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It’s about that time of the cycle when emerging market governments borrow low interest USD rather than pay the higher interest rates of their local currency.

Makes no sense at the macro level by often the treasuries of these nations are incented to do this.

This external, USD debt tends to drive the USD down and add to US exports, as it adds to international financial instability.

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2008-06-05 C&I Loans Outstanding 5yrs back

2008-06-05 Commercial Paper Outstanding SA 5yrs back

Seems banks have taken up much of the slack from the commercial paper markets, but at wider spreads.

Bodes well for bank earnings while it lasts, as the real economy manages to chug along, led by exports.

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Medvedev May Seek to Assure Merkel on Russian Energy Supplies

by Lyubov Pronina and Brian Parkin



(Bloomberg) Russian President Dmitry Medvedev may seek to assure Europe of Russia’s reliability as an energy supplier and allay German Chancellor Angela Merkel‘s human- rights concerns in a one-day visit to Berlin today.

Medvedev will meet Merkel and President Horst Kohler and address about 1,000 business executives and lawmakers in his first trip to Western Europe as Russia’s leader.

“Energy will be at the forefront of talks and they won’t be easy,” Yevgeny Volk, a Moscow-based analyst for the Heritage Foundation, a U.S. research group, said in a telephone interview. “Russia wants to increase its energy influence in Europe, while Western countries would like to get more guarantees from Russia that deliveries will not fail.”

Note there is no discussion about price. The euro negotiators want to ensure deliveries with an agreement that is necessarily unenforceable in any case. Russia does have 25,000 nuclear weapons, for example.

Russia, which supplies 25 percent of Europe’s energy, has clashed with Europe over concerns that it abuses its role as Europe’s main energy source to further its political agenda. It opposes further eastward expansion of the North Atlantic Treaty Organization, U.S. plans for a missile-defense shield in Europe and Kosovo’s secession from Serbia.

Looks to me that Russia is in full control, and is using its position to enhance its real terms of trade, something never even mentioned by the Eurozone.

Germany and the European Union have pressed for guarantees that Russia will follow a uniform policy for supplying oil and gas across the bloc, weakening its capacity to wield energy policy as an arm of diplomacy. Russia briefly cut off gas to Ukraine in 2006 in a pricing dispute.

As if quantity ‘guarantees’ would ‘weaken’ anything. Apart from being unenforceable, it all misses the point of price and relative value.

Good luck to the Eurozone!!!

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Highlights:

Scary low rate for the ECB.

Fuel for the hawks, Germany’s unemployment is too low for them as well.

For sure. And there will be discussion of hikes.

The ECB wants this kind of slack, but still not enough for them.

Yes, as they sure aren’t going to cut as Bernanke originally hoped.

They never bit on his bait to start an international race to the bottom with rate cuts/inflation.

The Fed thought the rising euro and the loss of demand to the US, as US exports rose, would cause the ECB to blink and cut rates.

Instead, the falling dollar and ripping US inflation has caused the Fed to start talking about hikes.

In the mainstream paradigm, the ECB was right in not cutting while the Fed is coming under fire for cutting aggressively into a triple negative supply shock, letting inflation expectations start to elevate, and risking a much larger slowdown bringing inflation down from much higher levels.

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• Initial Jobless Claims (Released 8:30 EST)
• Continuing Jobless Claims (Released 8:30 EST)
• Mortgage Delinquencies (Released 10:00 EST)
• Mortgage Delinquencies Survey (Released 10:00 EST)
• ICSC Chain Store Sales YoY (Released 10:15 EST)

Initial Jobless Claims (May 31)

Whoops, no recession here – the ‘better than expected’ trend continues.

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Continuing Claims (May 24)

And these are now coming off as well.

The Great Repricing of Risk -’the worst recession since the Great Depression’- is looking more like a tiny blip for the real economy?

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Mortgage Delinquencies (1Q)

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Mortgage Delinquencies Survey

Lagging indicators that shows how bad it was, probably in Q4 2007.
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ICSC Chain Store Sales YoY (May)

And yet another better than expected number.

The recent numbers are most likely better than Fed forecasters expected as well

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