G3 Recap 11-04-10

Main Items:

  • Bernanke’s Op-Ed in the Washington post sparked a risk asset rally overnight. His mention of QE expectations improving financial conditions, which he implied included equity prices, was received quite bullishly.
  • US Jobless Claims jumped to 457k last week vs 442k expected an 434k previously
  • US Unit Labor Costs fell -0.1% in 3Q vs +0.6% expected and 1.1% previously
  • US ICSC Chain Store sales slowed to 1.6% YoY in Oct from 2.6% previously
  • WSJ reported that The Fed is expected to allow healthy banks to start paying dividends soon.
  • Inflation headlines:
  1. Food price inflation – some food manufacturers and retailers would like to pass along rising input prices to consumers, although this is proving difficult in the weak economy; despite the tepid economy, some food companies have started to signal plans to raise prices….”inflationary tide” starting to ripple through supermarkets and restaurants. WSJ
  2. Apparel price inflation – due to surging input costs, apparel makers have started pushing through price increases to help compensate. WSJ

Overseas:

  • MPC kept policy unchanged as expected.
  • Eurozone PPI rose to 4.1% YoY, the highest print since October 2008.
  • Italian PMI Services was inline and roughly unchanged at 51 in Oct.

Commentary:

  • Brokers report that there has been fresh positions getting initiated in treasuries, as fears of a Fed disappointment did not play out. Certainly price action supports this thesis, and increases confidence in long risk positions. Cyclical sectors lead, with a boost to financials late in the day helped by the WSJ report that banks may be able to start paying dividends soon.

  • Not really sure what to say about Gold, other than that 1425 seems baked in. Over the past couple years, Gold has rallied at least $25 after breaking through a whole figure:

  • PIGS CDS widened again today, despite the risk lovefest in almost every other asset class. Ireland and Portugal in particular were big movers. This is probably the biggest risk for cyclical assets in the immediate future.

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