Week End Blog – Brexit and Painful Reversals

This week in two words: Bond Collapse. What started as ‘just’ an impressive rise in interest rates last week, turned into a real bond crash this week. The German 10-year government bond yield more than doubled in a matter of days, touching an intraday high of almost 0.78%. Bonds of all maturities sold off, as did bonds in peripheral Europe. This was just ugly.

[tweet https://twitter.com/jsblokland/status/596271567958597634 width=’500′]

An interesting question is, of course, if the worst is behind us? The ‘spooky’ chart below shows that the German bond crash looks eerily comparable to the collapse of Japanese government bonds in 2003. If that occasion turns out to be a reliable projection of what’s coming, you’d better tighten your seat belts.

[tweet https://twitter.com/jsblokland/status/596409631930503168 width=’500′]

I guess, the massive sell off in European government bonds shows that, even when things are scarce, their value does dot always go up…

[tweet https://twitter.com/jsblokland/status/595539698078097408 width=’500′]

The euro appreciated nicely with the spike in Eurozone bond yields. As the move in the USDEUR exchange rate already looked  a bit stretched, and investor positioning is extreme, little is needed to make the euro reverse too.

[tweet https://twitter.com/jsblokland/status/595970756871397376 width=’500′]

Meanwhile oil prices continued their silent rally. Another reversal that caught a lot of investors off guard.

[tweet https://twitter.com/johnauthers/status/595683513489317889 width=’500′]

From an economic perspective, things still look rather upbeat for the Eurozone. The European Commission revised its 2015 GDP growth forecast upwards to 1.5%. Within the Eurozone things remain pretty skewed, though. Greece and Italy are stuck at 0.5% growth, while Germany heads for 2%. Eurozone Skewness is also neatly demonstrated by the German current account balance, which recorded the biggest surplus in history. Shame on the Germans.

[tweet https://twitter.com/jsblokland/status/596571311637438464 width=’500′]

And then there is Brexit. In a stunning default for the ‘polls’ (they were completely off), the Tories sealed a convincing victory. Markets reacted positively, but something of a boomerang effect can’t be ruled out. A referendum on the role of the UK within the European Union could provoke all kinds of Brexit- and Scoxit-related turmoil.

[tweet https://twitter.com/jsblokland/status/596542553912115200 width=’500′]

The US continues to struggle. April nonfarm payrolls rebounded from March, but came in just shy of expectations. The already disappointing number for March, however, was revised down aggressively to just 85K, the lowest since June 2012.

[tweet https://twitter.com/jsblokland/status/596654906431381504 width=’500′]

Let’s move over to China. At the beginning of the week the already impressive gap between economy and stocks markets got even bigger. The HSBC Manufacturing PMI fell below 49, the lowest reading in 12 months. That contrasts with a 120% rise of Chinese stock during the last year.

[tweet https://twitter.com/jsblokland/status/595322062211829761 width=’500′]

But in the second half of the week the seemingly endless rally of Chinese equities showed some weaknesses. The Shanghai Composite Index lost 10% in a matter of days, the biggest drawdown since June 2013.  To be continued…

[tweet https://twitter.com/jsblokland/status/596202484902850561 width=’500′]

Two charts left to round up this Week End Blog. First, how long does it take for GDP per capita to double? Well, it depends. It took the UK 154 years, while Chinese income per head doubled in just twelve years. It’s all relative!

[tweet https://twitter.com/jsblokland/status/596415301035696130 width=’500′]

Finally, a bright spot on energy. Solar power is now a commercially viable source of energy in many countries around the world. Forget about oil, it’s the sun that counts.

[tweet https://twitter.com/jsblokland/status/595490100856922112 width=’500′]

Enjoy your weekend!

One response to “Week End Blog – Brexit and Painful Reversals

  1. Pingback: Beleggingslinks week 19 – Deze week in twee woorden: Obligatie crash! | A3 Beleggen·

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