G3 Recap 2-8-11

Main Items:

  • NFIB Small Business Optimism Index improved to 94.1 in Jan vs 94.0 expected and 92.6 previously.
  • China hiked 1yr lending and deposit rates by 25bps overnight. The market thought the hike would occur before Chinese New Year.

Overseas Data:

  • German IP Rose 10.0% YoY in Dec vs 11.5% expected
  • UK RICS House Price balance improved to -31 in Jan vs -38 expected and -39 previously
  • Australia Business Confidence improved to 4 in Jan vs -3 previously.
  • Japan Eco Watcher Survey Outlook improved to 47.2 in Jan vs 43.9 previously.
  • Japanese Adjusted Current Account increased to 1.56trn Yen vs 1.53 expected and 1.15 previously

Commentary:

  • Treasuries took it to the chin today, as a weaker than expected 3yr auction apparently wiped out all buyers up to 3.75%. What has been interesting about the recent move is the facts that 1) the move is driven by real yields, and 2) the negative correlation between real yields and gold prices appear to have broken down, at least for now. 10y real yields have increased 44bps in the past 3 weeks to the highest levels since last April, even as gold has increased $50.

    This can only viewed as a gold positive, IMO. 10y Real Yields are up 100bps since last October, and can only go another ~100bps more. Yet, since then, gold is only down 4% from the peak!

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