G3 Recap 1-25-11

Main Items:

  • US Consumer Confidence improved to 60.6 in Jan vs 54 expected and 52.5 previously.
  • Richmond Fed declined to 18 in Jan vs 22 expected and 25 previously.
  • Obama will reportedly propose a 5yr non-security discretionary spending freeze tonight.
  • CaseShiller 20-city index decreased 0.5% in Nov, the 5th consecutive decrease. It is now down -1.6% YoY.
  • The EFSF 5yr was reportedly oversubscribed by ~40bn. Japan reportedly bought 20% of the issue.
  • Spain will force its weaker savings banks to raise more capital or face nationalization in an effort to restore confidence in the Spanish economy – FT. The state is targeting a core capital ratio of 8% or RWA, and estimates that 20bn would be need, vs market expectations of 20-50bn. Credit institutions will have until Sept. The government has also called for the Cajas to attempt to get the capital from private sources.
  • Canadian Core CPI rose to 1.5% YoY in Dec vs 1.6% expected and 1.4% previously.
  • Russia’s central bank plans to buy 100 metric tons of gold a year from domestic banks to replenish gold reserves, the Wall Street Journal said, citing the bank’s press service. Bloomberg
  • Earnings: (misses in bold)
  • JNJ: 1.03 vs 1.03. Sales 15.64bn vs 16.01bn. Sees Yr Adj EPS 4.80 vs 4.98.
  • Dupont: 50c vs 31c. 2011 forecast raised
  • Verizon: 54c vs 55c.
  • Blackrock: 3.42 vs 2.89. AUM rose 3% QoQ.
  • EMC 42c vs 41c
  • Kimberly-Clark: 1.20 vs 1.15
  • 3M: 1.28 vs 1.27, Revenue of 6.71bn vs 6.59bn. Year guidance at $5.95-$6.20, up from $5.90-$6.10.
  • Coach: 1.00 vs 0.97 estimates. Revenue of 1.26bn vs 1.21bn.
  • YHOO: 26c vs 22c. Revenue ex TAC 1.21bn vs 1.19bn. Sees 1Q Revenue Ex-TAC 1.02bn-1.08bn vs 1.14bn.

Overseas Data:

  • UK 4Q GDP disappointed sharply, falling -0.5% vs +0.5% expected and 0.7% previously. The ONS estimated that bad weather accounted for -0.5%.
  • BoE’s King said today that “uncomfortably high CPI is of more immediate concern,” forecasting that CPI could rise to 4-5% over the next few months. However, he noted that “the stance of monetary policy not well captured by the bank rate, due to credit constraints,” although “wage rises in response to higher commodity prices would require MPC action.” Finally, he said that central bank credibility is not won in a year, but also is not lost in a year.”
  • German Gfk Consumer Confidence improved to 5.7 in Feb vs 5.4 expected and previously
  • RBI hiked 25bps to 6.5%, and raised its March Inflation Forecast to 7% from 5.5%.
  • Australia 4Q CPI rose 0.4% QoQ vs 0.7% expected.
  • BoJ kept rates unchanged, but downgraded fiscal 2011 GDP forecasts to 1.6% from 1.8% in October, and upgrade Inflation to 0.3% from 0.1%.


  • Technicals are suggesting an upcoming bounce in gold. Over the past 7 years, when spot gold’s 14 week RSI touches 50 AND the price touches the 30 week moving average, gold has bounced. We are still roughly $20 away, so it could fall a bit more, but now is not the time to get too beared up. Seasonals remain positive, ETF holdings remain near the highs and stable, and speculative positioning is now down to neutral.


6 thoughts on “G3 Recap 1-25-11

  1. seems myself and a few others thinking US credit downgrade sometime in the next year totally possible … folks think that selling 30Y is best way to express this as a structural trade but i’m not so sure due to whiplash of possible europe/china/equity … any view on US sovereign CDS? me thinks buy on dips as higher over time!

  2. I think the Argentine GDP warrants look undervalued, maybe the USD ones … in light of political stability towards the elections (the biggest downside risk along with China slowdown), upgrades to 2012 growth forecasts, the nominal gdp nature of the calculation and improving sov credit spreads, they might be a good play, especially if you like softs, like soybeans

  3. Hey Bert –
    That one’s tricky… I think a US down grade will bring the rating agencies a lot of political flak, on top of what they’ve been getting. It’s kind of like the CDO’s again – the rating agencies are issuing ratings to help their business. So maybe a warning or negative outlook, but an actual downgrade next year seems kind of early to me.
    The repercussions would be huge, as you well know. The amount of outflows from treasuries into other AAA sovereigns will be insane… I think the risks are too great for the regulators to allow it to happen.

    Having said that, you of course could still make money on the trade without a downgrade. Obama’s SOTU probably helped it along. The carry & vol on the short 30y trade is too painful, and the other reasons you mentioned… CDS definitely seems the better way to play it, IMO.

  4. Hey qeqe –
    I’m going to plead ignorance here. I haven’t done any work at on on Argentina. Although I’m curious – how strong and how reliable is the correlation between softs and Argentine GDP?

    1. hmm, varies over time for sure but appears to get stronger more recently (probably a broad commodities/em phenom) — default in 2001, restructurings throw things off

      very sparse data, but say, using ’03 onwards, something pretty high – maybe 0.5-0.7 to a basket of wheat and soy

  5. yes don’t need actual downgrade as mtm on move of either significant increase in debt ceiling, number of agencies issuing credit watch or even a h2 world growth slowdown would do the trick to the cds.

    how about buying US and selling Argentine CDS?!

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