The VP Research Blog
A blog about financial markets and the VP investing framework
Markets have been jittery in recent days, especially around fears that the simmering embers of the Euro Area debt crisis might be about to reignite. Bond yields in both Spain and Italy have risen this week, while concerns continue to hover about whether a calm...
US coincident activity index turns up in line with leading indicators, more upside ahead
European economies showed further signs of stabilization in January with flash PMIs registering continued strengthening on most fronts (this week will see a number of actual PMI readings). The only noteworthy exception was France where conditions deteriorated further, with the composite reading falling to 42.6 (from 44.7 in December) and hence showing a sharp contraction. At the other end of the scale was Germany, where the composite showed 53.6 (up from 50.3 in December), an evidently positive surge in activity.
As foreseen in recent updates on Spain, the market for SGBs remains calm and spreads across the maturity horizon are tightening. Last week Spanish ten year yields fell below the 5% mark for the first time since March last year, while two year yields are now hugging the 2% threshold. During the week the Spanish debt agency sold 5.8 billion euros worth of bonds at yields which were significantly down over recent levels across all maturities.
With the Fed now targeting unemployment, the market is now understandably even more focused on US labour market releases.
The OECD diffusion index leads our global export index by about 6-9 months, and even if it is turning down into mid-2013, it suggests that better times are ahead for global export activity (upper chart). Indeed, we are now seeing clear signs of a pick-up in global...
Technically global equity markets now look overbought across the board with 14 day RSI readings above 60 for all major stock markets. Many RSIs are above 70. This suggests that over-performing markets such as the Nikkei and the DAX may struggle in the short run....
MACRO AND INVESTMENT THEMES
Events of the last week have once more brought Italy back into the headlines. The decision of former Prime Minister Silvio Berlusconi to deny support to the technocratic government of Mario Monti sent alarm bells ringing in markets across the globe. But the excitement was short lived. Last Thursday Italy sold 3.5 billion euros of a new three-year bond at 2.50 percent, the lowest yield on similar-maturity debt since October 2010 and down from the 2.64 percent paid on 14 November.