Recap 5-24-13

Commentary:

None

Notable:

• Kuroda spoke saying BoJ has announced sufficient monetary easing, which triggered the Nikkei sell off. He also said Bank will continue to make efforts to end deflation, and that the Bank has no target for currency and stocks. He also said he wants to avoid volatility as much as possible and does not expect any spike in yield.. The mkt bounced off the lows after the BoJ conducted a second Rinban operation, lowering yields. JPY 1 month risk reversal turned negative for the second time this year and the first time sine BoJ’s QE announcement.
• German IFO rose to 105.7 in May vs 104.4 exp and prev
• US Durable Goods Orders rose 3.3% in April vs 1.5% exp and -5.7% prev. Core Capital Good Orders rose 1.2% MoM vs 0.5% exp and 0.2% prev.
• China is planning to shift gears so that the private sector and market forces play a larger role in its economy – NYT
• China/US officials strike accounting pact; the deal would give US auditors access to documents from Chinese accounting firms. WSJ

Upcoming Data:

• Fri: German IFO, US Durable Goods Orders,
• Mon: US Memorial Day
• Tues: Swiss Trade Balance, French Consumer Confidence, US Consumer Confidence, Japan Retail Trade
• Wed: Spain Real Retail Sales, German unemployment, BoC, South Korea Business Survey, Australia Building Approvals, Private Capex expectations.

Recap 5-23-13

Commentary:

None

Notable:

• EU PMI:

1. Mfg rose to 47.8 vs 47 exp and 46.7 prev
2. Services rose to 47.5 vs 47.2 exp and 46.9 prev
3. Neither French or German prints were particularly surprising

US Initial Jobless Claims dropped to 340k last week vs 345k exp and 360k prev

US Markit Preliminary Mfg PMI declined to 51.9 vs 51.2 exp and 52.1 prev

US FHFA House Price Index rose 1.3% in March

US New Home Sales rose to 454K in Apr vs 425k exp and 417k prev

China HSBC Flash Mfg declined to 49.6 vs 50.4 exp and prev

UK GDP rose 0.6% YoY in 1Q as exp

Upcoming Data:

• Fri: German IFO, US Durable Goods Orders,
• Mon: US Memorial Day
• Tues: Swiss Trade Balance, French Consumer Confidence, US Consumer Confidence, Japan Retail Trade
• Wed: Spain Real Retail Sales, German unemployment, BoC, South Korea Business Survey, Australia Building Approvals, Private Capex expectations.

Recap 5-22-13: Quick Comment on Today’s Moves

Commentary:

In retrospect, Monday’s reversal call appears to have been accurate. A couple of more hawkish than expected comments from both Bernanke and Dudley over the past couple days (both noting that QE purchases could be reduced after the next few meetings) has ramped up QE tapering expectations, and sent 10y Treasury yields up 11bps on the day. 10y real yields in the US are now up a sharp 44bps since 4/29, and is now at the highest level in over a year:

This in turn drove a de-risking across assets that positively correlated to US growth. The SPX, WTI Crude Oil, and the Mexican Peso all moved sharply lower. The USDJPY retraced a substantial part of its intraday gains, which is quite odd given that higher real rates in the US are a positive. Also interesting is that implied volatility was fairly tame – the VIX moved up just 1 pt on the day. As my astute manager noted, this could mean this move has more room to go. Also interesting is the fact that Gold and Silver did not make new lows on this, as higher real rates should be quite negative for precious metals. This suggests that short term downside for precious metals is limited.

Over a longer timeframe, however, rapid tapering concerns are likely overdone. The Fed is keen on avoiding any sharp selloffs in US bond markets, and has said so. Furthermore, the hawkish comments by both Bernanke and Dudley were during the Q&A sessions. The actual texts of their speeches were much more neutral. This also appears to be the belief of the FOMC majority based on the minutes:

Most observed that the outlook for the labor market had shown progress since the program was started in September, but many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate. A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence would be necessary and the likelihood of that outcome.

Separately, some very interesting articles: (The second one is long but well worth reading)

http://ftalphaville.ft.com/2013/05/22/1512502/swiss-negativity-free-lunches-and-the-imf/

http://www.mpettis.com/2013/05/21/excess-german-savings-not-thrift-caused-the-european-crisis/

http://www.wired.com/gadgetlab/2013/05/xbox-one

Notable:

• Bernanke:

1. job market remains weak overall
2. the Committee is aware that a long period of low interest rates has costs and risks…The Federal Reserve is working to address financial stability concerns through increased monitoring, a more systemic approach to supervising financial firms, and the ongoing implementation of reforms to make the financial system more resilient.
3. Recognizing the drawbacks of persistently low rates, the FOMC actively seeks economic conditions consistent with sustainably higher interest rates. A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further. Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability.
4. In the Q&A session, however, Bernanke noted that the Fed could decide to taper purchases in a few months

BoJ kept policy unchanged and upgraded the BOJ’s economic assessment – expected. The formal statement made no mention of JGB volatility although during his press conf Kuroda suggested the pace of bond purchases could be adjusted according to market conditions

Bank of England MPC voted to keep policy rate at 0.5% and 6-3 to keep the stock of asset purchases unchanged

US Existing Home Sales rose to 4.97mm in Apr vs 4.99 exp and 4.92 prev

Australia Westpac Consumer Confidence declined to -7% vs -5.1% prev

UK Retail Sales ex Auto Fuel was weak, rising just 0.2% vs 1.8% exp and 0.4% prev

Canada Retail Sales ex Autos declined -0.2% MoM in March vs +0.2% exp and 0.7% prev

EUR/CHF through 1.26 for first time in 2 years

Upcoming Data:

• Wed: China HSBC Flash Mfg PMI,
• Thu: EU PMI, UK Retail Sales, GDP, US Jobless Claims, Preliminary Markit Mfg PMI
• Fri: German IFO, US Durable Goods Orders,
• Mon: US Memorial Day
• Tues: Swiss Trade Balance, French Consumer Confidence, US Consumer Confidence, Japan Retail Trade
• Wed: Spain Real Retail Sales, German unemployment, BoC, South Korea Business Survey, Australia Building Approvals, Private Capex expectations.

Recap 5-21-13

Commentary:

Via FTAlphaville:

Notable:

• Dudley:

1. most importantly, managing expectations is critical in the execution of monetary policy at the zero bound.
2. Comparing actual growth to the growth projections by FOMC participants in the Summary of Economic Projections shows that we were consistently too optimistic about growth over the 2009-2012 period. As a result, with the benefit of hindsight, we did not provide enough stimulus.
3. we might adjust the pace of purchases up or down as the labor market and inflation outlook changes in a material way. For me, the base case forecast is not the sole consideration—how confident we are about that outcome is also important.
4. Because the outlook is uncertain, I cannot be sure which way—up or down—the next change will be. But at some point, I expect to see sufficient evidence to make me more confident about the prospect for substantial improvement in the labor market outlook. At that time, in my view, it will be appropriate to reduce the pace at which we are adding accommodation through asset purchases. Over the coming months, how well the economy fights its way through the significant fiscal drag currently in force will be an important aspect of this judgment.
5. There is a risk is that market participants could overreact to any move in the process of normalization. Indeed, there is some risk that market participants could overreact even before normalization begins, when the pace of purchases is adjusted but the level of accommodation is still increasing month by month. Not only could such responses threaten financial stability, but also they might make it harder to calibrate monetary policy appropriately to the economic situation.

RBA Minutes:

1. Domestically, the data on economic activity since the previous meeting had not materially changed the earlier staff forecasts.
2. however, conditions in the business sector, as assessed in surveys, generally had remained below average, possibly in part because the exchange rate had remained high despite lower export prices and interest rates.
3. Taking all the factors into consideration, the Board decided that some of the scope to ease policy should be used at this meeting.

GS Raised 2013 S&P 500 target to 1,750 from 1,625. (+5% from yesterday’s close) 2014 target of 1,900, (8.6% YoY) 2015 of 2,100. (10.5% YoY)

UK PPI and CPI came in lower, -0.2% vs -0.1% and +2.4% vs +2.6% exp respectively.

Upcoming Data:

• Tue: UK PPI, CPI, Dudley Speaks, Japan Merchandise Trade Balance, Australia Westpac Consumer Confidence
• Wed: BoJ, BoE Minutes, Canada Retail Sales, Bernanke, US Existing Home Sales, China HSBC Flash Mfg PMI
• Thu: EU PMI, UK Retail Sales, GDP, US Jobless Claims, Preliminary Markit Mfg PMI

Recap 5-20-13: Possible Reversal This Week

Commentary:

We’ve gotten some strong momentum across assets the past few weeks. However, there now appears to be some early signs that things could reverse, at least temporarily. Last week, the ‘Long US growth’ trade took a hit, as USDMXN rallied despite stronger US stocks. Today, everyone’s favorite currency short, the Australian dollar, is up against the USD, from very oversold levels. After hitting a new high, USDJPY is down by the most since April 26th. Gold and Silver both had very substantial reversals. Silver was down almost 10% overnight… and closed UP!

Now, to be clear, I am not expecting the recent moves to unwind. But it’s a fair bet that momentum players are now running very high levels of risk – and a position unwind is likely to be sharp.

Notable:

• Bundesbank head Jens Weidmann says France has a special responsibility to take deficit reduction seriously – Reuters.
• Japan Economy Minister Akira Amari said its excessive strength had largely corrected and further weakness could damage Japan’s economy. – Reuters
• US Chicago Fed National Activity Index declined to -0.53 in Apr vs -0.23 prev
• Europe’s top trade official for the first time late on Friday officially cited Chinese mobile telecommunications equipment makers Huawei and ZTE Corp for violating anti-dumping and anti-subsidy guidelines – Reuters

Upcoming Data:

• Mon: RBA Minutes
• Tue: UK PPI, CPI, Dudley Speaks, Japan Merchandise Trade Balance, Australia Westpac Consumer Confidence
• Wed: BoJ, BoE Minutes, Canada Retail Sales, Bernanke, US Existing Home Sales, China HSBC Flash Mfg PMI
• Thu: EU PMI, UK Retail Sales, GDP, US Jobless Claims, Preliminary Markit Mfg PMI

Recap 5-17-13

Commentary:

Further evidence that people are not overly enthused (h/t allstarcharts.com)

Notable:

• U Michigan Confidence jumped to 83.7 in May vs 77.9 exp and 76.4 prev
• Canada Core CPI declined to 1.1% YoY in Apr vs 1.2% exp and 1.4% prev
• Mexico GDP declined to 0.8% YoY in 1Q vs 1.1% exp and 3.2% prev
• Reuters, “President Xi has taken charge of drawing up ambitious reform plans to revitalize the economy. A consensus has been reached among the leadership that reforms, and not more stimulus, are the only way to spur growth. Xi will present the reforms at a key meeting of the ruling Communist Party later this year that will set the agenda for the next decade… Xi will present the reforms at a key meeting of the ruling Communist Party later this year that will set the agenda for the next decade, signaling his seriousness to see breakthroughs, the sources told Reuters”
• WorleyParsons Ltd., Australia?s largest oil and gas engineering company, plunged 13 percent after forecasting weaker earnings.

Upcoming Data:

• Mon: Chicago Fed National Activity Index, RBA Minutes
• Tue: UK PPI, CPI, Dudley Speaks, Japan Merchandise Trade Balance, Australia Westpac Consumer Confidence
• Wed: BoJ, BoE Minutes, Canada Retail Sales, Bernanke, US Existing Home Sales, China HSBC Flash Mfg PMI
• Thu: EU PMI, UK Retail Sales, GDP, US Jobless Claims, Preliminary Markit Mfg PMI

Recap 5-16-13

Commentary:

Lower inflation is positive for financial assets:

http://macro-man.blogspot.com/2013/05/disinflation.html

Fed Paper: We examine explanations for the secular decline in interstate migration since the 1980s. After showing that demographic and socioeconomic factors can account for little of this decrease, we present evidence suggesting that it is related to a downward trend in labor market transitions–i.e. a decline in the fraction of workers moving from job to job, changing industry, and changing occupation–that occurred over the same period.

Notable:

• US Jobless Claims rose to 360k last week vs 330k exp and 323k prev.
• Philly Fed declined to -5.2 vs +2 exp and 1.3 prev.
• US Housing Starts declined to 853k s 970k exp and 1036k prev. Building Permits, however, rose to 1017k vs 941k exp and 902k prev
• US CPI declined to 1.1% YoY in Apr vs 1.3% exp and 1.5% prev. The Core measure declined to 1.7% vs 1.8% exp and 1.9% prev
• Japan real GDP rose 0.9% QoQ in 1Q vs 0.7% exp and 0.0% prev. The deflator was still negative, however, so the nominal QoQ figure was +0.4% vs -0.3% prev. Capital spending declined 0.7% q/q but private consumption increased 0.9%.
• European Banking Authority is delaying its stress tests until 2014.
• Gold demand slumped ~13% in Q1 to hit the lowest level in three years. Global demand fell to 963 metric tons in the quarter, from 1,107.5 tons a year earlier; investors sold a record 182.1 tons of gold through ETPs in the three months through March (Bloomberg)

Upcoming Data:

• Fri : Canada CPI, Mexico GDP, US UMichigan Confidence
• Mon: Chicago Fed National Activity Index, RBA Minutes
• Tue: UK PPI, CPI, Dudley Speaks, Japan Merchandise Trade Balance, Australia Westpac Consumer Confidence
• Wed: BoJ, BoE Minutes, Canada Retail Sales, Bernanke, US Existing Home Sales, China HSBC Flash Mfg PMI
• Thu: EU PMI, UK Retail Sales, GDP, US Jobless Claims, Preliminary Markit Mfg PMI