Nov 29. Slow growth, deflationary pall, but capital still searching for returns

–(Reuters) “ECB data released on Thursday showed loans to the private sector shrank by 2.1 percent in October from the same month a year ago, equaling the biggest fall on record. A Reuters poll of economists had pointed to a contraction of 1.8 percent.”
–How can one say that the crisis in the EU has passed with this sort of data?  It seems to me that lending goes down for a variety of reasons.  Lack of demand, concerns about the credit quality of buyers, an abundance of bad assets already clogging the balance sheet.  If those conditions exist for the banking system, they also exist for the sovereigns.  Another LTRO does little to improve the situation besides providing banks with carry. Too little too late going into next year’s stress tests. Growth cannot be robust without credit growth, and unemployment of 12.1%, though slightly better than expected, cannot improve.
–Curve in US was modestly steeper Wednesday after the 7 year auction.  Interestingly vol was a bit firmer going into the holiday.  Economic data was mixed but Jobless Claims are resuming a downward trend.  Tens were up 4 bps to 2.737 while red/gold euro$ pack spread jumped 6.5 bps to 283, getting fairly close to the year’s high around 298.
–Yen remains weak with EUR/JPY above 139.  A weaker yen exports deflation and pressures other Asian exporters.  China’s new fly over rules regarding the Senkaku islands are raising tensions as neighbors ignore the requirements, perhaps providing a headwind to the Nikkei rally.
–From Albert Edwards (cited on Zero Hedge)”… a recession seems a distant prospect in the minds of most investors. Yet one key precursor for a recession has now fallen into place. Slowing productivity growth means that unit labour costs are now running well ahead of output price inflation. This means a margin and profits downturn is now about to unfold. That typically is a key precursor of recession.”

Posted on November 29, 2013 at 5:46 am by alexmanzara · Permalink
In: Eurodollar Options

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