections, markets have pretty much reverted to previous levels.  Euro went as low as 111.02 now 112.50.  ESH to 2025, now 2038.  TYH to 130-06 and now 129-24.  However, in what is perhaps a more significant move, the Chinese yuan is weakening, now 6.2556, nearing the lows of last summer, another shot over the bow in the currency wars that threatens further deflationary pressure in the US.

–This week the US treasury auctions 2, 5 and 7 year notes, which will perhaps lead to new lows in 2/10 and 5/30 treasury spreads.  5/30 to move under 100?  FOMC announcement is this Wednesday.  It probably becomes more difficult to adhere to the party line that factors pushing inflation lower are temporary, as crude oil has fallen another $12 since the last FOMC, and the dollar has also strengthened significantly, similarly moving 12 big figures in the Euro, which went from 124 to 112.  I would suspect that red/green/blue butterflies in euro$ will decline as the market comes to grip with the idea that the Fed is on hold.  Red/green/blue pack fly currently just over 27…I would think it could be in the upper teens by week’s end.

–“Being patient is a risk that we just don’t want to take. We need growth in Europe. With entrenched unemployment, people are being forced out of the labour market, and we are seeing the whole foundation of the European project being weakened. This cannot last for too long,” he [Benoit Coeure] said. [as the Greek election demonstrated…]
http://www.telegraph.co.uk/finance/mark-carney/11367570/Mark-Carney-warns-of-liquidity-storm-as-global-currency-system-turns-upside-down.html

–Interesting notes regarding American corporate icons:  I saw a story that IBM is getting ready to cut 1/4 of its workforce…  http://www.itworld.com/article/2875112/ibm-is-about-to-get-hit-with-a-massive-reorg-and-layoffs.html  (saw it on the internet, it MUST be true?).    And from last month, McDonald’s sales are cratering, US same store sales down nearly 5%.

–Another interesting story, which is probably a bigger macro factor in prices (and in the leveling of social opportunity globally) than people give it credit for is this growing dynamic:  “Zach Sims, a college dropout, founded Codecademy, a website which enables users to learn six popular programming languages, via a simple interface, for free. Codecademy is three-years-old now and Sims has 26 million students.”…  “Its crazy that two kids could start something in a one-bedroom apartment in California, and educate more people in a weekend than a formal institution could in years,” he says.
> Read more at http://globaleconomicanalysis.blogspot.com/2015/01/education-moment-man-with-26-million.html#U2JKoFvf1VkIO5w8.99

–In sum: Energy costs lower.  Imports cheaper with stronger dollar.  Obamacare a factor in pushing health care costs lower…fewer visits given huge deductibles.  Higher education under pressure from internet competitors.

Posted on January 26, 2015 at 5:39 am by alexmanzara · Permalink
In: Eurodollar Options

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