ICYMI: Macro-View in 10 Bullet Points

1.  The market is getting ahead of itself with ideas the Fed will soon taper its asset purchases.  

2.  A serious tapering discussion cannot take place until September and even then, depending on the data for early Q3,  the discussion need not lead to immediate action.  Talk of tapering serves Fed's purposes and has seen the markets re-price risk.  

3. It is not just about the real economy;  price pressures are low and, when adjusted for the borrowing associated with corporate share buy-backs, US credit growth is on par with Europe. 

4.  The ECB is very unlikely to cut the deposit rate below zero.  It is like the OMT, where the effectiveness may lie more in the lack of use.   It is part of the forward guidance to remind the market that there are other measures the ECB is prepared to take if necessary.  

5. A refi rate cut is largely irrelevant when key overnight rates are hovering just above zero.  

6. The shift away from austerity in Europe suits most, even Merkel who is maneuvering to outflank her domestic critics ahead of the September election.  However, the subtext may prove more vital in the next phase, and that is the emphasis on structural reforms.  This may be as onerous as the recent austerity measures.  

7. Despite widespread official endorsements, Abenomics has a critical contradiction at its core between ensuring lower rates and trying to boost inflation.  Without resolving this, it cannot, by definition, succeed.  

8. The domestic push for a weaker yen has lessened.  A Thomson Reuters survey found many Japanese businesses are content with current levels.  Some Japanese officials see the stabilization of  the yen as helpful to stabilize the bond market.  At the same time, the comments from the IMF's Lipton suggest the yen has under-shot its longer-term value and seemingly suggesting the deviation is acceptable for the moment, provided structural reforms are implemented.  

9.  To the extent that QE was good for emerging markets, the tapering talk and rise in US interest rates has triggered a dramatic wave of position squaring.  This is clearly evident in the emerging market sovereign bonds.  The dollar has benefited as well as part of a large carry trade is unwound.  

10.  The historic pattern in which EM bonds, as an asset class, trade like high beta-Treasuries:  both in the same direction but more so.  This is also why spreads often show a directional bias.