{"id":27487,"date":"2015-01-15T21:23:34","date_gmt":"2015-01-16T02:23:34","guid":{"rendered":"http:\/\/prefblog.com\/?p=27487"},"modified":"2015-01-15T21:23:34","modified_gmt":"2015-01-16T02:23:34","slug":"january-15-2015","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=27487","title":{"rendered":"January 15, 2015"},"content":{"rendered":"

There’s some disinflationary news from India<\/a>:<\/p>\n

Reserve Bank of India Governor Raghuram Rajan cut interest rates in an unscheduled review to revive growth in Asia\u2019s third-largest economy after inflation eased. Stocks, bonds and the rupee surged.<\/p>\n

Rajan lowered the benchmark repurchase rate to 7.75 percent from 8 percent, he said in a statement today, the first reduction since May 2013. Consumer-price inflation will probably be below the central bank\u2019s target of 6 percent by January 2016, he said.
…<\/b>
Rajan has focused on quelling inflation since taking office in September 2013, and today\u2019s move signals confidence that price pressures will remain under control. It sets India on a different path from Brazil and Russia, which raised rates in December to tame inflation and support their currencies.<\/p><\/blockquote>\n

And here’s a new twist to currency wars<\/a>:<\/p>\n

At 9:30 a.m. today, trading floors across the City of London erupted.<\/p>\n

Outbursts of obscenities and confusion followed the Swiss central bank\u2019s surprise decision to abolish its three-year-old policy of capping the Swiss franc against the euro, according to traders in London\u2019s financial district. The U-turn sent the franc as much as 41 percent up against the euro, the biggest gain on record, a move that one trader estimated may cause billions of dollars of losses for banks and their customers.
…<\/b>
As the franc spiked, investors said they found themselves unable to trade it amid a lack of price quotes.<\/p>\n

\u201cThere was a good hour when euro-swiss was untradeable,\u201d said Chris Morrison, London-based head of strategy at Omni Macro Fund, a hedge fund which oversees $550 million. \u201cClearly there was no liquidity.\u201d<\/p>\n

Forex.com, a currency-trading website, said it halted services briefly \u201cuntil we get confirmation from our liquidity providers that we can get Swissie liquidity.\u201d Dealing resumed at about 10:30 a.m. London time.
…<\/b>
Anthony Peters, a broker at Swiss Investment Corp., said firms that were selling options tied to the Swiss franc may be among today\u2019s losers. They would have lost money as volatility surged.<\/p>\n

\u201cSelling puts or vol on the franc was deemed to be SNB guaranteed money for old rope,\u201d he wrote in a note to clients today. \u201cThere will be some very red faces around as it begins to transpire who should not have been playing that game.\u201d<\/p><\/blockquote>\n

Sometimes we have to leave Never-Never Land<\/a>:<\/p>\n

\u201cThe decision has been a surprise for markets — you can\u2019t do it in any other way,\u201d SNB President Jordan told reporters in Zurich today. \u201cWe came to conclusion that it\u2019s not a sustainable policy.\u201d<\/p>\n

The change comes just one week before ECB policy makers meet to discuss new stimulus, including quantitative easing, a move that may add to pressure on the franc against the euro.<\/p>\n

The SNB spent billions defending the cap after introducing it in September 2011. Jordan said today it may intervene again.<\/p>\n

\u201cThe SNB doesn\u2019t see any future any more for their floor with the strong U.S. dollar and the QE ahead at the ECB,\u201d said Alessandro Bee, strategist at Bank J Safra Sarasin AG in Zurich.<\/p><\/blockquote>\n

I tip my hat to those who followed the example of George Soros and decided that the CHF\/EUR rate was unsustainable. Sometimes the politicians and bureaucrats just need to be TOLD!<\/p>\n

It looks like Canada is off Target<\/a>:<\/p>\n

Target Corp. (TGT) will walk away from Canada less than two years after opening stores there, putting an end to a mismanaged expansion that racked up billions in losses.<\/p>\n

The Canadian division, which employs 17,600 people, is seeking court approval to begin liquidation, the Minneapolis-based retailer said today in a statement. Dismantling operations north of the border will lead to a $5.4 billion writedown this quarter, though it will boost profit by next year, Target said.<\/p>\n

Fixing the Canada unit, which had amassed more than $2 billion in operating losses since 2011, has been a top priority for Chief Executive Officer Brian Cornell. After taking the reins in August, he spent a portion of his early days at the company touring operations in the country. The woes plaguing the chain\u2019s 133 stores there ranged from empty shelves to prices being higher than at locations in the U.S.<\/p>\n

\u201cWe were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021,\u201d Cornell said today. \u201cThis was a very difficult decision, but it was the right decision for our company.\u201d<\/p><\/blockquote>\n

DBRS comments<\/a>:<\/p>\n

DBRS therefore believes that Target\u2019s decision to wind down its Canadian business is more reflective of the Company\u2019s inability to achieve its own strategic, operational and financial milestones within this market rather than any indication of broader weakening of the Canadian retail sector.
…<\/b>
This event, however, has no effect on ratings in the retail sector at the present time because DBRS believes that the business risk profile of the overall sector should remain within its current bandwidth over the near to medium term. This outlook is based on DBRS\u2019s:
\n— view that new competition will emerge (including the impact of growing online retailing) and that the trend toward equilibrium in the sector will continue after this temporary reduction in competition;
\n— and concern about Canadian consumers becoming more challenged because of high debt levels as well as potentially higher interest rates and lower residential real estate prices in the future.<\/p><\/blockquote>\n

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 23bp, FixedResets off 12bp and DeemedRetractibles gaining 4bp. The Performance Highlights table is lengthy yet again, dominated by low-spread FixedReset losers as the Canada 5-Year yield dropped to an incredible 1.02%. Will we go below 1%? Place yer bets, gents, place yer bets! Volume was low.<\/p>\n

For as long as the FixedReset market is so violently unsettled, I\u2019ll keep publishing updates of the more interesting and meaningful series of FixedResets\u2019 Implied Volatilities. This doesn\u2019t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.<\/p>\n

Remember that all rich \/cheap assessments are:<\/p>\n