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Maybe the ECB Should Consider QE

November 30, 2010
The Federal Reserve's QEII has been widely criticized by politicians, though received somewhat greater support by central bankers. Maybe the ECB should consider it own variant of quantitative easing.
A couple of large investment houses have argued that Europe needs a large fiscal transfer from the wealthy (primarily Germany) to the poor (large…
Maybe the ECB Should Consider QE Maybe the ECB Should Consider QE Reviewed by Marc Chandler on November 30, 2010 Rating: 5
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Consider Selling Dollar-Yen

November 30, 2010
The dollar has surprised many by rallying this month after QEII was announced. The crisis in Europe has overwhelmed other considerations. But the dollar has also rallied against the yen, reaching its highest levels since late Sept yesterday. There are three reasons to expect the dollar to come off against the yen.
First, the higher volatility and …
Consider Selling Dollar-Yen Consider Selling Dollar-Yen Reviewed by Marc Chandler on November 30, 2010 Rating: 5
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Europe's Crisis Deepens

November 30, 2010
There is one major driver in capital markets and it is the the widening crisis in Europe. Month end demand for euros has been more than offset by concern that Europe is experiencing a systemic and existential challenge. Pressure is evident outside of the periphery, which has up until now been the main focus. Spanish, Italian and Belgian bonds are …
Europe's Crisis Deepens Europe's Crisis Deepens Reviewed by Marc Chandler on November 30, 2010 Rating: 5
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In A Disappointing Europe, Sweden Stands Out

November 29, 2010
Europe is engulfed in a financial crisis that is also becoming a political crisis. Sweden stands out as an exception and we affirm our expectation of the krona's out performance in period ahead.
Sweden's economy contracted 5.3% last year but has rebounded smartly this year. Q3 GDP was reportedly earlier today and at 2.1% quarter-over-quart…
In A Disappointing Europe, Sweden Stands Out In A Disappointing Europe, Sweden Stands Out Reviewed by Marc Chandler on November 29, 2010 Rating: 5
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Euro Comes Off Further in Early NY

November 29, 2010
The euro continues to come under pressure and is making new lows in early North American turn over despite talk of interest from an Asian central bank. The euro has slipped below its 200-day moving average (~$1.3130) for the first time since Sept 21. The 50% retracement of the rally from early June through early November index comes in around $1.3…
Euro Comes Off Further in Early NY Euro Comes Off Further in Early NY Reviewed by Marc Chandler on November 29, 2010 Rating: 5
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Market Unconvinced, Euro Tumbles

November 29, 2010
The global capital markets are not impressed with the European efforts to stabilize the situation. The euro continues to struggle to sustain even the most modest of upticks and the relief in the European sovereign bond market is hardly convincing. The 85 bln euro package provided to Ireland is less than meets the eye insofar as 17.5 bln comes from…
Market Unconvinced, Euro Tumbles Market Unconvinced, Euro Tumbles Reviewed by Marc Chandler on November 29, 2010 Rating: 5
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CNBC: Euro Crisis: Solvency vs. Liquidity CNBC: Euro Crisis: Solvency vs. Liquidity Reviewed by magonomics on November 24, 2010 Rating: 5
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American Monetary Association: Making Sense of the Dollar American Monetary Association: Making Sense of the Dollar Reviewed by magonomics on November 24, 2010 Rating: 5
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Dollar Remains Firm

November 23, 2010
The US dollar remains firm as nervousness over the Korean peninsula and the ongoing turmoil in Europe. A number of shots fired between North and South Korea coincide with fresh reports of North Korean progress in its nuclear weapons program and some reports suggesting an earlier transition of power domestically weighed helped lifted the dollar dur…
Dollar Remains Firm Dollar Remains Firm Reviewed by Marc Chandler on November 23, 2010 Rating: 5
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Thumbnail Sketch of Portugal

November 22, 2010
This note is not intended to be comprehensive. The goal is simply to highlight the vulnerabilities of Portugal. Three key issues seem most important to me: debt, external position, productivity.
Portugal's sovereign debt is about 86% of GDP, while high, what is really important is the private sector debt. At almost 240% of GDP, it is among the…
Thumbnail Sketch of Portugal Thumbnail Sketch of Portugal Reviewed by Marc Chandler on November 22, 2010 Rating: 5
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Spain: Mind the Queue

November 22, 2010
The euro has rallied to about $1.3786. This is just beyond my initial target of $1.3770, which corresponds to a simple retracement objective of the euro's slide since the day after QEII was announced and the day before the stronger than expected US jobs report at the start of the month. Since the euro had been recovering since the middle of la…
Spain: Mind the Queue Spain: Mind the Queue Reviewed by Marc Chandler on November 22, 2010 Rating: 5
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Euro Bounces On Irish Request

November 21, 2010
Ireland has apparently request assistance. Details still not know. Conflicting reports on size. Euro trades higher, but I remain suspicious. My target has been $1.3770, with potential of another cent if this is broken Many are arguing that save Ireland and systemic risk addressed. I am less sanguine because I think the market may turn its attentio…
Euro Bounces On Irish Request Euro Bounces On Irish Request Reviewed by Marc Chandler on November 21, 2010 Rating: 5
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Ireland and the US

November 19, 2010
Market participants are rightfully focused on the contagion of Ireland within Europe. However, the depth of US corporate ties to Ireland may surprise many investors. The value-added of majority owned affiliates of US companies account for more than a fifth of Ireland's GDP. This is the greatest share that American affiliates account for in any…
Ireland and the US Ireland and the US Reviewed by Marc Chandler on November 19, 2010 Rating: 5
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Things Must Change to Remain the Same

November 19, 2010
The U.S. dollar declined in September and October as the market priced in the likelihood that the Federal Reserve would resume buying Treasuries. From late August through the actual QEII announcement itself, the dollar declined about 7.6% on the major trade-weighted index and almost 6% against a broader trade-weighted basket. In that same period, …
Things Must Change to Remain the Same Things Must Change to Remain the Same Reviewed by Marc Chandler on November 19, 2010 Rating: 5
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Near-Term Dollar Outlook

November 19, 2010
The US dollar is finishing the week on a soft tone after having seen the post-QEII gains extended at the start of the week. The news stream is light. China did announce a 50 bp increase in reserve requirements and although this created a wobble in the market, the currencies quickly recovered.
Near-Term Dollar Outlook Near-Term Dollar Outlook Reviewed by Marc Chandler on November 19, 2010 Rating: 5
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Has Greece Been Resolved?

November 18, 2010
One might be forgiven for thinking that a 110 bln euro EU/IMF package would suffice for Greece and stabilize the situation as IMF packages typically do over time. However, over the past month 10-year Greek yields have 260 bp and talk of debt restructuring continues to be heard.
The government presented its final 2011 budget today as EC/IMF/ECB off…
Has Greece Been Resolved? Has Greece Been Resolved? Reviewed by Marc Chandler on November 18, 2010 Rating: 5
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Anticipating the Irish Relief Rally

November 18, 2010
Officials from the EU, IMF and ECB are in Dublin today to assess the magnitude of the aid needed and to negotiate the terms. Ireland does have a trump card, though may lack the political will to use it. It was among the first countries to guarantee bank debt. It could find German Chancellor Merkel is right.
Merkel is right in that burden shar…
Anticipating the Irish Relief Rally Anticipating the Irish Relief Rally Reviewed by Marc Chandler on November 18, 2010 Rating: 5
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Spain's Funding Needs Continue

November 17, 2010
While Ireland, Greece, and Portugal do not have to sell any more bonds this year, Spain, on the other hand, has three more bond auctions this year and three more bill auctions. Spain seeks to sell up to 4 bln euros of bonds tomorrow. In December it will hold two bond auctions--Dec 2 and Dec 16. The latter date coincides with an EU Summit.
Spain…
Spain's Funding Needs Continue Spain's Funding Needs Continue Reviewed by Marc Chandler on November 17, 2010 Rating: 5
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EM Currencies: What is Real?

November 17, 2010
China reported higher than expected CPI figures (4.4%) last week and many suspect that the official measure understates actual inflation. There is much concern about the policies that China may implement to contain inflation in addition to traditional monetary policy tools like higher rates and higher reserve requirements. There are some heterodox…
EM Currencies: What is Real? EM Currencies: What is Real? Reviewed by Marc Chandler on November 17, 2010 Rating: 5
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Europe: Unresolved

November 17, 2010
The US dollar is little changed against the major currencies. The foreign currencies are bouncing along the trough. The market is vulnerable to headline news from Europe, but a EU/IMF bailout package does not appear imminent for Ireland and the government appears to be pinning its hopes on bringing the 2011 budget and 4-year plan forward to next w…
Europe: Unresolved Europe: Unresolved Reviewed by Marc Chandler on November 17, 2010 Rating: 5
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TIC Data Shows Americans Not Big Buyers of Foreign Assets

November 16, 2010
There has been a great outcry that the Fed's signalling of QEII last Aug (Bernanke Jackson Hole) triggered large capital outflows from the US, driving the dollar down and overwhelming emerging market countries, forcing them to erect capital controls. The TIC data does not confirm that.
TIC Data Shows Americans Not Big Buyers of Foreign Assets TIC Data Shows Americans Not Big Buyers of Foreign Assets Reviewed by Marc Chandler on November 16, 2010 Rating: 5
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Austria Balks at Greece, EMU Bedeviled by more than Ireland

November 16, 2010
News reports indicate that Austria is refusing to release its 190 mln euro share of the EU bailout for Greece because it has not met its budget commitments. The Fin Min Proell says that after reviewing the latest data, there is "no reason, from Austria's point of view" to allow the December tranche to be paid.
Recall that yesterday E…
Austria Balks at Greece, EMU Bedeviled by more than Ireland Austria Balks at Greece, EMU Bedeviled by more than Ireland Reviewed by Marc Chandler on November 16, 2010 Rating: 5
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Dollar Little Changed, Irish News Still Pending

November 16, 2010
The US dollar is litlte changed against the major currencies, with ther notable exception of sterling, which is slipping below $1.60, depsite the slightly larger than expected rise in the UK CPI and the Australian dollar, which is off more than 0.5% despite RBA minutes that were seen initially as slightly hawkish, keeping the door open to addition…
Dollar Little Changed, Irish News Still Pending Dollar Little Changed, Irish News Still Pending Reviewed by Marc Chandler on November 16, 2010 Rating: 5
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SDR Weighting, Not So Much About USD as JPY

November 16, 2010
A little more than a year ago the PBOC governor proposed a supra-national reserve asset, like the IMF's Special Drawing Rights (SDRs) to supplant the role of the US dollar. While the proposal does not appear to be the basis of recent G20 discussions, the topic continues to capture the imagination of market participants.
Every five years the IMF…
SDR Weighting, Not So Much About USD as JPY SDR Weighting, Not So Much About USD as JPY Reviewed by Marc Chandler on November 16, 2010 Rating: 5
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Asian Currencies Tumbled Monday, What will Tuesday Bring ?

November 15, 2010
Asian currencies sold off on Monday. Foreign investors were sellers of numbers regional equity markets (Indonesia, Philippines, Taiwan and Thailand) and currencies amid heightened fears of additional tightening and/or capital controls. Although China did not appear to overtly tighten policy after the 4.4% CPI was reported last week, many continue …
Asian Currencies Tumbled Monday, What will Tuesday Bring ? Asian Currencies Tumbled Monday, What will Tuesday Bring ? Reviewed by Marc Chandler on November 15, 2010 Rating: 5
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Europe Confirms Increased Sovereign Bond Purchases Last Week

November 15, 2010
The ECB confirmed market talk that it had stepped up if sovereign bond purchases last week as the debt strains reached crisis levels. The European central banks bought 1.074 bln euros vs 711 mln the prior week. This is the most in several months. It is not technically QE because the ECB sterilizes the effect on money supply by draining the same am…
Europe Confirms Increased Sovereign Bond Purchases Last Week Europe Confirms Increased Sovereign Bond Purchases Last Week Reviewed by Marc Chandler on November 15, 2010 Rating: 5
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New Week, Dollar Remains Firm

November 15, 2010
Today is the seventh consecutive session in which the euro has recorded a lower high. It has been making lower lows as well, but that streak is under threat today if North American participants do not extend today's losses through the $1.3575 area. A break of $1.3550 could spur another cent decline in quick order, though a larger barrier is ru…
New Week, Dollar Remains Firm New Week, Dollar Remains Firm Reviewed by Marc Chandler on November 15, 2010 Rating: 5
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Euro Logic

November 11, 2010
I have been warning that a convincing break of $.13650 could signal another quick two cent decline. I think that given the volatility we are best served taking it one ppiece at a time. So, the first move that we should be looking to retrace is the euro's advance form early Sept near $1.2644 and the high was set on Nov 4 near $1.4280. The 38.2%…
Euro Logic Euro Logic Reviewed by Marc Chandler on November 11, 2010 Rating: 5
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CNBC: US Faces Critics on the Buck CNBC: US Faces Critics on the Buck Reviewed by magonomics on November 11, 2010 Rating: 5
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Dollar Flat, Euro Heavy

November 11, 2010
The US dollar is little changed against most of the major foreign currencies and is mostly firmer against the emerging markets. The two main exceptions are the euro, which, while holding above yesterday's lows, continues to struggle to sustain even modest upticks. Although the North American session may be less active on account of the bank ho…
Dollar Flat, Euro Heavy Dollar Flat, Euro Heavy Reviewed by Marc Chandler on November 11, 2010 Rating: 5
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Euro Erosion

November 10, 2010
Irish woes appear to be the main culprit dragging the euro down to its lowest level since Oct 20. A break of the $1.3650-80 area could signal another two cent decline in the coming days.
The flight into German bunds for safety is helping the dollar via the interest rate differential channel.
Euro Erosion Euro Erosion Reviewed by Marc Chandler on November 10, 2010 Rating: 5
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Dollar Mixed, Sterling Stellar

November 10, 2010
The US dollar is mixed today. The euro was sold to $1.3735 which is seen as the lower end of the recent trading range managed to recover in Europe. Sterling has been the outperformer as the Bank of England's quarterly inflation report gave no hope for a resumption of asset purchases any time soon. UK gilts tumbled, but sterling rallied more th…
Dollar Mixed, Sterling Stellar Dollar Mixed, Sterling Stellar Reviewed by Marc Chandler on November 10, 2010 Rating: 5
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Sweden Update

November 09, 2010
The Swedish krona has generally trended higher against the euro since the global financial crisis bottomed toward the end of Q1 2009. The euro recorded its multi-year lows against the krona in late Sept near SEK9.09.
A less aggressive trajectory of rate hikes signaled by the central bank and some disappointing data had encouraged some profit-taking…
Sweden Update Sweden Update Reviewed by Marc Chandler on November 09, 2010 Rating: 5
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Source of Liquidity: Japan and the US

November 09, 2010
Many observers continue to see the US as the main source of capital flowing into the emerging markets, prompting several to impose capital controls of various kinds. The September capital and current account data reported earlier today underscores our difficulty with the popular narrative.
The MOF reported that Japanese investors purchases JPY3.18…
Source of Liquidity: Japan and the US Source of Liquidity: Japan and the US Reviewed by Marc Chandler on November 09, 2010 Rating: 5
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Dollar Pullbacks Shallow

November 09, 2010
The dollar remains mostly firmer and the better tone in recent days continues. It is not just that US rates are rising, but also that German rates are slipping as tensions remain acute in the peripheral despite successful Greek bill auction and better performance in the Irish banking sector today.
The Federal Reserve’s QEII is going to face critic…
Dollar Pullbacks Shallow Dollar Pullbacks Shallow Reviewed by Marc Chandler on November 09, 2010 Rating: 5
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The Dollar: On Script

November 08, 2010
The outcome of the US midterm elections and Federal Reserve Open Market Committee meeting, coupled with the various economic reports, strengthens our base case scenario in which we expect the US dollar to generally trade higher as the 2010 winds down. Many expect the dollar to decline in the wake of the $600 bln Treasury buying program of the Fede…
The Dollar: On Script The Dollar: On Script Reviewed by Marc Chandler on November 08, 2010 Rating: 5
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Dollar Recovery Continues

November 08, 2010
The US dollar is bid. The initial attempt to drive it lower in Asia ran into a wall of buying. Follow through sellling was seen in Europe. Not only as the pressure on the peripheral debt markets, but Germany reported surpising weak industrial output. Industrial production fell 0.8% in Sept while the consensus forecast was for a 0.4%-0.5% rise. On …
Dollar Recovery Continues Dollar Recovery Continues Reviewed by Marc Chandler on November 08, 2010 Rating: 5
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Much Better than Expected Jobs Data, Dollar Bid

November 05, 2010
The US jobs data headline, details and Sept revision were better than expected and although the unemployment rate remains stubbornly high, the take away is net constructive and caps a week in which the US data has generally been better than expected.
The US grew 151k jobs in Oct after a 41k decline in Sept was initially -95k). Private sector emplo…
Much Better than Expected Jobs Data, Dollar Bid Much Better than Expected Jobs Data, Dollar Bid Reviewed by Marc Chandler on November 05, 2010 Rating: 5
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US Jobs and European Woes Vie for Attention

November 05, 2010
The US dollar is generally doing better today, but this seems to be position squaring ahead of the US jobs data. In my work, I have empahsizeed short-term intreest rate differentials between the US and German (2-year notes) that has done a good job of tracking the euro-dollar exchange rate. Today it stands at 57 bp in Germany's favor, the smal…
US Jobs and European Woes Vie for Attention US Jobs and European Woes Vie for Attention Reviewed by Marc Chandler on November 05, 2010 Rating: 5
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Wil Canada's Employment Provide Insight into US Jobs?

November 04, 2010
Tomorrow will be the seventh time this year that Canada reports its monthly employment data 90 minutes before the US releases its report.
In the past six times this year, the deviation of Canada's actual report from consensus identified the direction of the US miss four times. In Jan, Canada and US data were weaker than expected. February was …
Wil Canada's Employment Provide Insight into US Jobs? Wil Canada's Employment Provide Insight into US Jobs? Reviewed by Marc Chandler on November 04, 2010 Rating: 5
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QEII QED

November 04, 2010
The US dollar chopped around in the immediate post-Fed markets. Although weaker the dollar did not break down in Asia (except against the New Zealand dollar on the back of a strong employment report), but it has been sold off hard in Asia.
Risk assets--equities, commodities are in demand and bonds, especially in Europe have been sold off. The Euro…
QEII QED QEII QED Reviewed by Marc Chandler on November 04, 2010 Rating: 5
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Fed's QEII Anti-Climactic

November 03, 2010
The dollar has sold off on the news that the Federal Reserve will buy $600 bln of Treasuries over the next 8 months. It will relax its 35% self-imposed limited per security. This is in additon to the $35 bln per month it anticipated form the mortgage securites maturing. Its economic assessment and inflation assessments appear little changed.
Fed's QEII Anti-Climactic Fed's QEII Anti-Climactic Reviewed by Marc Chandler on November 03, 2010 Rating: 5
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Euro-Dollar Update

November 03, 2010
I identified and continue to track key forces that offer insight into the euro dollar exchange rate.
To monitor the near-term trend, we have used the 5 and 20 day moving averages. They have done a fairly good job of capturing this year's big trend moves with minimal whipsaws. The 5-day average crossed below the 20-day last Thursday for the fir…
Euro-Dollar Update Euro-Dollar Update Reviewed by Marc Chandler on November 03, 2010 Rating: 5
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Will Focus Shift to Europe?

November 03, 2010
With the FOMC looming, the market essentially yawned at the US election results, which gave the Republicans control of the House of Representatives by margin that looks to be at the high end of expectations. The GOP appear to have stopped shy of taking the Senate. An extension of the 2001 and 2003 tax cuts look increasingly likely. The China bill …
Will Focus Shift to Europe? Will Focus Shift to Europe? Reviewed by Marc Chandler on November 03, 2010 Rating: 5
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Chinese Yuan Update

November 02, 2010
There are two devleopments in China to note:
1. The yuan appreciated in the spot market earlier today, after staging a relatively large decline yesterday. At today's best dollar level, the yuan had weakened about 0.85% against the dollar over the past two weeks. It seemed that the yuan spot losses were a function of a) more stable tone in the …
Chinese Yuan Update Chinese Yuan Update Reviewed by Marc Chandler on November 02, 2010 Rating: 5
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The Next 36 Hours

November 02, 2010
The US dollar is trading heavily though within the recent ranges against most of the major currencies ahead of the conclusion of the FOMC meeting which is widely expected to result in a new round of long-term asset purchases.
The thunder today has been stolen by the Reserve Bank of Australia. Last month it defied market expectations by not raising…
The Next 36 Hours The Next 36 Hours Reviewed by Marc Chandler on November 02, 2010 Rating: 5
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Greek Woes

November 01, 2010
Sunday Greek deputy Prime Minister Pangalos told a local paper that in theory debt restructuring should not be completely ruled out, though the deficit would need to be dealt with first. He argued against "demonizing" debt restructuring.
This obviously has antagonized investors. The Greek 10-year yield rose 18 bp today after rising 120 b…
Greek Woes Greek Woes Reviewed by Marc Chandler on November 01, 2010 Rating: 5
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Yen and Japanese Corporate Earnings

November 01, 2010
The strength of the yen is negative for the Japanese economy because it reinforces the deflationary forces and hurts corporate earnings may making exports less competitive. This is fine on a certain level of abstraction, deducing from first economic principles. The problem is in the details.
Three important Japanese companies with large foreign sa…
Yen and Japanese Corporate Earnings Yen and Japanese Corporate Earnings Reviewed by Marc Chandler on November 01, 2010 Rating: 5
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The Big Week Begins

November 01, 2010
The US dollar starts a critical week on the defensive. A new round of long-term asset purchases by the Federal Reserve coupled with a stronger than expected Chinese PMI weighed on the dollar and encouraged purchasing of so-called risk assets. Although the euro has flirted with the $1.40 level, we note it has only managed to close (the North Americ…
The Big Week Begins The Big Week Begins Reviewed by Marc Chandler on November 01, 2010 Rating: 5
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