Swan Lake – June 14

The Global Macro Monitor defines “macro swan” as any global macroeconomic or financial event with the capacity to spill over into world markets causing risk aversion and lower asset prices.  – GMM

The Euro periphery continued to rebound.  The big news in Euro[r was Mario Draghi’s dovish taper.   Clearly, Mr. Draghi is timid and suffering recency bias.

The Governing Council used its June meeting to announce that asset purchases will phased out by the end of December, signaling the euro zone has the economic momentum to put the tool back on the shelf. But it was a pledge to keep interest rates at current record lows “at least through the summer of 2019” that caught investors by surprise, striking down market expectations that borrowing costs might rise as soon as the first half of next year.

…“This was the most dovish normalization I could have expected,” said Karsten Junius, an economist at Bank J Safra Sarasin in Zurich.  – Bloomberg

Merkel  Government

As mentioned yesterday, the Merkel government is under threat by a growing rebellion with her coalition over immigration.

There is a risk that the CSU could break away, or at least trigger a confidence vote in Mrs Merkel’s leadership. In the 709-seat Bundestag (lower house) the CDU has 200 seats and the CSU 46.

The ruling coalition with the Social Democrats (SPD) has 399 seats, but without the CSU that would fall to 353 – less than a majority.  –  BBC

This is a tail risk that the market is utterly oblivious has yet to focus on.  Keep it on your radar.


The Argentine peso got obliterated today.

Some think a sudden stop of capital flows to the emerging markets is underway.  We don’t think so.

There is no way in hell the IMF would cobble together a $50 billion program, it largest stabilization program ever, to watch it pissed away to finance debt rollovers and capital flight.   Listen carefully to the IMF.

That doesn’t mean the volatility and pressure on EM won’t continue.  It will until prices adjust and offer investors a decent  juicy enough risk adjusted return to wade back in.

TOKYO (Reuters) – Japan Post Insurance Co (7181.T), one of the largest Japanese institutional investors, plans to buy emerging market bonds if other investors dump those assets as the U.S. Federal Reserve hikes interest rates, the firm’s senior managing director said.  – Reuters

Stay tuned.

Jun14_Currency Rtns



This entry was posted in Black Swan Watch, Uncategorized and tagged , . Bookmark the permalink.

1 Response to Swan Lake – June 14

  1. Cephalonia25 says:

    Eu can not survive a Germany that goes it a lone…let alone Merkel not surviving a no confidence vote. While all eyes are on Italy, Germany could be the one that sparks the breakdown of the EU.

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