The Citi Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that data releases have been stronger than expected and a negative reading means that data releases have been worse than expected.
Unfortunately for the USA, it has a negative economic surprise measure, followed closely by the Eurozone (also negative). The “leader” in the Economic Surprise Derby is … Emerging Markets. ALSO negative.
As a sign of meh economic growth, market implied policy rates are 2.38% for the USA, -0.40% for the Eurozone and -0.06% for Japan.
The expected Fed Funds target rates are trending downwards.
Eurozone expected target rates are negative.
Even Australia is downward trending. Like an overcooked shrimp on the barby.
True, the lofty expectations for the US economy are not being met.
It’s the same all over the world.
The US Treasury actives curve and dollar swaps curves are markedly sagged (or kinked).
But other countries are experiencing curve sags as well, but just not as pronounced. Germany, Japan, UK and France are all sagging, but less notably.
Numerous risks abound in the global economy such as Brexit, China trade disagreement, etc.
On the other hand, there is Venezuela which has entered a seemingly permanent sag.
And the SAG award goes to … the USA for short-term SAG.
The permanent SAG award goes to …. Nicolas Maduro and Venezuela.
This week, Turkey further roiled markets by preventing foreign banks from accessing the liras they need to close out their swap positions. That’s made it almost impossible for bankers to short the lira or exit carry trades, and forced the overnight lira rate up to about 1,000 percent from 23 percent.
And the USDTRY overnight forward implied yield has risen to 861.
The volatility surface for the USDTRY is showing an unusual shape.
Turkey’s USD Sr Credit Default has blown out to 473 at 10 years while their 2-year Lira swap rate is 29.
From Zero Hedge: Just days after Turkish president Erdogan vowed to crackdown on currency speculators and launched a probe against JPMorgan for its Friday reco to short the country’s currency to 5.90 vs the dollar, on Tuesday Turkish authorities took their vendetta against short sellers to never before seen levels, when taking a page of the Chinese currency manipulation playbook, they made it virtually impossible for foreign investors to short the lira.
Turkey will not be mating with US banks like JP Morgan Chase in the near future.