It has been a couple of weeks but Greece regained its top spot in the financial headlines as debt talks did not yield any tangible result. If anything, things are getting worse as comments from both sides got ‘intense’ again. Meanwhile, yields on Greek government bonds rose rapidly and the probability of a Greek default rose to almost 90% at some point. Yes, that is 90%.
In case you missed it. There is now a 90% probability that #Greece will default. #grexit http://t.co/8aHAdThZRz
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jeroen blokland (@jsblokland) April 16, 2015
The nearing Greek debt abyss was also reflected in other peripheral bond yields. Contagion is certainly not behind us as the spread data in the graph below shows. Especially spreads Portuguese bonds widened substantially.
Contagion? Peripheral spreads continue to widen today. Portuguese bond spread up 40 bps in last few days. #Grexit http://t.co/RprCRwsEB6
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jeroen blokland (@jsblokland) April 17, 2015
Meanwhile yields on German bonds set a record low day after day. The yield on the 10-year bond fell to an incredible low of 0.049% on Friday. The question is no longer if but when the 10-year yield becomes negative.
Here we go again! 0.10% and falling... http://t.co/UBhYSkYUvD
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jeroen blokland (@jsblokland) April 16, 2015
And so the percentage of total Eurozone debt outstanding with a negative yield continues to grow. Still, Mr. Draghi does not see any price distortions yet. Negative is the new norm!
The amount of Eurozone government debt with a negative #yield is increasing rapidly. via @Birdyword #QE http://t.co/oEsEHdr2kM
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jeroen blokland (@jsblokland) April 14, 2015
Several ECB members mentioned this week that inflation expectations have improved somewhat, but aren’t at desirable levels yet. In the UK CPI came in at 0.0%.
#inflation around Europe in one graph. Too low, but creeping up in most cases! http://t.co/zY6Nkv2OGm
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jeroen blokland (@jsblokland) April 14, 2015
Although equities came under pressure towards the end of the week, the overall trend has been very positive so far. This week the total market cap of global equities surpassed the USD 70 trillion(!) for the first time.
Global equity market cap surpasses $70 trillion for the first time this Bloomberg chart shows. via @TuurDemeester http://t.co/fIC1XQu184
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jeroen blokland (@jsblokland) April 14, 2015
China’s equity market is in ‘skyrocketing-mode.’ During the last 25 trading days the Shanghai composite index rose more than 2% on seven occasions. Nearly one in every three days. Since June 2014 the index has risen by a massive +110%. Earnings, however, have not gone up at all. Since June 2014 earnings are… down 2.5%.
#Chinese equities in one chart! Since June '14 stock prices up 110%, earnings down 2.5%. http://t.co/Li0m9xijSx
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jeroen blokland (@jsblokland) April 17, 2015
In the US, macro data are sluggish at best. March retail sales recovered less than expected, resulting in a year-on-year rise of just 1.3%. That is the lowest in years, and also significantly less than in the Eurozone. The Atlanta Fed expects growth to come in at only 0.1% for Q1.
Recovery in US retail sales below expectations in March. YoY growth in retail sales has fallen to just 1.3%. http://t.co/KSiH0pt02V
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jeroen blokland (@jsblokland) April 14, 2015
But better times could be on the horizon. In my other blog this week I looked at the relative performance of Eurozone stocks compared to US stocks once the difference in the Citi surprise indices between the two regions peaked. It turns out that in recent years a peak of more than 100 points between the Eurozone surprise index and the US surprise index was followed by an underperformance of Eurozone stocks up to at least 90 days after the peak. To read more click here.
The peak in the relative surprise index of the Eurozone does not bode well for Eurozone stocks. jeroenbloklandblog.com/2015/04/16/sur… http://t.co/7HJXEgQ2mF
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jeroen blokland (@jsblokland) April 16, 2015
Enjoy your weekend!