The Banking and Strategy Initiative

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It’s Monday again: The Currency wars are definitely not data driven (US Economy & Markets, The week ahead August 19, 2013 – August 23, 2013)

Choropleth map showing Open Europe estimate of...

Choropleth map showing Open Europe estimate of total budget expenditure in euros for the whole period 2007–2013 per capita (based on Eurostat 2007 population estimates). Net contributors -2,000 to −1,000 euro per capita -1,000 to −500 euro per capita -500 to 0 euro per capita Net recipients 0 to 500 euro per capita 500 to 1,000 euro per capita 1000 to 5,000 euro per capita 5000 to 10,000 euro per capita 10,000 euro plus per capita n/a (Photo credit: Wikipedia)

And the Euro could be the unwitting player being forced to win despite the ECB wanting it to settle at lower 1.30 levels . Of course Euro long positions would aver, argue or rationalise against the rising Economic recovery prospects but if you consider that the growth this quarter in France and Germany actually means degrowth for the South, then it is not so clear anymore if the Euro’s long race up after the Yen ceded to the Dollar earlier this year can help the Eurozone per se. Germany becoming strong at the expense of others is actually not possible theoretically either in the Euro zone, but the Target 2 system itself survives solely on barter with limited printing of Euros and larger outstanding balances every year due to Germany against its exports for example and it so happens that in any one quarter it is difficult for more than 2-3 winners looking at robust economics for now.

The ECB common Budget is hardly 3-5% of the Eurozone Budget but could easily be half of the social spending undertaken in the zone including spending on agriculture and SME lending and that is down by half in the budget cuts since 2011 (Eurostat says such spending in the ECB/EP Budget is 27% of the social spending outlay in 2012) Employment remains a big problem except the new shoots in Services this quarter and the run taking the Euro on higher in light of these improvements is definitely showing us that Big Data is not delivering more than high spikes and flash crashes on the bottomline. Banks are stuck with large books unable to lend as Capital Directives squeeze short term rates higher for an extended period and the Euro could well outprice any chances of the Euro based exporters getting back in the game except in more trade from /to the UK.

US PPI data was rather subdued but still a big improvement over Q2 data and the September date is on even as equities receded from the cusp of a big move at 1700 to nearer 1650. gold’s comeback to 1350 however still means a bad trade more than economic burn and will recede equally fast as will Oil as production in the US is down hardly a few percentage points still better than 85% utilization and the dip just serving to balance ever increasing inventories.

UK retail sales, mortgages and SME lending data in the meantime has not helped Governor Carney even as the GBP makes a comeback in the Euro pair and the USD trade while BoE Directors apparently forced quite a few caveats on his easy money policy ambitions.

This week did not have much data prints awaited but is hardly time before the August data starts coming inn for production starting with the Flash estimates from China even as record surpluses continue in the Big Bowl as well, raising hopes for US exporters as US and European companies continue to keep a stranglehold on the Chinese Consumer markets esp the upper end

Meanwhile chain store retail Sales shuld not alarm many but Q2 data has come in at disappointing lows for Macy’s Nordstroms and now Saks. Good preparation for the holidays anyway!

Also Chinese and Japanese governments restarted selling off their US Treasury holdings this last month and yields continued to rise as data came in last week, pushing mortgages higher, accelerating the stabilisation phase expected by Mortgage originators like bank of america and JP Morgan while ore commodities settlements action continues on the warehousing issues. Both JpM and GS have since neared completion of their total divestment of the commodities physical businesses.

As Banks have been securtising loans to themselves more often than earlier, they are likely to last longer as the yield curve gets steeper in the run of liquidity reduction starting from here and will likely report positive year on year business in retail and commercial lending as well as investment banking advisory this quarter too though the performance will be below Q1 and Q2 levels

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This entry was posted on August 19, 2013 by in Financial Markets and tagged , , , , , , , .


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