G3 Recap 11-15-10

Main Items:

  • US Retail Sales rose 1.2% MoM in Oct vs 0.7% expected and 0.6% previously. The Core measure printed 0.4% vs 0.2% expected and 0.4% previously.
  • Empire Manufacturing was pretty ugly, dropping to -11.14 in Nov vs +14 expected and +15.7 previously.
  • PIGS:
  • Irish Officials insisted on Sunday that they did not need fiscal assistance from the EU, even as pressure mounted on Dublin from other EU members and the ECB to accept aid and present plans to restructure its banking system – FT.
  • There are strong suggestions that the Irish Budget for 2011 might also be brought forward a week earlier from December 7 to calm the markets, the Irish Independent reports.
  • Debt-ridden Greece expects "substantial pressure" from the European Union and the International Monetary Fund this week to adopt further austerity measures, amid expectations that the country will miss its deficit targets – WSJ. Greek PM Papandreou said, for the first time, that repayment of EU financial support may take longer than hitherto expected, Der Spiegel writes, referring to an interview Mr. Papandreou made with the newspaper To Proto Thema.

Overseas:

  • Japanese Nominal GDP grew 0.7% QoQ in 3Q vs 0.5% expected an -0.6% previously

Commentary:

  • I fiddled around with some USDJPY data today. Based on daily data from the past 10 years, a linear regression with USDJPY as the dependent variable, and the US and Japanese 2 and 10 yr swap rates (so 4 variables in all) had an R squared of over 95% over the past 4 years. The variable with the strongest T-statistic was the US 2yr swap rate. Interestingly, the Yen 2yr swap rate had a positive coefficient with a very statistically significant T-stat of 13.5. This supports the idea that Japanese monetary policy has basically just been a derivative of the Fed’s policies over this time period.

    This regression suggests that a USDJPY rally through 87 is likely.

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4 thoughts on “G3 Recap 11-15-10

  1. interesting how yen no longer the leader in risk off days … presumably as USD has become funding currency of choice and holds large short base … charts like sgd/jpy and cad/jpy also suggest interesting levels …

    if asia has an inflation problem and has to put on the breaks overall to cool things down, that would certainly help out the usd/jpy trade …

    meanwhile i have never heard so many central bankers explaining themselves over their actions re QE2 … all we need is ron and rand paul to join the poker game.

  2. Hey Bert – Yes, I think you’re right … these moves across asset classes definitely appear to be position driven. Mkt action today is nutssssss.

    I’m interested, as you are, in how the Pauls’ interrogation of Bernanke will go. I think Ron Paul needs to be careful of what he wishes for… if he winds up attacking the Fed too aggressively, the Fed may simply lose independence to congress, which would be way worse than his goal of having no Fed at all.

    1. its one of the days where u wonder if sands are shifting

      1. world realizes that no g20 resolution means we have defacto trade war
      2. credit expansion process coming to either halt or significant step down across many countries for varying reasons (debt overhang, inflation and a fed up voter base)
      3. i recall the tech bubble coming to a halt and spiraling downwards once increased margin requirements for nasdaq were introduced … the commodities butterfly perhaps has flapped enough
      4. the resentment of further money printing on the part of the populace and some influential figures has eroded the likelihood of QE3 etc and jeopardized the independence of those doing the printing as you point out
      5. or everyone including the cta drones that have had a great run for last few months is closing shop for year

      hmm .. they all sound good to me but point uni-formally towards de-risking

      1. Completely agree. The questions is how much more is left? I feel like we need to go one way for a couple more weeks. There are a lot of stale, in the money positions that need to be flushed out, which will be exacerbated by year end.

        Here’s to hoping that this move continues for a while so we can get some good entry points for Q1 trades!

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