The Day Today 5 Jan 2015

* Speigel magazine reports that Germany expect the Eurozone could cope with Greece exiting the Euro – which a government source said was ‘unavoidable’ if anti-bailout party SYRIZA win the elections at the end of this month. “The danger of contagion is limited because Portugal and Ireland are considered rehabilitated”
* German officials are quick to backtrack saying they expect Greece to “continue to meet its obligations”
* German Vice-Chancellor and head of the SPD: “The goal of the German government, the European Union and even the government in Athens itself is to keep Greece in the euro zone”
… Expect more of these comments in the run-up to the election, but the fireworks will only really begin when SYRIZA try to push their agenda when in power. Will they take it to the brink? Or rather – will the Germans force them to?

* Syriza lead in opinion polls narrows but they are still ahead of New Democracy, by 3.1 pct pts, down from 3.4

* Syriza leader Tsipras: “Quantitative easing by the ECB with direct purchases of government bonds must include Greece”

* Economists expect ECB QE but are sceptical it will do any good for the Eurozone economy

* Fed Rosengren warns that the current 10yr rate is “not a rate that is going to be sustainable in a completely normalized economy, which does imply the 10-year rate at some point in the normalization process will not be as low as it currently is” and that normalisation may be a “bumpier ride” than in 2004  “just because there needs to be an adjustment at some point along the cycle.”
* Mester: ”even after we raise interest rates for the first time… monetary policy is going to remain very accommodative”. The economy is “on (a) very firm footing” although inflation is “running a bit low”
* Kocherlakota says there is “little evidence” of inflationary bias amongst Fed officials
* Ex-Fed financial stability guy Jeremy Stein warns that “How you manage the communication about a given amount of tightening or change in policy may be more important than the change itself”

* Big UK firms expect to raise investment this by 9%, that’s higher than last year’s 8%, despite the threat of the General Election
* The EU referendum could be brought forward by PM Cameron (remember UKIP’s Farage demanded this as the price for supporting a minority government): “If I think we could do that earlier I would be delighted. The sooner I can deliver on this commitment of a renegotiation and a referendum … the better”

* New parties popping up everywhere: New centre-right party in Ireland causes a headache for the right-wing parties that were already losing support

* Turkey raises banks’ FX reserve requirements, in order to support financial stability

* S Korea may ease banks’ FX Forwards rules, if there are capital outflows

* Jeffrey Gundlach thinks US yields could fall below their previous lows: “commodity prices have fallen back to their lows of 2009, which of course was at the height of the financial crisis. Something is obviously very wrong these days in the global economy”

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