Global Macro Trading

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Recap :

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Commentary:

None

Notable:

  • Germany IFO improved to 111.2 vs 110.4 exp and 110.7 prev
  • US Durable Goods Orders jumped 2.6% vs 2.0% exp and 2.2% prev. The Core measure was also strong at 2.2% vs 1.5% exp and -1.3% prev
  • Jobless Claims rose to 329k vs 315k exp and 304k prev. Seasonality effects around Easter likely had an impact.
  • Denmark hiked CD rates by 15bps to 5bps
  • BOJ officials are said to be concerned about JGB yields and whether they may suddenly spike. Officials are worried that JGB yields aren’t reflecting emerging inflation, raising the risk of a sudden surge in yields. Bloomberg
  • GS: The first-quarter of 2014 saw the strongest flows into Italian mutual funds since 1998, according to data from Assogestioni… 60% of flows were into flexible/balanced funds that blend bonds with equity and other assets, while one-third of flows were into pure fixed income funds. Domestic investors remain cautious on allocating towards equities however, with modest net flows of €2.8 bn

Upcoming Data:

  • Thu: Japan CPI
  • Fri: UK Retail Sales, US Markit PMI
  • Mon: US Pending Home Sales
  • Tue: Germany Gfk Consumer Confidence, UK GfK Consumer Confidence, Japan PMI, NZ Business Confidence
  • Wed: Month End, Turkey Trade Balance, EU CPI, South AfricaBalance, US ADP Employment, CanadaGDP, US GDP, Chicago PMI, Australia PMI
  • Thu: UK PMI, Yellen Speaks, Jobless Claims, PCE, ISM Mfg, Japan Employment

Written by globalmacrotrading

April 24, 2014 at 4:21 pm

Posted in Daily Recaps

Recap : A Hypothesis for ‘Sell in May’

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Commentary:

“Sell in May and go away, come back on St. Ledger’s day” is an old adage on Wall Street. There have been a lot of statistical studies on it, (and I’ve done some myself) and to the best of my knowledge, it is statistically robust, generally speaking. In other words, there is a low chance that the effect is due solely to randomness. Much less studied is WHY it happens. While a complete study of market price action will always be somewhat incomplete, (i.e. when there is a transaction, is it driven by the buyer or the seller? What if one side is an HFT? Etc.) I have a few thoughts I’d like to share on why the seasonality occurs, when it may be less effective, and why it is likely to continue to happen in the future.

One popular hypothesis of why it works is simple mean reversion. A strong move through April certainly increases the chance of a pullback in May. The trouble with this hypothesis is that mean reversion effects tend to only last for a month or two. So it doesn’t explain why asset prices are flat for over 4 months. In addition, it doesn’t explain why asset prices tend to do better the other months of the year.

My take on it is that this effect is tied to seasonality in the Federal budget, which is itself tied to deadlines for taxes. Before we get into the details, recall that a worsening in the federal budget deficit is a net INCREASE in the system for credit, while an improving deficit is a decrease. Using Bloomberg data going back to 1968, we see a seasonal tendency for a worsening deficit in 1Q, but a sharp improvement in 2Q, which is probably due to the tax deadline, a weak tendency in 3Q, and another worsening in 4Q. Incidentally, the 1Q and 4Q periods have also been the best periods for risk assets, historically. Now, the magnitude of the effect is certainly not very large, but it is subject to a couple caveats. First, it is not necessarily the change that matters, but rather the rate of change. Second, the market cap of stocks as a percentage of GDP has historically been much smaller. (i.e. amounts measured in pct of GDP may have had a larger impact)

 

So if we make a leap and assume that this hypothesis is roughly accurate, what does that mean for asset prices going forward? Specifically, when is this pattern likely to be stronger or weaker? One thought of course is to adjust based on how quickly the deficit changes. However, that data is only available with a substantial lag. (the most recent print was from Dec) What may be more useful, and timely, is the level of cash balances held by asset managers going into 2Q. The rationale is that lower cash balances (as a percentage of assets) mean that market participants are more vulnerable to negative surprises, whether they come from momentum reversal or decreases in system credit. And the picture there seems to be better than usual, given survey data. Additional offsets may come from private credit growth. The amount is somewhat questionable this year, given the weak revenue trends the big banks just reported. But perhaps 2Q will be better. In aggregate, it seems reasonable to expect a more muted ‘sell in May’ effect this year.

Separately, Scott Skyrm posted a good piece on the potential impact of the 5% Dodd-Frank Leverage ratio on the repo market:

In order to calculate the impact of the 5% Dodd-Frank Leverage Ratio, it means that cost of $100 million net Repo assets becomes $5 million, and at 10%, the annual cost is $500,000. Then, $500,000 is the equivalent of 16.4 basis points on $300 million gross assets. Therefore, on Tuesday, April 8th, the cost of Repo increased by 6.4 basis points for banks doing business in the U.S. The new cost, under the 5% Leverage Ratio is 16.4 basis points.

Notable:

  • BoE Minutes: While inflation was likely to pick up somewhat in the coming months, all members agreed that the probability that it would be above 2.5% in 18–24 months time remained less than 50%.
  • PMI:
  1. China HSBC Mfg PMI improved to 48.3 as exp vs 48 prev
  2. EU Mfg PMI improved to 53.3 vs 53 exp and prev. Germany was strong, while France was weak.
  3. EU Svcs PMI improved to 53.1 vs 52.5 exp and 52.2 prev. Again, Germany strong, France weak.
  4. US Markit Mfg PMI was stable at 55.4 vs 56 exp and 55.5 prev

Australia CPI increased to 2.9% vs 3.2% exp and 2.7% prev. The Trimmed Mean measure was stable at 2.6% vs 2.9% exp

New Home Sales dropped sharply by 14.5% MoM. Vs 2.3% exp. An improvement in the Northeast was swamped by weak prints elsewhere.

Canada Retail Sales growth slowed to 0.5% MoM as exp

Upcoming Data:

  • Thu: Germany IFO, Draghi Speaks, US Durable Goods Orders, Jobless Claims, Japan CPI
  • Fri: UK Retail Sales, US Markit PMI
  • Mon: US Pending Home Sales

Written by globalmacrotrading

April 23, 2014 at 4:27 pm

Posted in Daily Recaps

Recap :

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Commentary:

Results of Hubris are many. There are several experiments noting that well over 50% of people consider themselves above the average of the group in various skills. This applies to people’s choices too. Congressional approval ratings are at all time lows, yet most voters think the congress person THEY voted in is good. Most people bemoan the state of the nation’s education system, but think THEIR kid’s teacher is doing well. (h/t Bob for that one!) Most tech startups fail, but THEIR startup will make it big. And it’s the same for hedge funds. Despite serial underperformance, and general recognition that the group as a whole is likely to continue to underperform, people apparently think that THEIR fund will be the exception. A result of this (among other factors) may be that hedge fund AUM has hit another record. Plus ça change…

Separately, GS notes that though US credit spreads are touching levels last seen on the eve of the financial crisis, corporate balance sheets remain healthy: (note that this is broadly speaking a consensus view) We recently updated our measures of corporate leverage that we construct ‘bottom-up’ from the financial statements of US firms with rated debt… For US high-yield issuers, our median debt/EBITDA and debt/assets ratios are currently at the 37th and 26th percentiles of their distribution since the data begin in 1986. Leverage among investment grade issuers looks even lower by historical standards, with these ratios at their 29th and 24th percentiles. That is, our metrics suggest that corporate leverage has been higher than it is now for roughly three quarters of the time over the last three decades.

NYT notes that “swing voters” swing not from party to party, but from voting to non-voting:

Notable:

  • US Existing Home Sales declined by -0.2% MoM vs -1.0% exp and -0.4% prev
  • EU Consumer Confidence improved to -8.7 vs -9.3 exp and prev.
  • China tightening rations credit abroad –FT (h/t Steve)
  1. “The volume of international lending has dropped as much as 50 per cent,” this adviser calculates in reference to China Development Bank.
  2. Rather than report a borrower as current by collecting token amounts of interest, the two have begun to act more commercially. They declare borrowers in default, take possession of the assets backing loans and sell those assets on the international markets, where they can get paid more than in China itself..
  3. At the same time, regulations in the developed world are also making it harder for the big international banks such as Citigroup, JPMorgan and HSBC to be as active as they used to be in channelling funds to credit-poor parts of the world. For example, HSBC has terminated about 500 correspondent banking relationships in exactly those parts of the world that most need capital. That is because regulators require the banks not only to know their own customers but in these cases to know the customers of their customers.

China has quietly commenced an overhaul of its SOEs; the shifts “mark the beginning of the biggest revamp of China’s state sector since the late ‘90s.” Over the last few weeks some of China’s biggest SOEs have announced spin-offs and restructuring plans and local authorities are experimenting with new management structures. Reuters In Crimea now, few institutions function normally. Most banks are closed. So are land registration offices. Court cases have been postponed indefinitely. Food imports are haphazard. Some foreign companies, like McDonald’s, have shut down. – NYT Upcoming Data:

  • Tue: Australia CPI, China HSBC Mfg
  • Wed: EU PMI, BoE Minutes, Canada Retail Sales, UK Markit PMI, New Home Sales
  • Thu: Germany IFO, Draghi Speaks, US Durable Goods Orders, Jobless Claims, Japan CPI
  • Fri: UK Retail Sales, US Markit PMI
  • Mon: US Pending Home Sales

Written by globalmacrotrading

April 22, 2014 at 4:28 pm

Posted in Daily Recaps

Recap : Fed Funds Path, Links

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Commentary:

Quiet day today – so I’ll just list some interesting links and notes:

First, GS notes that:

The final question is how much weight we should put on the committee’s apparent view that the path will ultimately be very flat. Are these types of statement a good or bad predictor of what ultimately happens? There are not enough precedents to be sure, but the answer seems to be that it is not too unusual for the Fed’s signals, or plans, before the start of a tightening cycle to underestimate the ultimate path. We have evidence on this for the rate hike cycles commencing in 1994, 1999, and 2004:

· In February 1994, the Federal Reserve staff projected that the funds rate would rise by 150bp over a nearly two-year period, or by less than 100bp per year, through the end of 1995. In the event, the FOMC hiked by 300bp in less than one year through January 1995.

· In June 1999, the staff projected that the funds rate would rise by 150bp over a 2½-year period, or by about 60bp per year, through the end of 2001. In the event, the FOMC hiked by 175bp in less than one year through May 2000.

· In June 2004, the staff projected that the funds rate would rise by 325bp over a three-year period through the middle of 2007, or by just over 100bp per year. In the event, the funds rate rose by 425bp over a 2-year period through the end of 2006, or by 200bp per year.

There are some caveats here. First, note that GS refers to the Fed Staff, not FOMC participants. It is probably fair to say that the projections are not likely to be substantially different. In addition, the realized PnL of Eurodollar steepeners did not always go the way one would expect. Reds-Whites were at zero by late 2005 even though Fed hikes continued through mid 2006. Having said that, note that there are some interesting steepening bets in Eurodollar futures to play that view. The curve has been flattening beyond the Greenback since December, and has recently stabilized. Blues/Greens, at ~88bps, offers an interesting bet on the possibility of either a later first hike, a faster pace of hiking, or both. In addition, the roll is positive at ~25bps a year.

Interesting bit on why some tech companies get such absurd valuations. I am not sure that the reasons listed here are the only factors – surely the massive cash hoard and high valuations of the acquiring company stocks may have an impact also:

http://dealbook.nytimes.com/2014/04/17/from-marc-andreessen-a-lesson-in-corporate-finance/

Palantir is a company that was started by, among others, Peter Thiel. The company has been working with US government agencies to pull together data available in the government domain for analysis. This site should be especially helpful in the coming 24 months or so as more and more government data on healthcare is made public. Take a look – you will need Java:

https://analyzethe.us/

http://www.newyorker.com/online/blogs/elements/2014/04/little-lies-the-internet-told-me.html (h/t Jess)

· As George Packer recently wrote in the magazine, “Few customers realize that the results generated by Amazon’s search engine are partly determined by promotional fees.” GrubHub Seamless, the merged food-delivery engine, recently revealed in an S.E.C. filing that “restaurants can choose their level of commission rate … to affect their relative priority in sorting algorithms, with restaurants paying higher commission rates generally appearing higher in the search order than restaurants paying lower commission rates.”

· Last year, the extent of the problem was revealed when the New York Attorney General’s office, soon after setting up an undercover yogurt shop, found itself fielding offers for fake reviews from companies with names like Eboxed and XVIO.

· when you “buy” these digital goods, the companies maintain that, despite the big “buy” button, what they gave you is nothing more than limited permission to use it—based on fine print that creates a license, not a transfer of ownership. If Apple or Amazon can offer only what amounts to a long-term lease, the button shouldn’t say “buy.” It’s misleading.

And finally here are a couple of links on China. First, the BIS quantifies the impact of RMB on Asian currencies from 2010-2013:

http://www.bis.org/publ/work446.htm

And some great charts on the Chinese credit situation from Bloomberg Brief, h/t Riholtz:

Finally, note that the momentum in the CNY fix seems to be slowing (20d rate of change in green):

Notable:

  • In Ukraine separatist forces rejected the peace pact agreed to last Thurs night and while violence has settled a bit there are still instances of fighting. The government in Kiev has halted operations aimed at recapturing control over disputed territories in the east and separatists aren’t reaching for additional land but the present détente is a very fragile one that could unravel at any moment
  • Port of Los Angeles Shipments Jump in March by Most Since 2007
  • GS on US Banks: After 2.5+ years of higher prices on flat estimates, we believe 1Q earnings imply a (temporary) return to micro fundamentals in the absence of macro themes. MS, C, WFC and PNC all outperformed the market since reporting better-than-expected EPS, while JPM, USB and BAC lagged on weaker results. The most consistent trend has been a weaker-than-expected top-line as 1) falling loan yields (part spread-driven) more than offset modest loan growth and 2) mortgage and capital markets (FICC) depress fees. While expense discipline is helping (core down 3% YoY), litigation remains lumpy and reserve releases are fading. We … see a valuation floor for the group as investors pay for large interest rate sensitivity in 2016+.
  • Banks are beginning to gradually ease mortgage lending standards according to the WSJ, a positive development for the housing market. WSJ
  • Iran and the six world powers have “virtually agreed” on a settlement regarding the Arak heavy water nuclear reactor, according to statements made by an Iranian official on Saturday – RT

Upcoming Data:

  • Tue: US Existing Home Sales, EU Consumer Confidence, Australia CPI, China HSBC Mfg
  • Wed: EU PMI, BoE Minutes, Canada Retail Sales, UK Markit PMI, New Home Sales
  • Thu: Germany IFO, Draghi Speaks, US Durable Goods Orders, Jobless Claims, Japan CPI
  • Fri: UK Retail Sales, US Markit PMI
  • Mon: US Pending Home Sales

Written by globalmacrotrading

April 21, 2014 at 4:46 pm

Posted in Daily Recaps

Recap : Chinese Equities, Weekly Chart Take

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Commentary:

I recently had an interesting discussion with a smart friend of mine about the outlook for Chinese equities. His take was that:

1. with expectations of weak Chinese growth overdone, (whisper expectations for a sub 7% GDP figure this week were sorely disappointed)

2. economic reforms in train and supported by the leadership,

3. PBoC easing (chart of 1y IRS below)

4. and with Chinese equities cheap, (2nd chart below shows that, on a P/E basis, the Hang Seng China Index is trading at the steepest discount to the S&P 500 since 2003)

there is substantial room for upside.

Now, for old macro hands, usually this is a pretty juicy setup. It combines elements of variant perception, a clear catalyst, changing fundamentals, and attractive entry prices. When those items align, there is a good prospect of making the year. So what’s not to like?

My answer is that the Chinese equity market is simply NOT like equity markets elsewhere. In particular,

· the relationship between Chinese share prices and economic growth is different

· the way Chinese investors view the equity market is different

As a result, while it may be right to play a pro-growth view in China, Chinese equities may not be the way to do it.

Let me elaborate on that a bit. Usually, the equity markets of most rise over time as long as growth is positive. In other words, even if growth decelerates, equity prices tend to continue rising. This makes sense because earnings are strongly correlated to economic growth, so even if growth slows, as long as it is positive, earnings grow also, and share prices rise. Here is a chart of the S&P vs US GDP growth. Note the 2004-2005 and 2010-2014 periods, where growth decelerated or remained flat, but share prices continued rising:

This is a phenomenon that is not unique to developed markets. Here is a chart of India GDP vs the NIFTY index:

And Turkey:

Now take a look at the same chart for the Shanghai A-share market and Chinese GDP:

Note in particular the 2002-2005 period when GDP growth flew yet share prices DECLINED. And in the most recent few years, share price performance has not been correlated to whether growth rates were positive, but to the growth rate of growth. This reflects two things:

1. There is no historically reliable relationship between Chinese economic growth and Chinese share prices

2. One driver of Chinese share prices is LIQUIDTY (hence why share prices are related to the second derivative of GDP rather than the first)

The second item segues nicely into how domestic Chinese residents view the Chinese A-share market, which is that it is NOT a place to put investments. If you ask the typical upper and middle class Chinese about their investments, most will describe their real estate holdings or the interest they are earning at their bank. Very few will mention their holdings of equities. Which means that for the relationship between the Chinese economy and the stock market to strengthen, investor paradigms will need to change. And that, unfortunately, is something that takes a very long time.

Moving on, here are my interpretations of some charts:

After bouncing off its 1.5yr uptrend, the SPX looks to be forming a bullish triangle. And with the Philly Fed beat today,(highest print since last Sept) growth prospects may be picking up, which could provide a catalyst for more upside:

I noted on April 4th that

“In terms of yields breaking higher, the third time wasn’t the charm. The 4th time looks more likely. But we could potentially see a 1.55% print on 5y treasuries before then.”

As it happens, 5y yields touched a low of 1.548% on Monday before turning higher. It appears the fixed income short squeeze is over, and with the potential upturn in growth, (the Philly Fed has a history of being an early indicator, and the Citi US Economic Surprise Index has made its first higher high since Jan) conditions are supportive of higher yields. At the risk of jinxing myself, (gulp) we may finally get a substantive break of the 1.75% level that has been resistance since Sept:

On the other hand, 30y yields continue to print lower highs and lows. As a result 5s30s have broken to new lows. A notable quote on the 30y from Patrick Perret-Green @ ANZ: “Many have said that a 30y UST at 3.5% is expensive but 30y BTPs are now just above 4%.”

I’ll close with a few interesting links for your weekend reading:

1. FT Alphaville highlighted a very interesting speech by Larry Summers. You should read it in its entirety, but here is an interesting paragraph that stood out to me:
I think, that is, it is my best judgment about where the industrial world as a whole is, that absent structural changes in our economy it will be very difficult for monetary polices to simultaneously achieve full employment and maintain financial stability. It seems to me that that is supported by the last time that the US was anywhere near full employment. The period from 2003-2007, when we were manifestly not pursuing sustainable financial policies. And the profound difficulty monetary policy has had in Japan in generating levels of output that are consistent with full employment.
http://ftalphaville.ft.com/2014/04/17/1832512/larry-summers-on-forwarding-the-doozer-economy/

2. Google has developed an algo that can solve CAPATCHAs. Essentially, this means that computers can now read signs and recognize images. This is big. The reason why CAPTCHAs were created was because it was difficult for algorithms to decipher them – hence their use in setup processes for new accounts at many websites. This is likely to mean that driving robots & flying drones will be much better able to identify visual information without human intervention. In other words, another barrier between humans and machines has fallen:
http://www.theverge.com/2014/4/16/5621538/google-algorithm-can-solve-recaptcha-almost-every-time

3. An illustration of how the FISC system circumvents checks and balances in our political system:
https://www.eff.org/deeplinks/2014/04/in-one-sided-foreign-intelligence-surveillance-court-its-hard-to-get-whole-story

4. The safest speeds to drive is +5 to -10 mph relative to the median speed of other cars. A follow up study found that “crashes involving turning vehicles accounted for 44 percent of all crashes observed in the study and that excluding these crashes from the analysis greatly attenuated the factors that created the U-shape of the Solomon curve”
http://en.wikipedia.org/wiki/Solomon_curve#The_original_research

5. 538 put out a piece that maybe should’ve been obvious to me but I found interesting. They found a clear correlation between the length of unemployment with the level of national unemployment at the time of job loss. To me, the take away is that one of the most important aspects of a stable career path is keeping your job during recessions!
http://fivethirtyeight.com/features/the-biggest-predictor-of-how-long-youll-be-unemployed-is-when-you-lose-your-job/

Notable:

  • Jobless Claims was stable at 304k vs 315k exp and 300k prev.
  • Philly Fed improved to 16.6 vs 10 exp and 9.0
  • Canada Core CPI improved to 1.3% as exp vs 1.2% prev

Upcoming Data:

  • Fri: Good Friday,
  • Mon: Europe Holiday,
  • Tue: US Existing Home Sales, EU Consumer Confidence, Australia CPI, China HSBC Mfg
  • Wed: EU PMI, BoE Minutes, Canada Retail Sales, UK Markit PMI, New Home Sales

Written by globalmacrotrading

April 17, 2014 at 4:53 pm

Posted in Daily Recaps

Recap : CNH, SPX, Russia

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Commentary:

The rumors over a Chinese GDP print below 7% were incorrect. GDP was above expectations at +7.4% y/y versus +7.3% expected. This may increase US pressure on China to strengthen CNY, especially given that China’s USD reserves have been building further. The US Treasury published its semiannual report on currencies Tues night and ratcheted up its criticism of recent yuan weakening, noting that “Recent developments in the RMB exchange rate would raise particularly serious concerns if they presage renewed resistance to currency appreciation and a retreat from China’s announced policy of reducing intervention and allowing the exchange rate to reflect market forces. We will continue to monitor these issues closely going forward.” With USDCNH hitting new highs this week, that’s definitely something to keep an eye on, as the short USDCNH carry trade may start working again.

Separately, in equity space, the S&P is now back in the 1840/1880 range that has prevailed since mid Feb. With option expiry tomorrow, we won’t get a clear read on what the ‘real’ clearing price is until then or maybe even next week. Having said that, I want to reiterate my medium term views on equities, which have been unchanged this year, and which has been reinforced by the BAML survey published yesterday. I still think that equity upside is capped in the near term because people are loath to buy new highs in P/E. And I still think people are sitting on higher than average cash balances. And as a result, I think corrections will continue to be shorter or shallower than usual, a view that seems correct so far this year. Having said that, we will likely need some sort of catalyst for a move higher year; equity managers likely need a rationale to buy an equity market that they believe to be ‘rich.’ (Note that I continue to believe that they are cheap) Such catalysts include better earnings, (potentially next earnings season) lower bond yields, better growth, a turn in seasonality, (I’ve noted the bullish tendencies in 4Q of midterm election years) or simply momentum as managers have to chase new highs.

Finally, these charts relating to Russia from GS are interesting:

Also interesting is this Wikipedia chart of Putin’s (red) and Medvedev’s (blue) Endorsement Index. Note how low they were prior to the Crimea invasion: (The publisher of the index, the Levada Center, is legit, although of course the standard disclaimers around opinion polls apply)

Notable:

  • BoC:
  1. Inflation in Canada remains low. Core inflation is expected to stay well below our 2 per cent target this year and it will take close to two years for it to return to the target.
  2. Competitiveness challenges continue to weigh on Canadian exporters’ ability to benefit from stronger growth abroad.
  3. Recent developments are in line with the Bank’s expectation of a soft landing in the housing market and stabilizing debt-to-income ratios for households. Still, household imbalances remain elevated and would pose a significant risk should economic conditions deteriorate.
  4. With underlying inflation expected to remain below target for some time, the downside risks to inflation remain important. At the same time, the risks associated with household imbalances remain elevated.

Yellen:

  1. I will refer to the shortfall in employment relative to its mandate-consistent level as labor market slack, and there are a number of different indicators of this slack. Probably the best single indicator is the unemployment rate. At 6.7 percent, it is now slightly more than 1 percentage point above the 5.2 to 5.6 percent central tendency of the Committee’s projections for the longer-run normal unemployment rate. This shortfall remains significant, and in our baseline outlook, it will take more than two years to close
  2. At present, wage gains continue to proceed at a historically slow pace in this recovery, with few signs of a broad-based acceleration.
  3. I will mention two considerations that will be important in assessing whether inflation is likely to move back to 2 percent as the economy recovers. First, we anticipate that, as labor market slack diminishes, it will exert less of a drag on inflation. However, during the recovery, very high levels of slack have seemingly not generated strong downward pressure on inflation. We must therefore watch carefully to see whether diminishing slack is helping return inflation to our objective.
  4. the FOMC is well aware that inflation could also threaten to rise substantially above 2 percent. At present, I rate the chances of this happening as significantly below the chances of inflation persisting below 2 percent

US Housing Starts grew 2.8% MoM vs 7.0% exp UK Employment declined to 6.9% vs 7.1% exp and 7.2% prev. Jobless Claims were also down, declining -30.4k vs -30k exp. Weekly Earnings improved to 1.7% vs 1.8% exp and 1.4% prev, though real growth remains flat: NZ CPI declined to 1.5% in 1Q vs 1.7% exp and 1.6% prev China Data:

  1. GDP declined to 7.4% YoY vs 7.3% exp and 7.7% prev
  2. IP YTD YoY improved to 8.7% vs 8.8% exp and 8.6% prev
  3. Retail Sales YTD YoY improved to 12.0% vs 11.9% exp and 11.8% prev
  4. Fixed Assets YTD YoY slowed to 17.6^ vs 18% exp and 17.9% prev

Bridgewater: 85 percent of public pensions could fail in 30 years. -CNBC Alibaba is expected to file prospectus for its IPO next week. They could list for "well in excess" of $150bn. Reuters The ongoing conflict in Ukraine escalated overnight with Ukraine’s army launching an operation against pro-Russian protesters in at least two cities in eastern Ukraine Upcoming Data:

  • Thu: Canada CPI, Jobless Claims, Philly Fed,
  • Fri: Good Friday,
  • Mon: Europe Holiday,
  • Tue: US Existing Home Sales, EU Consumer Confidence, Australia CPI, China HSBC Mfg
  • Wed: EU PMI, BoE Minutes, Canada Retail Sales, UK Markit PMI, New Home Sales

Written by globalmacrotrading

April 16, 2014 at 4:15 pm

Posted in Daily Recaps

Recap : Positioning Still Driving Price Action, BAML FMS

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Commentary:

There’s a fixed income love fest going on. We saw 9 month yield lows in 30y Treasuries, almost all German sovereigns, 10y French OATs, 30y Gilts and more. Culprits include Putin and disappointing DM data, (chart of G10 economic surprise index in white vs avg of 5y US and EU swaps in orange below) but positioning is likely an important factor also. The fact of the matter is, the spring data bounce has just not been as strong as people have hoped, and fixed income shorts are still in the process of capitulating: (also note the BAML survey comments below)

In equity space, low volumes due to the holidays this week on top of option expiry seems to be driving the strange intraday price action. After breaking below the key 1840 support level last week, the S&P has failed to make any head way lower, and despite 30pt intraday ranges, are now above 1840 again. There is a cluster of options expiring with an 1825 strike, so we could get this type of price action again tomorrow:

BAML published its April Fund Manager Survey today. Highlights:

Over 2/3 investors expect higher short-term rates, highest since Jul’2011; investors overweight cash close to 2-year high (cash levels dipped from 4.8% to 4.6%); highest % of investors since Jul’2000 thinks stocks “overvalued”…and yet asset allocation to equities actually rose in April.

On a related note, CFTC data shows that extended bearish positioning in commodity and EM currencies have been unwound. AUD and MXN positioning has shifted substantially. Short positioning in US treasury futures was either stable or ticked higher in some cases. Spec positioning in NDX has unsurprisingly fallen sharply, and is now at the lowest level since Jan 2013.

Separately, 538 notes that Pulitzer prices don’t correlate with increased readership. It appears that either readers don’t care or can’t tell the difference between high and low quality journalism, or both.

Finally, this interesting chart from the Economist gives a nice overview of the change in Military spending over the past 10 years:

Notable:

  • RBA Minutes
  1. In particular, a strong pick-up in dwelling investment was in prospect
  2. Indicators for exports remained strong, while those for business conditions were generally higher than they had been in 2013. However, many businesses appeared to be waiting for an increase in current demand to occur before they were willing to increase investment spending.
  3. members noted that the cash rate could remain at its current level for some time if the economy was to evolve broadly as expected. Developments over the past month had not changed that assessment.

UK CPI declined to 1.6% YoY as exp vs 1.7% prev Germany ZEW declined to 43.2 vs 45 exp and 46.6 prev US Empire Mfg declined to 1.3 vs +8 exp and, 5.6 prev US CPI jumped to 1.5% YoY as a result of base effects vs 1.4% prev and 1.1% prev. The core measure improved to 1.7% vs 1.6% exp and prev NAHB Survey improved to 47 vs 49 exp and 46 Investors expect mediocre 1Q 2014 results following poor weather conditions and negative guidance from companies following 4Q results. Bottom-up consensus estimates imply 2% earnings growth and 5% revenue growth. Trailing-four-quarter margins are expected to remain near historical high levels. Only half of S&P 500 sector forecasts imply year-over-year earnings growth. Investors will be scrutinizing management commentary for indications of improving business conditions now that the negative weather effect has passed. Goldman Yellen: the Federal Reserve is “actively considering additional measures” to address risk from the short-term wholesale funding markets, including requiring firms to hold additional capital buffers based on their use of short-term wholesale funding. BOJ Governor Haruhiko Kuroda said on Tuesday that Prime Minister Shinzo Abe did not bring up additional monetary easing during a meeting over lunch. Upcoming Data:

  • Tue: NZ CPI, China GDP
  • Wed: UK Employment, US Housing Starts, BoC, Yellen Speaks, Kuroda Speaks
  • Thu: Canada CPI, Jobless Claims, Philly Fed,
  • Fri: Good Friday,
  • Mon: Europe Holiday, US Existing Home Sales, EU Consumer Confidence, Australia CPI, China HSBC Mfg

Written by globalmacrotrading

April 15, 2014 at 4:43 pm

Posted in Daily Recaps

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