G3 Recap 1-06-11

Main Items:

  • US Initial Jobless claims printed 409k last week vs 408k expected and 388k previously.
  • Brazil introduced more capital controls. I will no require a 60% cash, non-interest bearing reserve requirement on short USD positions, to take effect in 90 days.

Overseas Data:

  • Eurozone Economic and Industrial Confidence improved more than expected in Dec, but Consumer and Service confidence declined more than expected.
  • UK Services PMI declined to 49.7 in Dec vs 52.8 expected and 53 previously. There was, however, a likely effect from disruptive weather, so we need to see if this is a trend that continues. Input price increased further, now rising at the fastest pace since 10/2008.

Commentary:

  • The AAII sentiment survey released last night showed a bulls-bear spread of 37.6, about 1.5 standard deviations above the mean, using data since 2002:

    This begs the question of whether a reversal is in order. The answer is that this doesn’t mean much – neither a sharp rally nor a sharp drop has historically followed. With the exception of the 2003 rebound, buying the S&P when the 4 week AAII bull-bear average is above 30 has been flat to negative: (look at the 1wk cumulative only)

    This suggests that this is a good environment to be opportunistically sell vol.

  • There’s not much to say really about payrolls tomorrow. The whisper expectations may now be much higher than the 150k BBG consensus, and judging by the equity market reaction to the ADP print, stocks probably won’t react much to payrolls either way. They may even rally if it prints close to consensus as the 1st Fed hike his pushed further out.
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