Recap 11-23-11

Main Items:

  • US DGO improved to -0.7% in Oct vs -1.2% exp and -0.8% prev. Capital Goods Orders, Nondefence Ex Air declined to -1.8% vs -1% exp and +2.4% prev
  • US Core PCE increased to 1.7% in Oct as exp vs 1.6% prev
  • US Initial Jobless Claims printed 393k vs 390k exp and 388k prev. This is the first time that claims have printed below 400K for three straight weeks since late-March/early-April this year.
  • Fed’s Stress Test Scenario covers 31 largest banks and assumes:
  1. 13% UE
  2. 8% decline in GDP
  3. 21% decline in home prices
  4. 52% peak to trough equity market decline

Goldies things all banks will pass.

Germany had a weak bond auction. The country offered six billion of 10yr paper and received only 3.9bn worth of bids. The auction was technically uncovered, and the 4th consecutive one to do so, although it should be noted that they aren’t uncommon. What is uncommon, however, is for bunds to drop afterwards. Note that bund yields have increased this month, despite increasing systemic stress.


  • EU PMI: temporary improvement, but he market isn’t buying it
  1. Mfg declined to 46.4 vs 46.5 exp and 47.1 prev
  2. Services improved to 47.8 vs 46 exp and 46.4 prev. Both French and German prints came in better than expected.

HSBC Flash China Mfg PMI declined to 48 vs 51 prev. This isn’t as alarming as it sounds. Recall that in mid 2010, the HSBC flash measure fell to 49 but the official measure never fell below 52.

BoE minutes showed a unanimous vote


The Bund auction failure, and the ECB’s reaction to it (Nowotony commented that it was very worrying) suggests that events are coming to a head. Either the ECB acts, or Germany is going to come under significant pressure. This is highlighted by the breakdown in correlation between EU financial CDS (white, inverted) and bund yields (orange) over the past week. In effect, it suggests that the market no longer sees bunds as a safe haven OR deleveraging pressures have reached a fever pitch. This suggests that deleveraging is entering the final stage, a hypothesis which is also highlighted by weak price action in gold. Something is going to happen, and soon. Be prepared.

Also, note that the IMF released its report on CB gold holdings. The Soviets bought in size:
– Russia gold reserves 28M oz, +627K oz
– Kazakhstan gold reserves 2.4M oz, +102K oz
Based on World Gold council’s estimate of total Q3 CB purchases of 148.4 metric tons, the Soviets represent ~15% of the total.

There will be no updates the rest of the week. Happy Thanksgiving everyone. Good luck, and thanks for reading.


8 thoughts on “Recap 11-23-11

  1. Happy Thanksgiving and I share in sp’s comment: ..Thank you for the insightful commentary on such regular basis and with such high levels of clarity and quality presentation. Enjoy the festive season and greetings from London.

  2. Agreed. I always look forward to your insights and very much appreciate the effort you put into consistently updating the blog…..

    Happy Thanksgiving from another reader here in the UK.

    All the best.

  3. I echo the comments above.

    A little colour on the German bund auction: 35% retention by the Bundesbank. This is the highest retention since records started being kept in 1998, hence the concern.

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