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Key News

  • Britain’s economy emerged from an 18-month recession at the end of last year in better shape than previously thought, although analysts still anticipate a treacherous path to sustainable growth. (Reuters)
  • Nice reaction today in the British pound (GBPUSD):

  • Uncomfortable [unanswered] questions from Wolfgang Münchau’s editorial in the
  • Financial Times yesterday:

    • Is the Greek austerity plan realistic?
    • Will Greece be able to pull through?
    • What happens if Portugal gets into difficulty?
    • What about Spain?
    • What about Italy?
    • Is there an agenda to deal with current account imbalances?
    • Will Germany ever accept responsibility for the cohesion of the eurozone, other than expecting others to converge with Germany?

    Greek/German 10-year Yield Spread: Edging higher again…

    Portugal/German 10-year Yield Spread: Only 1.2% higher than Germany? Hmmm…

  • Japan’s industrial production fell in February and the unemployment rate held at the lowest level since March 2009. (Bloomberg)
  • Let’s see: Twenty-years of Keynesian pump priming in Japan; cost—several trillion Japanese yen; mired deep in deflation with anemic industrial production—priceless!

    Japanese Consumer Price Index:

    Can you say carry trade? Rumor has it the Bank of Japan may cut again—incredibly!

    US (black) vs. Japan (red) Yield Curve Comparison:


“The Nixon shock holds lessons for China as well as Mr Obama. Like China today, Germany in the 1960s disavowed any responsibility for the world’s imbalances, insisting that the solution lay with tighter policies in deficit countries rather than looser policies in surplus countries. (Germany is still singing a version of that song.) But by holding fast to the dollar, Germany ended up importing America’s laxity. It could not insulate itself from the loose monetary policy engineered to help Nixon win the 1972 election. German prices rose by over 5% in 1971. China, too, risks a loss of macroeconomic control if it continues to peg to the dollar. Its money supply grew by about 35% in the year to February. That kind of surge may be a precursor to inflation.”

                           The Economist