1. Art and Diseño

INSIDE DEBT
PRODUCED BY REUTERS IN PARTNERSHIP WITH ICAP
Friday, December 5, 2014
CHART OF THE DAY
U.S. MARKETS TODAY
U.S. nonfarm payrolls
TODAY’S TOP STORY: U.S. employers added the largest number of
workers in nearly three years in November and wage gains picked up, a
sign of economic strength that could draw the Federal Reserve closer to
raising interest rates. For more please click here
Click on the chart for full-size image
TREASURIES: Treasuries dropped after U.S. employers hired more
workers in November than during any month in nearly three years, boosting expectations for the Federal Reserve to raise interest rates by mid2015.
 Benchmark 10-year notes were down 14/32, yielding 2.31 pct and 5year notes fell 14/32, to yield 1.69 pct.
 30-year bonds were down 6/32, yielding 2.97 pct.
 The 5-30's treasury spreads tightened by 9 bps and the 2-30's treasury
spreads tightened by 9 bps.
U.S. payrolls grew by 321,000 in November, the biggest monthly gain since January 2012.
TODAY’S TOP NEWS
 Bullish U.S. jobs report keeps Fed on track for mid2015 rate hike
 German industry orders surge but Bundesbank cuts
growth forecasts
 China to deepen economic reforms in 2015 - Xinhua
 Household, govt spending keep euro zone economy
growing in Q3
 Germans resist ECB money-printing move, but
Draghi gets key
 UK public reduce expectations of rate rise - BoE
survey
 Canada loses 10,700 jobs in Nov after two months
of big gains
 Greek deputy PM expects initial deal with lenders
by Dec 15
 Europe barely passes global bank rules test
 S&P cuts Italy sovereign rating to BBB-, Just above
junk
ECON WATCH
FOR MONDAY DECEMBER 8
ET
Indicators
04:30 EZ Sentix Index
08:15 CA House Starts, Annual.
10:00 US Employment Trends
Unit Reuters Prior
ind
k
ind
-10.5
195.0
-
-11.9
183.6
123.1
FOREX: The dollar reached fresh multiyear highs after a stronger-thanforecast November U.S. jobs report increased expectations the Federal
Reserve may begin raising interest rates sooner than previously thought.
 The dollar index rose 0.72 pct to 89.344.
 The dollar rose 1.36 pct to 121.41 yen.
 The euro was down 0.72 pct at $1.2288.
 The British pound fell 0.63 pct to $1.5573.
CORPORATES: Corporate bond spreads widened after the robust U.S.
jobs report raised expectations that a rate hike from the Federal Reserve
may materialize sooner than previously thought.
 The CDX-IG.23 index widened by 1 bps to 63 bps.
STOCKS: The Dow and S&P 500 ended at record highs and closed out a
seventh straight weekly advance as a strong jobs report indicated healthy
economic growth, but perhaps to the point where interest rates could rise
sooner than previously anticipated.
 American Eagle Outfitters fell 13.76 pct after the teen apparel retailer
forecast a current-quarter profit below analysts' estimates.
 Delia's, another teen apparel retailer, said it was liquidating assets and
would file for Chapter 11 bankruptcy protection "in the very near term."
Its shares tumbled 83.83 pct.
 Abercrombie & Fitch fell 2.19 pct.
 The Dow rose 58.63 points, or 0.33 pct, to 17,958.73, the S&P 500
gained 3.41 points, or 0.16 pct, to 2,075.33 and the Nasdaq added
11.32 points, or 0.24 pct, to 4,780.76.
 For the week, Dow was up 0.7 pct, S&P 500 rose 0.4 pct, Nasdaq was
down 0.2 pct.
C & E: U.S. crude closed at its lowest since July 2009 as Brent averaged
below $70 a barrel in the week for the first time since 2010, as strong
U.S. employment data did little to lift the oil market's bearish mood.
 U.S. oil fell 1.68 pct to $65.69 per barrel.
 Brent was down 1.29 pct at $68.74 per barrel.
 Gold lost 1.16 pct to $1191.33 an ounce.
 Reuters-Jefferies index fell 0.30 pct to 252.95.
 For EYE ON ASIA click here
 For MARKET SNAPSHOT click here
 For MARKET SNAPSHOT on Asia click here
 For NEXT UP click here
 For EYE ON LATAM click here
 For DEEP DIVE click here
INSIDE DEBT
December 5, 2014
MARKET SNAPSHOT as of 3:20 pm EST
REPURCHASE AGREEMENTS
G/C
MORTGAGE REPOS
O/N
0.190
O/N
0.220
2-Week
0.180
2-Week
0.210
1-Month
0.240
1-Month
0.270
3-Month
0.240
3-Month
0.270
AGENCY REPOS
i-REPOSM INDEX
O/N
0.200
10:00 AM
0.203
2-Week
0.200
3:00 PM
0.196
1-Month
0.250
3-Month
TREASURIES <5> <500>
BID
ASK
1-Mo Bill
0.020
0.015
3-Mo Bill
0.015
0.010
6-Mo Bill
0.080
0.075
1-Year
0.140
0.135
2-Year
99.719 99.727
3-Year
99.430 99.469
5-Year
99.133 99.141
7-Year
98.813 98.828
10-Year 99.453 99.516
30-Year 100.641 100.703
YIELD CHANGE
0.02
-0.005
0.015
-0.002
0.081
0.004
0.142
0.017
0.643
-0.195
1.073
-0.344
1.682
-0.512
2.059
-0.594
2.312
-0.648
2.967
-0.578
IR SWAPS <19901>
SPREAD
2-Year
19.25
23.25
3-Year
18.75
22.75
5-Year
11.00
15.00
7-Year
5.25
9.25
10-Year
9.25
13.25
30-Year
-6.00
-2.00
RATE
0.83
0.86
1.25
1.28
1.79
1.81
2.11
2.12
2.40
2.41
2.91
2.90
EQUITIES
U.S. Interest rate swap—yield curve
O/N
1-Month
3-Month
6-Month
12-Month
BID
-
ASK
0.100
0.150
0.200
0.310
0.170
0.240
0.360
0.430
0.112
0.113
0.264
0.122
0.123
-
0.274
MATURITY
9/27/2017
11/26/2019
9/6/2024
11/15/2030
60.56
0.26
3.37
COMMODITIES
NYMEX
BRENT
SPOT GOLD
PALLADIUM
SILVER
PRICE
CHANGE
65.6
68.7
1190.5
799.7
16.3
-1.2
-0.9
-14.8
5.2
-0.2
EURODOLLAR FUTURES
Dec-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
CLOSE
CHANGE
99.763
99.725
99.330
98.800
98.300
97.895
0.000
-0.015
-0.110
-0.150
-0.155
-0.145
PRICE
120.57
125.23
131.81
CHANGE
0.09
0.16
0.50
CURRENCIES
BID
EBS PRECIOUS METALS
Bid
Ask
SPOT GOLD 1190.61 1191.38
PALLADIUM 1218.99 1226.5
SILVER
16.28
16.32
ACTIVE FANNIE MAE AGENCIES
TERM COUPON
3-Year
1
5-Year
1.75
7-Year
10-Year
2.625
30-Year
6.625
CHANGE
CBOT 5 yr
CBOT 10 yr
CBOT 30 yr
EURODOLLAR DEPOSITS & OIS STRIPS
(ASKED)
ASK
0.130
INDEX
17960.66
4781.72
2075.29
FUTURES
0.250
BID
0.110
DJIA
NASDAQ
S&P 500
FED FUNDS
Open 0.1200
High 0.2300
Low
0.1100
Euro
1.229
Sterling
1.5582
JP Yen
121.4100
Swiss Franc
0.98
Can Dollar
1.1427
Mexico
14.3775
ASK
1.2294
1.5586
121.4400
0.98
1.1432
14.3802
ACTIVE FREDDIE MAC AGENCIES
YIELD-SPREAD
3
0
15
12
31
28
7.5
4.5
YIELD
1.096
1.831
TERM COUPON
3-Year
5-Year
-
7-Year
2.619
3.041
10-Year
30-Year
6.25
MATURITY
12/29/2014
YIELD-SPREAD
-
8/25/2016
-
01/0/1900
-
1/13/2022
7/15/2032
14.5
11.5
Wrightson ICAPSM Chart of the Day
Active MBS 15YR
CPN
FNMA
2.5
FHLMC
2.5
BID
101.2210
101.2060
ASK
101.2250
101.2120
YIELD
2.136
2.147
Active MBS 30YR
CPN
FNMA
2.5
FHLMC
2.5
GNMA
2.5
BID
96.2710
96.2070
98.0060
ASK
96.2750
96.2130
98.0120
YIELD
2.891
2.906
2.747
2
YIELD
3.111
INSIDE DEBT
December 5, 2014
TODAY’S TOP NEWS
Bullish U.S. jobs report keeps Fed on track for mid-2015
rate hike
German industry orders surge but Bundesbank cuts
growth forecasts
U.S. employers added the largest number of workers in nearly
three years in November and wage gains picked up, a sign of
economic strength that could draw the Federal Reserve closer
to raising interest rates.
Nonfarm payrolls surged by 321,000 last month, the most since
January 2012, the Labor Department said. The unemployment
rate held steady at a six-year low of 5.8 percent. A separate
report from the Commerce Department showed exports increased 1.2 percent in October, helping to narrow the trade deficit. Exports to the European Union, China and Japan all increased. Average hourly earnings rose by 9 cents in November,
the largest increase since June of last year. Nevertheless, the
latest gain in earnings left them up just 2.1 percent from a year
ago - in the same tepid range they have been in for the past few
years and well below the 3 percent or more economists say the
Fed would want to see before lifting benchmark interest rates.
Also, the Commerce Department said the trade gap fell 0.4 percent to $43.4 billion. Meanwhile, Mester said the Federal Reserve needs to adjust its policy statement to acknowledge clear
signs of economic strength and, in particular, stop telling the
world that interest rates won't rise for a long while yet.
German industry orders rose far more than forecast in October
and though the Bundesbank dampened the mood by slashing
its growth forecasts for Europe's largest economy, its president
said there were signs current weakness would soon be overcome.
Industrial orders surged by 2.5 percent on the month in October
thanks to strong domestic demand while foreign appetite was
moderate, data from the Economy Ministry showed. That exceeded by far a consensus forecast for a 0.5 percent gain and
overshot the highest estimate for a 1.9 percent increase. But
Germany's Bundesbank halved its 2015 growth forecast for
Germany to 1.0 percent and also cut its estimate for this year to
1.4 percent from a forecast of 1.9 percent made in June. It also
trimmed its prediction for 2016 to 1.6 percent. But economists
were upbeat about the growth outlook after the orders data.
Stefan Kipar, an economist at BayernLB, said the strong rise,
combined with an upwardly revised 1.1 percent increase in industry contracts in September, suggested the economy had
stabilised after a sluggish summer.
Household, govt spending keep euro zone economy growing in Q3
China to deepen economic reforms in 2015 - Xinhua
Rising household demand and steady government spending
kept the euro zone economy growing in the third quarter despite
a further fall in investment and a negative contribution from
trade, data from the European Union's statistics office showed.
Eurostat confirmed its earlier estimate that the economy of the
18 countries sharing the euro expanded 0.2 percent quarter-onquarter for a 0.8 percent year-on-year rise after a 0.1 percent
quarterly growth in the second quarter and 0.3 percent in the
first. Eurostat said that household demand added 0.3 percentage points to the overall quarterly outcome and government
spending added another 0.1 point. Contribution from inventories
was zero. Falling investment took away 0.1 point from the final
result and the rest came off due to the negative contribution
from net trade when compared to the second quarter.
China will pursue prudent monetary policy and pro-active fiscal
policy next year, the ruling Communist Party's elite decisionmaking body was quoted as saying in a reiteration of the government's existing stance.
China will deepen reforms in the world's second-largest economy in 2015 as it tries to boost domestic demand and further
urbanise the country, Xinhua quoted the politburo as saying.
Crucially, the politburo said China must balance the competing
needs of stabilising and reforming its economy, a nod to an ongoing debate about how it can stimulate its sagging economy
without compromising its quest for change. Authorities will pay
close attention to the labour market and work on reducing poverty, the politburo said, repeating the government's stance that
keeping unemployment low is a priority. The world's largest exporter of goods will also balance its import and export of products and investment capital, the Xinhua news agency quoted.
UK public reduce expectations of rate rise - BoE survey
The British public have scaled back their expectations that the
Bank of England will raise interest rates over the next 12
months to the lowest in a year, a survey by the central bank
showed.
The change in public expectations mirrors a shift in sentiment
among professional economists as the outlook for growth in
Britain's main euro zone export market has darkened and inflation looks set to fall further below target.
The proportion of Britons expecting rates to increase in the next
year sank to 37 percent in November, its lowest since November 2013, from a three-year high of 49 percent in August. Britons polled in the run-up to Carney's Nov. 12 remarks expected
inflation over the next 12 months to average 2.5 percent, down
from expectations of 2.8 percent in August. This was the lowest
expectation since February 2010. British consumer price inflation in October rose to 1.3 percent after touching a five-year low
of 1.2 percent in September. The longer-running retail price
index, which is used to determine price rises in many British
contracts, held at 2.3 percent. Meanwhile, the monthly survey
from the Recruitment and Employment Confederation tallies
with official data which has shown Britain's rapid pace of job
creation slowing, after a sharp fall in the unemployment rate to
just 6 percent in the three months to September.
Germans resist ECB money-printing move, but Draghi gets
key
European Central Bank policymaker Ewald Nowotny backed
ECB President Mario Draghi on steps to revive the euro zone
economy with new stimulus, while Germany firmly maintained its
opposition to buying sovereign bonds.
The support of Nowotny may prove crucial for Draghi as he
seeks to expand the scale of ECB action next year, most likely
including quantitative easing, the printing money to buy government bonds. Nowotny, who central bank sources say opposed
an ECB decision earlier this year to buy bundled debt known as
asset-back securities, swung in behind the ECB president. "The
goal is for the ECB balance sheet to expand to counter a trend
toward sinking inflation and growth weakness," he added. "How
exactly that will happen will be decided next year. The next
steps are to be decided in the first quarter of next year." Weidmann laid bare the entrenched German opposition to buying
government bonds. Such quantitative easing, although used in
the United States and Japan, might not work in Europe, Weidmann said. "You cannot simply apply the same formula in
Europe that has enjoyed success in the U.S. … or in Japan."
3
INSIDE DEBT
December 5, 2014
TODAY’S TOP NEWS
(continued)
Canada loses 10,700 jobs in Nov after two months of big
gains
Europe barely passes global bank rules test
The European Union only scraped through a test of whether it
complies with global banking rules aimed at making the financial
system safer and avoiding another global markets meltdown.
The United States fared better in complying with bank capital
rules know as Basel III which constitute the world's core regulatory response to the 2007-09 financial crisis that saw undercapitalised lenders being rescued by taxpayers.
Basel said eight of the 14 components of Basel III it studied in
Europe met all minimum provisions and were compliant, while a
further four elements were largely compliant. One element regarding bank exposures to government debt, and to small and
large companies, was "materially non-compliant". This element
is crucial in determining how much capital a bank should be
holding to cover potential losses from defaulting debt. The committee said it recognised that the EU would limit over time the
non-compliant treatment of bank exposures to sovereign debt.
An EU exemption on capital charges for certain exposures to
financial derivatives was also "non-compliant". The United
States was compliant in seven of 13 Basel III elements reviewed, with a further four elements "largely compliant". Two
components, the framework for securitised or pooled debt and
on market risks, were "materially non-compliant".
Canada's job market cooled off in November, shedding 10,700
positions after two consecutive months of big gains, and the
unemployment rate edged up to 6.6 percent from 6.5 percent in
October, Statistics Canada said.
Analysts had expected an increase of 5,000 jobs after 43,100
were created in October and 74,100 in September.
The labor participation rate, which is of particular interest to the
Bank of Canada, stayed at 66.0 percent, the lowest since November 2001. The job figures contrasted with a string of recent
data indicating the Canadian economy is picking up pace.
Meanwhile, Bank of Canada Governor Stephen Poloz told
Reuters that the slide in oil prices will probably cut Canadian
growth by 1/3 of a percentage point in 2015, not the 1/4 point
estimated in late October. Poloz also said household imbalances, in which high household debt is paralleling a hot housing
market - should gradually ease as the economy strengthens,
more people get jobs and therefore income rises faster than
debt. But the household sector remains as vulnerable as before
to an external shock, he added.
Greek deputy PM expects initial deal with lenders by Dec 15
S&P cuts Italy sovereign rating to BBB-, Just above junk
Greece expects to have an initial deal with EU/IMF inspectors
on its delayed bailout review by Dec. 15, the deputy prime minister said.
Athens is trying to wrap up the review so that it can exit its 240
billion-euro bailout by the end of the year, in a bid to boost the
government's popularity before a presidential vote in February
that risks triggering a snap election. But the talks have been
held up by a row over a budget shortfall next year, and the socalled troika of EU/ECB/IMF inspectors did not return last month
as expected. Euro zone ministers are considering extending the
bailout to mid-2015 because of the delays, according to a document seen by Reuters, but Athens says it was only willing to
consider an extension of a few weeks.
Standard & Poors cut Italy's sovereign credit rating from BBB to
BBB-, just one notch above junk, citing the country's weak
growth and poor competitiveness which undermine the sustainability of its huge public debt.
Meanwhile, Bank of Italy Governor Ignazio Visco said that the
country would likely see more consumer price declines in coming months, which could create a deflationary situation that can
have "very serious consequences" for high-debt countries like
Italy.
Also, Italian economy minister Pier Carlo Padoan said that Italy,
the euro zone's third-biggest economy, would see its debt pile
begin to decline in 2016.
NEXT UP
China Nov data to show economy still cooling, add to
stimulus expectations
Japan's economy likely shrank less than expected in Q3
Japan's economy likely shrank less than initially estimated in the
third quarter thanks to an increase in capital expenditure, underscoring views that the country only slipped into a shallow recession.
The economy probably shrank an annualized 0.5 percent in July
-September, compared with a preliminary reading of a 1.6 percent contraction, according to a Reuters survey of 24 economists. Capital expenditure is seen to have risen 0.8 percent for
the quarter from a preliminary 0.2 percent fall, the poll showed.
The current account balance is expected to show a surplus of
366.3 billion yen in October. The nation's leading indicator of
capital spending on Thursday, is expected to fall in October for
the first time in five months. Core machinery orders likely fell 2.4
percent in October from the previous month, the survey
showed. Compared with a year ago, core orders likely declined
0.3 percent in October, the survey showed, after a 7.3 percent
rise the previous month. The Cabinet Office will release the data
on Dec. 11. The nation's wholesale prices, due on Wednesday,
are expected to have risen 2.7 in percent in the year to November, according to the survey.
A deluge of China data over the coming week is likely to show a
persistent cooldown in the world's second-largest economy,
adding pressure on authorities to ramp up stimulus measures
after unexpectedly cutting interest rates last month.
Fixed-asset investment likely grew at its slowest pace in nearly
13 years between January and November, rising 15.7 percent in
that period from a year ago, a Reuters poll of 18 economists
showed.
Export growth also likely cooled to 8.1 percent, from 11.6 percent in October, though investors may place less stock in the
shipment numbers as there have been doubts about the accuracy of the official readings in recent months.
Producer deflation was expected to have persisted for the 33rd
consecutive month in November, with the producer price index
seen falling 2.4 percent, sapping corporate confidence and making companies more reluctant to invest.
Factory output growth likely slowed to 7.5 percent, from October's 7.7 percent. Retail sales were seen growing 11.5 percent
in November from a year earlier, flat with October.
4
INSIDE DEBT
December 5, 2014
EYE ON ASIA
POLL & PREVIEW
EVENTS
Indonesia c.bank expects slower loan growth this year,
pick-up in 2015
December 7
JAPAN
 GDP rev QQ annualised for Q3: Expected -0.5 pct Prior -1.6
pct
Indonesia is expected to have its slowest loan growth since
2010 this year due tight liquidity at banks, a central bank senior
official told Reuters.
Juda Agung, the executive director of Bank Indonesia's economic and monetary policy department, estimated 2014 loan
growth at 11-12 percent, or just over half of last year's pace of
21.4 percent. Earlier, monetary authorities believed that this
year's loan growth would be close to 15 percent.
Agung said loan growth should pick up next year to 15-17 percent because of better economic conditions.
Agung also forecast that Indonesia's full-year current account
deficit will narrow to 2.9 percent of gross domestic product from
3.3 percent of GDP in 2013. The fourth quarter's current account gap is predicted to be 2.3 percent of GDP, Agung added,
compared with 3.07 percent in the third quarter.
Separately, Finance Minister Bambang Brodjonegorosaid
spending on fuel subsidies might only be half the current budget
figure for 2015, if the economy introduces a fixed subsidy
mechanism next year.
December 8
CHINA
 Trade balance for Nov: Expected 43.50 bln Prior 45.41 bln
POLL & PREVIEW
(continued)
Philippine c.bank says sees continued manageable inflation
The Philippine central bank is monitoring the possible impact of
a super typhoon set to hit central provinces, although it still expects inflation to remain manageable due to lower oil prices
globally and a firmer peso, its governor said.
We will adjust the stance of policy as necessary to respond to
the emerging balance of risks to inflation, Amando Tetangco
said in a mobile phone message sent to reporters after the release of November inflation data.
Philippine annual inflation slowed for the third straight month in
November.
The consumer price index was up 3.7 percent last month, its
slowest rise since November 2013 and lower than the 4.0 percent forecast by economists in a Reuters poll.
Dollar rally to weaken Indian rupee over next year; yuan to
rise
The Indian rupee will fall further against the dollar over coming
months, according to analysts in a Reuters poll who predict a
broad dollar rally based on expectations the Federal Reserve
will raise interest rates later in 2015.
The poll of over 30 currency strategists, conducted this week,
predicted one U.S. dollar will fetch 62.00 rupees in a month,
62.50 rupees in six months and 62.50 in a year against Friday's
rate of around 61.80.
China's yuan is expected to slowly strengthen over the next 12
months trading at 6.12 per dollar in one month, then 6.10 in six
months and 6.05 in a year.
S.Korea sees exports rising 2.8 pct this year to record $575
billion
South Korea's exports are likely to grow 2.8 percent this year to
a record $575 billion, the trade ministry said. Exports grew 2.1
percent last year.
The trade ministry projected South Korea would post a trade
surplus of around $45 billion in 2014, also the largest on record.
MARKET SNAPSHOT as of 3:20 pm EST
GOVERNMENT BOND BENCHMARKS
5-Year
Bid
Yield
Australia
101.058 2.517
Japan
100.571 0.080
China
101.974 3.541
Hong Kong 101.250 1.227
Singapore 100.850 1.441
10-Year
Bid
Yield
97.339 3.079
100.622 0.435
103.629 3.684
100.280 1.819
107.050 2.191
INTEREST RATE SWAPS
5-Year
Bid
Ask
2.87
2.93
AUD
JPY
0.2
0.26
CNY
HKD
1.54
1.62
TWD
-
<SWAPS>
10-Year
Bid
Ask
3.435
3.495
0.555
0.615
3.9
4.1
2.09
2.17
1.575
1.605
INR
KRW
SGD
2.24
1.65
2.28
1.675
6.63
2.4925
2.3
FORWARDS 3 months <FORWARDS>
ASIA FUTURES
6.93
2.5325
2.335
Close
Change
Bid
Ask
SGX Nikkei 225
18080.00
160.00
JPY
-14.02
-13.82
SGX MSCI Taiwan
342.50
9680.00
374.00
0.90
115.00
0.80
AUD
NZD
HKD
-53.77
-68.41
4
-53.27
-68.01
7
8597.00
473.87
22.00
-1.12
SGD
THB
9
12.8
11
13.2
SGX FTSE China
SGX MSCI Singapore
SGX CNX Nifty
SGX AC ASIA P xJP
DEPOSITS 3 months
<DEPOS>
Bid
-0.05
4.5
2.75
3.7
0.25
0.3125
JPY
CNY
AUD
NZD
HKD
SGD
5
NDF’s 3 months
Bid
<NDFS>
Ask
CNY
0.0256
0.0276
TWD
KRW
INR
-0.074
1117.7
63.185
-0.059
1118.9
63.255
MYR
3.3088
3.3118
PHP
IDR
44.635
12430
44.675
12460
INSIDE DEBT
December 5, 2014
EYE ON LATAM
LATAM TOP STORIES
LATAM MARKETS TODAY
Brazil's annual inflation eases, but remains above target
TREASURIES
Mexican 30-Year
Annual inflation in Brazil eased slightly in November but remained above the ceiling of the official target, adding pressure
on the central bank to keep raising interest rates to battle high
prices.
Consumer prices, as measured by the IPCA index, rose 6.56
percent in the 12 months through November, easing from 6.59
percent in October, government data showed. The number
came in below the median estimate of 6.59 percent in a Reuters
poll.
On a monthly basis, consumer prices rose 0.51 percent in November, compared with 0.42 percent in October.
A pick up in food prices and personal expenses were the main
drivers of the monthly inflation increase in November, government data showed.
High government spending and a tight labor market are threatening to push annual inflation this year above the 6.5 percent
ceiling of the official government target for the first time in over a
decade.
Mexican10-Year
6.02
-28 /32
Brazilian10-Year
12.11
-100 /32
Brazilian 5-Year
12.31
23 /32
Chilean 10-Year
0.32
-3 /32
Colombian 10-Year
6.82
-28 /32
Argentine 2-Year
9.16
16 /32
Venezuela 5-Year
22.56
20 /32
Venezuela PDVSA 30 year
15.12
-6 /36
Venezuela PDVSA 20 year
17.60
-10 /35
Holding rate, Mexico cenbank eyes inflation risk from weak
peso
Mexico's central bank held borrowing costs steady but said a
slump in the peso could add to inflation pressures, and noted
that growing social unrest in economy may crimp growth.
The central bank left its main interest rate at a record low of
3.00 percent, as expected by 19 of 20 analysts polled by
Reuters last week. Mexico's peso slumped to a fresh 2-12 year
low against the dollar. The Mexican currency has been hammered as global oil prices have dropped.
Mexico's annual inflation rate eased in early November to 4.16
percent but it is still above the central bank's 4 percent tolerance ceiling. Policymakers said the rate should fall to around 3
percent by the middle of next year. The central bank also
pointed to increasing risks to growth due to slowing economies
around the world and political protests in Mexico.
The peso exchange rate needed to be monitored "with a lot of
caution," central bank governor Agustin Carstens said on the
sidelines of an event in Santiago, Chile.
Yield
6.93
Price
-38 /32
EQUITY
MSCI Latin American Index
Close
2859.02
Pct Change
0.17
Brazil's Bovespa Index
51992.89
1.1
Mexico's IPC Index
43230.34
0.97
Chile's IPSA Index
3968.12
0.67
Fallabella
4300.00
3.13
Banco do Brasil
27.23
2.21
Brasil Foods
62.90
-0.79
Alfa
35.85
0.08
CURRENCIES
Last
Pct Change
Brazilian Real
2.5892
-0.06
Mexican Peso
14.3905
1.67
612.3
0.47
Columbian Peso
2318.23
1.74
Peru Sol
2.9555
0.32
Chile Peso
LATAM TOP STORIES
(continued)
Mexico must monitor inflation risks closely cenbank board
member
Mexico must carefully watch upside risks to inflation, which include prolonged currency weakness, Mexican central bank
board member Manuel Sanchez said.
Sanchez, deputy governor of the Bank of Mexico, made his
comments in a speech published by the central bank after it
said it had held its benchmark rate at 3.00 percent.
Upside inflation risks should be carefully monitored. One may
come from substantial hikes in minimum wages. Others are a
prolonged weaker currency due in part to financial market
stress, and renewed pressures from noncore inflation, he said.
Peru central bank head sees room for looser monetary policy
Peru has room in coming months for a looser monetary policy,
central bank Governor Julio Velarde told Reuters.
We don't want to get ahead of ourselves, but I'd say there is a
margin in coming months for more flexibility on monetary policy,
Velarde said on the sidelines of an IMF regional conference in
Chilean capital Santiago.
The Peruvian central bank held the benchmark interest rate
unchanged at 3.50 percent for the second month straight in
November, but reiterated its view that economic growth is below
potential.
Velarde added that there could be a light adjustment to current
2015 growth estimates of 5.5 percent. Velarde also said inflation
in Peru in December would be lower than the 0.17 percent reading from a year earlier.
6
INSIDE DEBT
December 5, 2014
DEEP DIVE Commentary and Analysis
ECB moving half the distance to QE but never arriving
wrote in a note to clients.
There is no doubting it QE picks winners. Some people or entities benefit more by it, depending on how QE is structured and
what is bought.
The irony is that these concerns about the constitutionality of
the ECB effectively financing member states by buying their
bonds makes the case for other assets stronger. As a result the
ECB seems slightly more likely to buy corporate bonds rather
than sovereign ones, or perhaps slightly more likely to increase
the proportion of corporate bonds to sovereigns if they do both.
Thus the ECB will pick winners with more granularity. Large
companies, which are more likely to have access to capital markets, will benefit more. Those concerns should rightly be secondary given the dire conditions within the euro zone economy.
The broader question is whether all of this will be enough to
make a substantial difference. There simply isn’t enough ABS
and corporate debt to have a huge impact if the ECB is going to
present the QE effort as a portfolio including sovereign debt but
not dominated by it.
This makes the case for reform, which Draghi constantly
stresses, and, frankly, for the kind of fiscal stimulus we shouldn’t expect.
As fiscal stimulus won’t arrive in more than symbolic amounts,
and as reforms will take their time in happening and being felt,
the delay in buying up sovereign bonds is a major ongoing mistake.
By James Saft
A liquidity trap and a realistic threat of both recession and deflation if the euro zone were any other major economy, official
buying of government bonds would have started some time ago.
And yet, while Mario Draghi seemingly moves half the distance
to outright quantitative easing with every European Central
Bank meeting and major speech, somehow he, and the euro
zone, never quite arrive.
Draghi took pains on Thursday to both justify quantitative easing
and give observers reason to believe it was coming. Not only
did the ECB upgrade to “intends” to expand its balance sheet to
3 trillion euros, as against its earlier “expecting” this would happen, but it slashed forecasts for growth and inflation.
“Early next year the governing council will reassess the monetary stimulus achieved and the outlook for price developments,”
Draghi said at the post-announcement news conference. “We
will also evaluate oil price developments.”
Despite widely reported German objections to QE, Draghi went
on to imply that it would happen anyway.
Do we need to have unanimity to proceed on QE or can we
have a majority I think we don't need unanimity, he said.
Despite justifiable uncertainty about how well QE works and
with what side-effects, a look at the revised forecasts, and a
consideration of the paucity of other alternatives, makes the
case clear. The ECB now sees inflation of just 0.7 percent next
year, about a third of its 2.0 percent target. Growth is now forecast at 1 percent in 2015, down a chunky 0.6 percentage point
from earlier projections.
And while cheaper energy will help growth, those dangerously
low inflation forecasts were made when oil was about 20 percent more expensive, implying that they are substantially too
high still. There is a genuine risk that the euro zone sees outright deflation at some point in the next year.
But still the announcement of a QE program will wait at least
until January and very likely until March, giving Draghi time not
only to consider new data but also to overcome objections that it
constitutes direct financing of member states and is thus a violation of its mandate. The ECB’s January meeting will also fall
after the European Court of Justice's advocate general issues
an opinion on the Outright Monetary Transactions program of
secondary market bond purchases. This may give some parameters within which Draghi will wish to keep.
(James Saft is a Reuters columnist. The opinions expressed
are his own. At the time of publication he did not own any direct
investments in securities mentioned in this article. He may be
an owner indirectly as an investor in a fund.)
Big Abe win will rekindle hope in Japan reforms
By Andy Mukherjee
Shinzo Abe could be heading for a landslide election win. A big
victory for the Japanese prime minister would revive investor
confidence in Japan's economic reforms and help shore up his
anti-deflation campaign.
According to most recent projections by Japanese media, Abe's
Liberal Democratic Party (LDP) could garner 300 or more of the
475 seats in parliament's lower house in the Dec. 14 poll. Including the smaller Komeito party would almost certainly take
the ruling alliance above the 317-seat threshold it needs for a
super majority with veto powers over the upper house.
A convincing win for Abe would be something of a surprise. The
prime minister was forced to call the snap poll barely two years
into his term after an April increase in Japan's sales tax tipped
the economy into a recession. Abe's own popularity was slipping before he delayed a planned second increase in the tax by
18 months and sought a fresh mandate.
A resounding re-election would weaken internal challenges to
Abe's leadership from within the LDP. That in turn would give
him wiggle room to push through unpopular reforms. Among
other things, he needs substantial political capital to dismantle
high tariff barriers on rice, wheat, beef, pork, dairy and sugar products the powerful domestic farm lobby considers to be
highly sensitive.
STRUCTURE AND CULTURE
The reasons for delay are structural and cultural, which is to say
they have the same cause. The euro, by design, is an uneasy
and conflicted union and the power at its heart, Germany, is
simply not comfortable with the ways in which it has tied itself to
the others.
An unintended side effect of German opposition to buying up
sovereign debt is that it may nudge the ECB towards even more
unconventional steps.
“Put differently, the opposition to the purchases of relatively safe
sovereign bonds forces the ECB to purchase much more unconventional assets such as ABS and potentially corporate
bonds,” Christian Schulz, senior economist at Berenberg Bank,
7
INSIDE DEBT
December 5, 2014
DEEP DIVE Commentary and Analysis
(continued)
Concessions on agriculture are crucial for the success of the 12
-country Trans-Pacific Partnership trade pact. Not only will the
TPP make Japan's own agriculture more competitive, it will also
gain the country's manufacturing exports a bigger share in world
markets. Only then will the helpfully low yen persuade investors
– both domestic and foreign – to build new factories in Japan.
New investment would create jobs, boost wages and make a
permanent end to deflation possible. Higher tax revenue could
also bring the government closer to the daunting goal of eliminating its primary budget deficit by 2020.
Voters might choose LDP for a more prosaic reason the opposition doesn't offer a credible alternative. Nevertheless, as long
as Abe interprets the victory as a go-ahead for tough reforms,
investors, who have pushed the TOPIX stock market index to a
seven-year high, will have their renewed faith in Abenomics
confirmed.
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
INSIDE DEBT is produced by Reuters in partnership with ICAP.
Edited and compiled by Prithvikanti Bandopadhyay and Shashwat Sharma in
Bangalore.
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