Guest writer
Guest post: Quanto-fied, a sovereign CDS tale
Markit credit analyst Lisa Pollack discusses the evolution of the sovereign CDS market, and the growing importance of the ‘Quanto spread’ in eurozone CDS.
Are these the same credits I used to know?
Sovereign CDS have had a long history in the credit derivatives markets.
Guest post: Why part of the CDS market is stuck in time
Markit credit analyst Lisa Pollack investigates why 2007 is still haunting a number of CDS index products when it comes to off-the-run volumes.
According to ISDA, there were $62,000bn of credit default swaps (CDS) at the end of 2007. What exactly is this number though? First,
Guest post: Speaking volumes with credit indices
Markit credit analyst Lisa Pollack explores what trade volumes might tell us about credit spreads.
Weekly bond purchases by the ECB under the Securities Markets Programme (SMP) have seen a revival of late. Remember this from the December 2 press conference?
“Question:
[Wilmot's PMI tour] Postscript
Credit Suisse’s economists publish an excellent Global PMI chartbook, with details of all the different components, that is easy on the eye and highly informative.
It should be out later today. [here it is - ed.] But for me,
[Wilmot's PMI tour] Alexander Hamilton on Shadow Money and the Euro
Our shadow money analysis relies in part on a belief that government debt can substitute for money in order to meet demand for liquidity.
This is a surprisingly old idea.
In his 1790 Report on Public Credit (source courtesy of George Washington University),
[Wilmot's PMI tour] The new proletariat
Here’s a heretical thought to sign off with.
Some day, and perhaps not in the very far future, robots will become the low cost producers in global manufacturing. Displacing and replacing a high percentage of human workers,
[Wilmot's PMI tour] Sovereign risk – beyond the numbers
Last April we attempted to grade sovereign sustainability risks across the major economies.
No surprise the laggards were (starting from worst) Greece, Ireland, Portugal, and Spain.
After those four,
[Wilmot's PMI tour] Lest we forget
Here is the final heat map for November 2008.
And the final heat map for 2010.
Global warming!
[Wilmot's PMI tour] Shadow money and inflation
Two years on from Lehman’s spectacular demise, global investors’ expectations for future US inflation are – still – all over the map, or at least fabulously fat-tailed.
Some fear runaway inflation;
[Wilmot's PMI tour] That will do nicely
So that’s it: US ISM new orders are out and fell by 2.3 points to 56.6, following last month’s 7.8 point jump.
We were expecting a 1.5 point drop, the most typical outcome after huge jumps. So that’s marginally weaker than we expected.
BRIC by BRIC III
Just another way to underline the fact that the next innovations in growth are not really coming from the BRICs…
[Wilmot's PMI tour] Meanwhile, in Central Europe…
PMI New orders are looking pretty perky:
[Wilmot's PMI tour] BRIC by BRIC II
A slight disappointment from Brazil: PMI New orders were up 0.4 but still below 50. Potentially stabilizing, but no clear sign of rebound.
But then again, the Brazilian real is the most overvalued of all currencies in our real effective exchange rate universe – see chart below:
[Wilmot's PMI tour] Trading Places: Alemania and Spanien
Economic divergence and intra-euro imbalances are amongst the pessimists’ main arguments why EMU can not survive in the long-run. But divergence – in alternating roles – is also by definition an intrinsic part of monetary union,
[Wilmot's PMI tour] Further reading
And now for something a little more in-depth than our usual further reading offerings. Here’s a list of essential strategy reading compiled by James Sweeney — Jonathan’s right-hand man in New York:
- A History of Interest Rates by Sidney Homer and Richard Sylla
Understanding sovereign debt is in large part about understanding the history of interest rates.
[Wilmot's PMI tour] The strongman of Europe
Yes, we really are talking about the UK.
UK PMI new orders jumped to 59.1, marginally above Germany! Export orders were up 1.6 points to 56.9.
Some good news for the chancellor on Wednesday morning.
[Wilmot's PMI tour] Euro Area – Strong core holds periphery up
The euro area PMI was a bit weaker than the flash estimate from last week, but new orders were still up in November by 0.6 points to 55.6, after rising nearly 2 points in October.
Despite all the current turmoil,
[Wilmot's PMI tour] Hola
Spain is out…
… and it’s not great news. New orders down 1.5 points to 49.6 and employment down too.
A big silver-lining though: export orders up nearly 2 points to 55.9, the highest since 2000.
[Wilmot's PMI tour] The trend continues
Same sort of messages from Turkey, Poland and Norway: New orders were up 3.2 and 1.7 points, respectively. Norway was basically flat.
Not going to move the global needle but reassuring consistency.
[Wilmot's PMI tour] Euro periphery
Clearly growth is not the only issue for Europe’s periphery, but, without growth, there is no good way forward. More on that later on Wednesday.
Irish PMI New Orders picked up slightly in November and were just in positive territory,
[Wilmot's PMI tour] Asia sign-off
One other encouraging sign from the Asian data: export orders are up around the region, mostly by several points. Not surprisingly perhaps, Japan is the one exception.
One less encouraging sign from Asia:
[Wilmot's PMI tour] BRIC by BRIC
So far the news from Asia is good.
Production in Japan and Korea looks set to bounce in the months ahead after a pretty poor run, while China looks likely to cool a bit after four steamy months.
After India and Russia,
[Wilmot's PMI tour] Taiwan supportive
Yet another relatively small share in our global industrial production framework, Taiwan’s PMI New Orders were also very supportive, increasing 5 points after moving sideways for three months. Together with Korea and Japan,
[Wilmot's PMI tour] China – No growth surprise, inflation fears persist
Chinese PMI New Orders rose marginally in November. The headline PMI index rose too and will likely make headlines.
Be warned, however, there is clear (residual) seasonality in these data. A simple procedure to adjust for that suggests PMI new orders actually fell 0.6 points,
[Wilmot's PMI tour] South Korea’s new orders jump
First stop of the day on the PMI odyssey is South Korea.
Like Japan, new orders and IP have been on a pretty steep downward slope since April.
But they jumped back to 50.1 in November (up nearly six points).
[Wilmot's PMI tour] The Japanese swing
Ok, it is time to get started with the hard data…
The Japanese PMI actually came out last night — ahead of the rest.
Since March, Japanese PMI new orders and production have been heading rapidly south.
[Wilmot's PMI tour] Keeping score
To keep a running tab on how things are going we have a couple of friendly widgets:
The Heat Map
After each fresh PMI release, we will update our global heat map. Each country will be coloured according to whether its PMI reading was above or below 50.
[Wilmot's PMI tour] The big three
Here in pictures is what the big three – China, the eurozone and the US (each of them making up about 20 per cent of global production) — look like going into their November PMIs.
First, China:
Now the Euro area:
[Wilmot's PMI tour] From rebound to expansion?
So far we haven’t said much about global demand, without which there would be no production.
That doesn’t mean we don’t think about the demand side of things. On the contrary, over the longer run global (goods) demand and production must by definition grow at roughly the same rate.
[Wilmot's PMI tour] Why PMI?
Why PMI?
Embarking on a global PMI odyssey may seem a little mad when Europe is in turmoil once again. But trust us, there’s method in our PMI madness….
As far as we are concerned, the cycle in global growth remains the single most important macro influence on equities,