Thoughts on Greek bonds, Asian data and resource gamesmanship

The Greek bond deal that in February I predicted would come to market was deemed a rousing success by the market. Initially Greece had planned a 2 billion euro offering for 5-year money. But there was heavy interest and Greece’s underwriters got bids for 20 billion euros, allowing Greece to increase the deal size to 3 billion. The deal came in at a coupon 4.95%.

Now let’s remember that this is an economy which has shrunk by 25% over the past 6 years, putting government debt to GDP at 176% when it would be around Portuguese and Italian levels at 130% were the economy the same size as in 2008. Restructuring will happen in Greece down the line. But right now, periphery bonds are in heavy convergence and Greece continues to be the best performer.

In China, the big economic data point was the trade data. China’s trade surplus for March – at $7.7 billion – was larger than consensus estimates of $1.8 billion. This is due to declines in imports of -11.3% that exceeded declines in exports of 6.6%. Put another way, trade flows into and out of China are lower. And this has to be worrying regarding aggregate demand. But the Wall Street Journal reports that the crackdown on fraudulent overinvoicing to conceal capital flows and get around capital controls, which exaggerated exports to Taiwan and Hong Kong in particular, appears to be taking a toll on y-o-y comparisons. Let’s see where the data head. Irrespective, Q1 is going to be weak in China.

Elsewhere in Asia, the Wall Street Journal has a piece out saying that the Japanese are scrambling to get more jets because tensions in Asia have been rising. China is the most aggressive country here because it is trying to lay claim to a bunch of territories in the Sea of China where oil deposits are likely. The US has warned China not to use force in its maritime disputes. But the worry is there. Reuters reported yesterday that tensions between China and the United States were high as Defense Secretary Chuck Hagel was in Beijing answering questions about the US position on the territorial disputes with regional U.S. allies like Japan and the Phillipines. Chinese Defense Minister Chang Wanquan, who was standing side-by-side with Hagel, actually called on the US to restrain Japan and chided the Philippines. Where this is headed is anyone’s guess.

Russia’s Gazprom Neft is saying that it has buyers in Asia lined up to pay for natural gas in euros instead of dollars as a weapon to use if the US imposes more harsh sanctions. The oil and natural gas card is two-fold. Not only can the Russians divert their supply away from Europe but they can also hurt the US by re-denominating contracts in euros instead of dollars in order to weaken the US’s ‘exorbitant privilege’. Jim Rickards, for one, believes that the BRICS countries are keen to lessen the power of the US within international bodies like the IMF and the reserve currency card is one way. Rumours abound that Saudi Arabia is also moving away from the US because the US has not been successful in providing adequate regional security. And here again the oil in dollars card is a weapon.

I’m late to this, but on the natural resources front, Izabella Kaminska had an interesting note out at FT Alphaville on the wall of crude coming out of the US because of shale oil drilling. What I found most interesting in her analysis was that the loser here was likely to be Africa rather than the Middle East because as US net imports of oil have declined, crude imports from Africa are the ones that are seeing a net decline vis-a-vis the US. Latam, Canada and the Middle East import levels are holding steady. SHe says “This makes sense because African crudes such as Nigerian Bonny Light tend to be light sweet varieties which compete with both Brent and WTI.”

That’s all I have for now. A lot more in the links post