G3 Recap 12-13-10

Main Items:

  • A US District judge (in Virginia and appointed by a Republican) ruled that parts of the new healthcare law is unconstitutional. Specifically, the court ruled that the requirement for all Americans to get health insurance is unconstitutional. The case will now go to the Federal Appeals court before final resolution at the Supreme court. WP


  • Chinese data in Nov reflected strong growth with building commodities based inflation pressures:
  • CPI rose 5.1% YoY vs 4.7% expected and 4.4% previously. PPI rose 6.1% vs 5.1% expected and 5.0% previously. Food CPI rose 11.7% YoY.
  • Retail Sales rose 18.7% YoY as expected and roughly unchanged
  • IP rose 13.4% YoY vs 13.0% expected and 13.1% previously
  • Fixed Assets Investment rose 24.9% vs 24.3% expected and 24.4% previously

The BIS released data showing foreign exposures to the PIGS at the end of Q2. Not much of use in the data given how old it is, but the one bit I found interesting is that Italy only had 76bn of exposure, vs 513bn for Germany and 410bn for France.

Berlusconi faces confidence votes in both the Upper and Lower Houses tomorrow. Should the vote fail, new elections are likely to be called.


  • The FOMC meeting tomorrow is likely to lend some support to financial assets through tomorrow. There is a reasonably good chance that the statement will be a bit more dovish than expected, given the move in yields over the past month. A strong rally after such a statement would be a good technical confirmation that an intermediate term low is in.
    Other technical signs that we are at an intermediate high in yields:
    1) Demark 9’s on both 10y yields AND the S&P
    2) Doji star candlestick above the moving average envelopes
    3) 10y yields moved higher by 30bps last week. These type of moves are unusual, and marked local extremas in 2009:

    4) 9 day RSI is > 75:

    5) Finally, the front end has found sponsorship. Big bearish reversal today on 2yr yields at the 200dma:

  • As a side note to the above, the S&P looks pretty overextended short term. We’re probably going to get a short term correction this week, or at least a period of consolidation.

  • Barclay’s released the results of its global macro survey. The survey doesn’t have any history, so there’s probably not a ton of useful information to be gleaned from it, with one exception. Generally, if most people expect an asset to perform a certain way, it doesn’t. So below are a few views that seem overly consensus:
    1) Short rates in the US. Note Swap Spread wideners are positively correlated to higher yields.

    2) Short Italian and Spanish bonds in Europe

    3) Long Materials, Tech and Energy equity sectors

    4) Modest EUR short

    5) Long AxJ and Commodity FX vs G4

    6) Long EM Equities