Bonds In Conversation : LOST

15/08/2013 by

It is an Uneven, UnCorrelated and UnPredictable world out there.

Look at the stock indices year to date. Some up and some down.

DOW JONES INDUS. AVG	18.55%
S&P 500 INDEX	20.18%
NASDAQ COMPOSITE INDEX	23.95%
S&P/TSX COMPOSITE INDEX	2.62%
MEXICO IPC INDEX	-2.95%
BRAZIL IBOVESPA INDEX	-16.50%
Euro Stoxx 50 Pr	8.22%
FTSE 100 INDEX	10.49%
CAC 40 INDEX	13.33%
DAX INDEX	10.21%
IBEX 35 INDEX	7.97%
FTSE MIB INDEX	7.31%
AEX-Index	10.43%
OMX STOCKHOLM 30 INDEX	13.16%
SWISS MARKET INDEX	17.42%
NIKKEI 225	32.30%
HANG SENG INDEX	-0.56%
S&P/ASX 200 INDEX	10.30%
SHANGHAI SE COMPOSITE	-6.78%
KOSPI INDEX	-3.66%
TAIWAN TAIEX INDEX	2.44%
Straits Times Index STI	0.91%
FTSE Bursa Malaysia KLCI	6.59%
STOCK EXCH OF THAI INDEX	4.39%
S&P BSE SENSEX INDEX	-0.40%
JAKARTA COMPOSITE INDEX	8.54%
CBOE SPX VOLATILITY INDX	-42.61%

Fuels

WTI CRUDE FUTURE Sep13	15.94%
BRENT CRUDE FUTR Sep13	4.84%
GASOLINE RBOB FUT Sep13	9.63%
NY Harb ULSD Fut Sep13	2.96%
GAS OIL FUT (ICE) Oct13	2.69%
NATURAL GAS FUTR Sep13	-10.19%

Metals

Platinum Spot $/Oz	-0.19%
Palladium Spot $/Oz	7.48%
LME ALUMINUM 3MO ($)	-8.26%
LME COPPER 3MO ($)	-7.21%
LME 3mth ZINC	-4.75%
LME 3mth NICKEL	-13.40%
LME 3mth LEAD	-5.40%
LME 3mth TIN	-5.89%

Soft Commodities

CORN FUTURE Dec13	-23.43%
WHEAT FUTURE(CBT) Dec13	-21.53%
SOYBEAN FUTURE Nov13	-4.41%
COFFEE ‘C’ FUTURE Dec13	-19.55%
SUGAR #11 (WORLD) Oct13	-13.86%
COTTON NO.2 FUTR Dec13	17.17%

Foreign Exchange

EURUSD	0.85%
USDJPY	13.72%
AUDUSD	-11.63%
NZDUSD	-1.60%
GBPUSD	-3.16%
USDCHF	1.97%
USDSGD	3.88%
USDCNY	-1.93%
USDKRW	4.75%
USDMYR	7.01%
USDTWD	3.06%
USDTHB	2.21%
USDINR	11.87%
USDIDR	8.17%
EURJPY	14.68%
EURAUD	14.08%

Bond Prices

PIGS (Portugal Italy Greece Spain) are UP. The rest are down.

Europe

Banks are not out of the woods yet with the markets choosing to ignore FT headlines that European banks need to shed some 3.2 trillion in assets to comply with Basel III. That number is just plain incomprehensible and the markets are right to gloss over it because “unpredicatable” things could happen to ensure that it does not have to happen and Basel III could be “adapted”. With numbers so big, no one is going try and understand anyway. Not even Jamie Dimon, who is now clear of blame just because he does not know what is going on in his own bank ?

http://www.zerohedge.com/node/477469

Macro Flows

The unpredictability escalates with India announcing yet another new capital control measure and this one the most drastic to date.

“After attempting to curb the import of gold and other precious metals, the latest set of measures from the authorities are targeting the outward flow of foreign currency via resident investment offshore. The measures are as under:

· Reduced the limit for Overseas Direct Investment (ODI) under automatic route for all fresh ODI transactions, from 400% of the net worth of an Indian Party to 100% of its net worth. This reduced limit would also apply to remittances made under the ODI scheme by Indian Companies for setting up unincorporated entities outside India in the energy and natural resources sectors. This reduction in limit, however, would not apply to ODI by Navratna PSUs, ONGC Videsh Limited and Oil India in overseas unincorporated entities and incorporated entities, in the oil sector.

· Reduced the limit for remittances made by Resident Individuals, under the Liberalised Remittance Scheme (LRS Scheme), from USD 200k to USD 75k per financial year. Resident Individuals have, however, now been allowed to set up Joint Venture (JV)/Wholly Owned Subsidiary (WOS) outside India under the ODI route within the revised LRS limit.

· While current restrictions on the use of LRS for prohibited transactions, such as, margin trading and lottery would continue, use of LRS for acquisition of immovable property outside India directly or indirectly will, henceforth, not be allowed.

Source: The Reserve Bank of India; http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=29309“

Taken from Citi FX

And the view is that this is another toothless tiger move which will serve to dent investor confidence rather than have meaningful impact on the currency.

Korea Outflows Too

“Net capital outlows should reach a record high in 2013. Unlike 1997 Asian crisis or 2008 global financial crisis, net capital outflows are now driven mainly by Korean residents, not foreigners.

· In H1 2013, net capital outflows surged to USD31bn, which translates to an annualised record high of USD62bn. If net capital outflows continue at the same pace in H2, they would exceed USD43bn, the current record set in 2008 when the global crisis hit.” Source : Nomura

What is Happening ?

“Momentum in the global economy is shifting to the developed world, away from the emerging economies that had led growth since the financial crisis.

For the first time since mid-2007, the advanced economies, including Japan, the U.S. and Europe, together are contributing more to growth in the $74 trillion global economy than the emerging nations, including China, India and Brazil, according to an estimate by investment firm Bridgewater Associates LP.”

http://online.wsj.com/article/SB10001424127887324769704579006833569484924.html?mod=e2tw

That leaves us LOST ?

So even when Pimco says its ok to buy, I would not count on immediate profits.

http://www.bloomberg.com/news/2013-08-14/pimco-says-now-is-time-to-buy-emerging-market-debt-after-selloff.html

Singapore

The Sembcorp perpetual issue in an otherwise dry spell, coming after returning from a long weekend and a good GDP number that was tempered with a glum outlook.

My feeling is that the market is fast running out of steam (maybe a breather next month when the UOB perpetual matures and investors get their money back). But the reluctance of some banks to push for this investment grade issue is clear that they are distancing themselves from the market and bracing for a potential fall out.

Leaving you with the prices (unverified) and a note that this will be the final Bonds In Conversation posted on this site. Will be making an announcement shortly (fingers crossed).

2012 Issues