Week End Blog – Greece, again!

Holiday over, the Week End Blog returns. In a somewhat desperate attempt not to let Greece dominate this blog, I start with the latest IMF growth forecasts. Again, most forecasts were lowered, emphasizing the fragile character of the global recovery. Especially the massive swing in the growth forecast for Brazil does not bode well. On a more positive note: the GDP forecast for the Eurozone was revised up, a rare move in recent years.

Back to Greece then. The country is seriously running out of time as the economy has clearly reversed. The anticipated budget surplus has evaporated and recent macro numbers are looking grim. Greek unemployment rose unexpectedly and now stands at 26.6%. Out of that percentage more than 70% is unemployed for over a year. The economy will not save Greece, that’s for sure.

And so negotiations with creditors continue. In recent days comments from both sides have become less friendly. And although it was ‘only’ the technical team from the IMF that left Brussel, it would be pretty naive to assume things are going in the right way. Some kind of agreement, just before Greece falls into the abyss is still possible, of course, but other, more messy, scenarios are getting more likely. Meanwhile, Greek banks are falling, again…

Somehow, Eurozone Central Bankers are under the impression that they have to comment on bond market volatility. First, there was Draghi, who ‘honestly’ answered a question at the ECB press conference. This week Bundesbank President Mr. Weidmann also felt obliged to add some words as well. I don’t really know what his intentions were, but if he wanted volatility he got it. German government bonds are all over the place, with the 30-year yield hitting almost 1.80% at one point this week.

Volatility on the 30-year German bond future doubled in just a couple of weeks. Of late, these bonds have become significantly more risky than equities.

Other Eurozone government bonds aren’t doing that well, either. Spreads on peripheral bonds have increased and the graph below shows that, at least for now, bond prices have turned south after a massive multi-year rally. Again, I don’t know what Draghi and his colleagues were thinking when they designed the QE program, but it seems unlikely that this was part of the concept.

This week’s most important macro data came out of the US. Retail Sales rebounded, and it was about time that happened. Bloomberg, perhaps a little over-exited by the better than expected retail sales number, cited that ‘the growth rebound is propelled by the consumer.’ Well, at least the YoY growth in headline retail sales got of its lows. That’s a start.

My last chart of this Week End Blog is on China, where the equity rally vigorously continues. If we take a look at the Shanghai Composite Index over a longer period of time, it becomes clear we have seen this kind of rally before. And that was in 2007. Perhaps, this time will be different.

Thanks for reading the Week End Blog. Enjoy your weekend!



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