Daily Note – The global bazaar


Emerging Markets: Turkey is a great opportunity

United States: Further mixed data but some stabilisation seen

Eurozone: Going short France today

Eurozone: What’s a central banker worth?



Good Morning from chilly and slightly overcast Istanbul.

I am on a large, hulking ferryboat – that type that has been ploughing the Bosphorus for years – heading out to the islands. All around me the day to day rattle of the economy plays itself out, people heading to work, hawkers flogging practically everything and commuters – on what must be the most exotic commute in the world – travelling from two continents, Asia to Europe and back, everyday.

I am leaving Turkey this weekend and there are three things I have learnt.

The first is that this huge country is going to get more important not less important in the years ahead. It is a giant in the region and is highly likely to recover from a sharp fall in GDP and plummeting financial assets this year. I will go long Turkish equities very soon; I just need to find the best way and the best instrument to execute this trade.

The second thing I have learnt is that the roots of secularism are deeper than we think and Turkey will remain a democracy. The Prime Minister of the Republic is in deep trouble but then again, what elected politician isn’t after three terms?  The economy is going through the tail-end of an investment bubble. We’ve seen all this before and normally this phase leads to sharp falls in asset prices because the debt overhang means that  debts taken out in the boom will not be paid.

Third, the current account deficit will need to be closed. This process will have a further negative impact on growth and the currency, but after that adjustment there will be great bargains in equities.

The locals, after ten years of strong growth, haven’t quite come to terms with the fact that the economy is moving into a contractionary phase, but that’s where the opportunity is for me.

Speaking of opportunity, I have decided to go short France today because  the French market has run up dramatically and also the weaknesses in the French economy, evident again today, can’t be masked indefinitely. As the economy weakens, earnings will have to take a hit and stock valuations today will start to look expensive.

Finally, it’s not everyday that you are asked to be the speaker before Ben Bernanke, but that’s what I learnt this morning. I will be on the podium at the wonderful NBAD Global Financial Conference before Ben Bernanke. I will keep you up to date on conversations I will be having there in two weeks’ time

United States: Further mixed data but some stabilisation seen

Latest numbers in the US show more of the same really. The weather is still playing havoc with all the data, rendering much of it meaningless.

Table 1 21 feb

Inflation remains subdued with headline CPI rising in line with . consensus  at +0.1% in January).

Purchasing managers as measured by the preliminary Markit PMI for February rose to 56.7 (vs. consensus 53.6). This was also up from 53.7 in January. In the past, I have found the Markit PMI to be useful in predicting manufacturing trends.

Initial claims for jobless benefits were at 336k in the week ended February 15 (vs. consensus 335k). This is roughly unchanged from the prior week’s 339k.

The fixed income market reacted more to the better PMI data and largely ignored the other data. We have seen a meaningful push higher in yields with our 5 Year note now back above the 1.50% level.

Speaking of my portfolio,I have decided to go short France as French manufacturing managers get pessimistic.

Eurozone: Divergence within the core is the key take away from yesterday’s flash PMI’s

Table 2 21 feb

For the Euro area as a whole, the PMI edged down from 52.9 to 52.7 in February, against expectations of a small increase (Cons: 53.1). The country breakdown shows an improvement in sentiment in Germany and a weakening in France. On the basis of past correlations, a Euro area Composite PMI of 52.7 is consistent with GDP growth of around +0.4%qoq – which is hardly a figure to get excited about.

Figure 1: German & France diverging further

Chart 1 21 feb

I have long talked about the relative weakness in France and finally put some “attack capital” to work by investing in short CAC 40 ETF. This will be spread against our China ETF.

Eurozone: What’s a central banker worth?

Finally for the week, I noted with keen interest that Mr Draghi earned €378,240 in 2013 vs €374,124 in 2012 as the ECB release their annual comings and goings for 2013. The ECB’s executive board salaries were €1.79m in 2013 vs €1.61m in 2012. ( A nice inflation busting 11% increase on the year.) It is reassuring to see how top civil servants everywhere – not only those in Ireland – look after themselves so well.

Portfolio: Pick up in US yields helps my Euro & 5 Year Note Investment

Table 3 21 feb

Download a PDF version of the Daily Note here: 

Global Macro 360-Daily Note-The global bazaar


The statements, opinions and analyses presented in the articles, newsletters, and other materials appearing on this website are provided as general information and for educational purposes. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this website is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. David McWilliams shall not be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

Categories: Daily Note