One of our top three 3Q16 Macro Themes is #EuropeImploding.
Takeaway: Here's our take on some of today's top financial stories.
It's time to borrow, says noted Keynsian and NYTimes columnist Paul Krugman.
"... The federal government can borrow at incredibly low interest rates: 10-year, inflation-protected bonds yielded just 0.09 percent on Friday. Put these two facts together — big needs for public investment, and very low interest rates — and it suggests not just that we should be borrowing to invest, but that this investment might well pay for itself even in purely fiscal terms."
Fellow economist Kenneth Rogoff echoed the sentiment on Project Syndicate.
OUR TAKE: Classic Keynsian economics. When all else fails, spend, spend spend...
"Recent economic data show consumers are saving more in Germany and Japan, and in Denmark, Switzerland and Sweden, three non-eurozone countries with negative rates, savings are at their highest since 1995, the year the Organization for Economic Cooperation and Development started collecting data on those countries," the Wall Street Journal reports. Apparently, WSJ continues, negative rate policies (NIRP) have the unintended consequence of undermining confidence in these respective economies.
OUR TAKE: Macro markets have already sniffed out slowing economic growth and NIRP negativity. Year-to-date, Euro Stoxx 600 is -5.8% and the Nikkei is down -11.9%.
Reuters writes, "Oil edged further above $45 a barrel on Tuesday as forecasts for a drop in U.S. inventories and speculation of producer action to prop up prices countered concern about a supply glut." The OPEC oil production "freeze" speculation is ongoing, with Venezuela, Kuwait and Ecuador pushing a production freeze in response to the recent dip in oil prices.
OUR TAKE: As Hedgeye Potomac Senior Energy Analyst Joe McMonigle wrote today, "We believe the sequel to the production freeze will end the same with no agreement in September."
The pound briefly slipped below 1.30 today as Bank of England policy maker Ian McCafferty wrote in The Times newspaper that “more easing is likely to be required” if the U.K. economy continues to slow. McCafferty wrote that the BoE could cut rates to zero or expand QE. The central bank “faces a set of economic circumstances that make assessing the appropriate amount of policy stimulus more difficult,” McCafferty writes. “I prefer to learn as we go, providing some stimulus while using our available ammunition cautiously.”
OUR TAKE: What makes McCafferty so sure additional easing will save the already dormant U.K. economy.
"Companies worldwide are poised to raise more than $100 billion [in corporate bonds] so far this month," Bloomberg reports. That's the most for the period going back to 1999. Meanwhile, reporters for the Wall Street Journal write that, "Companies and government agencies are “calling” bonds at the fastest pace in four years, taking advantage of provisions that let them redeem securities under certain circumstances and save money by reissuing at lower rates."
OUR TAKE: We are the original authors of #LowerForLonger rates, making the claim well over a year ago now. Good call. It's still playing out in real-time.
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Takeaway: We remain bearish on the EUR/USD and reiterate our Q3 Macro theme of #EuropeImploding.
The latest poll indicates that a third Spanish election would do nothing to resolve the political impasse.
Separately, Italy’s high court has approved a constitutional referendum, setting in motion a vote from Italians on whether to strip the Senate of most of its powers in order to streamline legislation. If defeated, PM Renzi has vowed to resign.
Uncertainty breeds contempt and contempt breeds investors heading for the exits, like they have been for the past year (see below). Remember, this says nothing about the slow moving trainwreck that is European economic data. We remain bearish on the EUR/USD and reiterate our Q3 Macro theme of #EuropeImploding.
Editor's Note: The snippet above is from a note Hedgeye CEO Keith McCullough wrote for subscribers this morning. Click here to learn more.
In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses the so-called "gig economy."
Takeaway: Target of Freeze Talk is sentiment not production. Saudi Arabia and Iran will not agree because the September timing is too soon.
Editor's Note: Below is a brief excerpt from an institutional research note written by Senior Energy Analyst Joe McMonigle on the resurfacing of OPEC oil production "freeze" speculation. For more information about our institutional research contact email@example.com.
"We’ve seen this movie before: in response to low oil prices, a few producers propose a production freeze designed to talk up crude prices but has no real impact on fundamentals.
According to recent press reports, Venezuela, Kuwait and Ecuador are again pushing a production freeze in response to the recent dip in oil prices. Since OPEC meets informally at the upcoming International Energy Forum (IEF) in Algeria on September 26-28, some market participants believe the Production Freeze 2 has real legs pushing prices higher on Monday.
However, we believe the sequel to the production freeze will end the same with no agreement in September. We remain highly skeptical that any meaningful agreement will be reached or that it changes the outlook for oil markets.
**For more information about our institutional research contact firstname.lastname@example.org.
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