The Daily Shot - 12/23/14
- From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
- To: <thedailyshot@xxxxxxxxxxxxx>
- Date: Wed, 24 Dec 2014 02:45:05 -0500
The Daily Shot™
Greetings,
We start with Russia, where the ruble has rallied almost 30% against the euro
from the lows reached on December 15th.
The reason for the rally is the imposition of “informal” capital controls.
Exporters who previously converted assets to hard currency in order to preserve
cash were forced to sell their dollars and euros back into rubles.
Reuters: - The government set limits on net foreign exchange assets for
state-owned exporters, while officials and banking sources said the central
bank had installed supervisors at the currency trading desks of top state banks.
I was told that with the government all of a sudden watching closely who
exactly is selling the ruble, companies and HNW individuals became concerned
about “getting that less than friendly phone call” from government officials.
That was enough of a threat for many to stop selling. While the measures have
been effective in halting the panic, it’s not at all clear if the ruble’s
current stability is sustainable. The authorities may yet be forced to impose
“official” currency controls.
_____
In the Eurozone, here is the latest impact of the ECBs TLTRO (as well as ABS
and covered bond buying) program on the central bank’s (Eurosystem) balance
sheet. Back to the drawing board? Draghi will be using this chart to argue for
the implementation of QE.
Source: ECB
Spanish 10-yr bond yields hit another low as the market prices in securities
buying by the central bank.
Source: Investing.com
This, combined with stronger than expected GDP revision in the US and renewed
political uncertainty in Greece, has sent the euro to the lows we haven’t seen
since the Eurozone crisis.
Source: Investing.com
And the Greek situation is indeed looking ugly once again.
The NY Times: - The Greek Parliament failed on Tuesday to elect a new president
in the second of three rounds of voting that will either enable the coalition
government of Prime Minister Antonis Samaras to remain in power or lead to a
general election and new political and financial upheaval.
_____
In the United States, the strong GDP revision has pushed up the 2-year treasury
yield to early 2011 levels.
And the US dollar index is grinding higher as well – all the way to early 2006
levels.
Source: barchart
Both of these trends could further reignite what we used to call “taper
tantrum”, as emerging markets come under further pressure.
_____
In other US economy news, here are some observations on the housing market:
1. US house price appreciation seems to have leveled off below 5% per year.
This is still way above wage growth and is likely unsustainable. And with the
stronger dollar, US housing will look less attractive to foreigners.
2. New one-family home sales remain extraordinarily low compared to recent
decades.
3. Home prices in Texas reach record levels. Just as the Canadian situation I
discussed a couple of days back, this market is now highly vulnerable.
Source: @NickatFP, @DallasFed
_____
Average price of a gallon of gasoline in the US declined to $2.4, the lowest
since May 2009.
Source: @stlouisfed
Some analysts are suggesting that lower fuel prices have jumpstarted confidence
improvements among lower income households in the US. Consumer confidence in
that group has been lagging significantly until now.
Source: @georgepearkes, @TheStalwart
_____
Staying with the theme of falling energy prices, US natural gas futures have
declined sharply in recent days as inventories return to normal after a massive
draw last winter.
The relatively mild weather across the US and suppressed oil prices have not
helped either.
Feb-2015 natural gas contract:
Source: barchart
_____
Now some food for thought. Looks like we have a widening wage gap between US
men and women among young college graduates. Ugly.
The next Daily Shot will be out on Sunday the 28th. Enjoy your holidays!
_____
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