January 21. Inflation signals?

Jan 21. I haven’t found that the inflation indexed (tips) market is particularly predictive over time, but I marked the spread between ten year tip to treasury note at a new high of 259.2. Know the last time that this spread was 260? April 2011. Know where red/gold pack spread was? 270. Red/gold is now around 143, and it traded to around 200 in March of last year. If an upturn in monetary velocity develops, it’s sayonara for US bonds, and we’ll see a much steeper curve.
–This morning tensions have escalated between China and Japan over disputed islands as military assets are positioned, risking conflict and raising uncertainties in the region. What is less uncertain is Japan’s goal to produce inflation. Depreciation of the yen could stoke global carry trades.
–Over recent history there are several examples of analysts saying that one catalyst or another isn’t big enough to make a material difference in economic forecasts. (‘Subprime is a minor part of the entire mortgage market.’ ‘Greece is just a small part of the EU’). Well Japan is 8.0 to 9.0% of the global economy, and I would say there are going to be ramifications when we see moves like a 20% appreciation in EUR/JPY over two months. –Business Insider cites a recent piece from Nomura which points to an upturn in Asian demand (ex-Japan). “This seems to reflect genuine Asian demand, rather than just demand for processing trade, as China‟s exports to Asia ex-Japan surged 28.9% y-o-y in December. This powerful force of intra-Asian trade gels with our view that Asian domestic demand is strengthening on very loose policies and robust capital inflows.”

Read more: http://www.businessinsider.com/asian-export-data-confirms-that-asian-demand-is-growing-into-something-big-2013-1#ixzz2IbryoBx0

Posted on January 21, 2013 at 5:54 am by alexmanzara · Permalink
In: Eurodollar Options

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