It was a Bitcoin´s week. Everybody was talking about bitcoins. Last week we had some records concerning bitcoins. First, bitcoin surged to new USD record high when it added 100 % gains only in 7 days. Then it overcame 1000 USD; fact is that on three important exchanges. And it was traded for a while as much as one ounce of gold but then slide down 13 % back on Friday. Is it bubble inside it now? I would say that from the short term point of view, yes. There are not any such strong fundamentals which would stand behind this run and we can await some kind of correction. If history repeats bitcoin could fall to 500 or 300 USD. But who knows? The fact is that in the longer term it has still much greater potential as today’s prices.
Some good news came from EU. The unemployment rate was down of 0.1% and was 12.1% in October 2013. Among the Member States, the lowest unemployment rates were recorded in Austria (4.8%), Germany, (5.2%) and Luxembourg (5.9%). On the opposite side are Greece (27.3% in August 2013) and Spain (26.7%). But what is more stunning is youth unemployment rate (under-25 population). Spain’s youth unemployment rate has reached 57.4% once again very slightly below of Greece which was still at 58%. Italy and Portugal also experienced notable rises at 41.2% and 36.5% respectively. The number for the Euro-area is 24.4%.
European Central Bank Governing Council member Ardo Hansson the head of Estonian central bank said the ECB is ready to cut borrowing costs further and is also prepared to make its deposit rate negative as we were discussing last week. It is a reaction to the low inflation in Euro zone which is close to 0.7 % and according to expectation will be at most 0.8 % in November. The next meeting of the ECB’s Governing Council will be on Dec. 5, when it will also present new projections for growth and inflation. We will see if we see any surprise from the bank.
It seems that there is only one opposition to this policy and the leading personality of it is Jens Weidmann president of Bundesbank who said last week that „Rather than for monetary policy to waltz with fiscal and financial policy, we need to erect walls between banks and sovereigns,“ Weidmann said. „Sovereign bonds should be adequately risk-weighted, and exposure to individual sovereign debt should be capped, as is already the case for private debt.“ But if I should bet on something I would said that Draghi and company will overwhelm this only and dove´s voice.
Yields on Chinese government debt have soared to their highest levels in nearly nine years. It caused rise of borrowing costs broadly, creating obstacles for companies and government agencies looking to tap bond markets. The rise in borrowing costs and shrinking access to credit could have impact on the global economy which rest on the presupposition that China is going to growth. The recent rise in bond yields is because of worsening of funding conditions and growing expectations for a tighter monetary policy of PBOC. Interbank rate was also rose almost to 6 % highest since June 2013 where it was necessary to provide liquidity to the market because of the stress among banking and non-banking entities.
It was a thanksgiving day in US and nothing much has happened due to the typical American holiday. But we have to be aware more about future. If you still think that loans in US are not trouble anymore just be aware of this. As Reuters informed last week an increasing number of loans in US are slowly hitting their 10-year anniversary. This means that borrowers usually must start paying down the principal on the loans as well as the interest they had been paying all along. For a typical consumer, that shift can translate to their monthly payment more than tripling. More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding. Higher delinquency rate coming from this scenario could hardly hit already weak banking sector in US.
Matúš Pošvanc