Recap 2-17-12

Main Items:

  • US Core CPI increased 2.3% YoY in Jan vs 2.2% exp and prev. The headline measure declined to 2.9% vs 2.8% exp and 3.0% prev
  • Canadian Core CPI increased 2.1% YoY in Jan vs 1.9% exp and prev. The headline index increased 2.5% YoY vs 2.3% exp and prev.
  • US Congress voted to extend the payroll tax cuts & UE benefits as exp. Yes votes in both chambers were bipartisan – the House vote was 293 vs 132. –NYT

Overseas:

  • Greece’s bailout will contain unprecedented terms w/Europe exerting substantial control over Athens’ spending. An escrow account will be created to house enough cash to pay Greece’s debt for 9-12 months. If the account falls under a certain level, money will be taken from accounts earmarked to fund the government. Meanwhile, Eurozone officials will assume a permanent monitoring role to ensure Greece is complying w/the terms of the austerity arrangement.-FT
  • 48% of Germans surveyed support further assistance to Greece.
  • The majority of Portuguese people surveyed believe the country should sign up to the new Fiscal Compact, but want a referendum on this subject.

Upcoming Data:

  • Japanese Merchandise Trade Balance, Swiss Trade Balance, Canada Retail Sales, EU Consumer Confidence, China HSBC Mfg PMI, EU PMI’s

Commentary:

I’m closing the NDX vs INDU trade as well as the Consumer Staples vs Discretionary trades. Valuation metrics suggests the 1st trade is near the end, and the 2nd trade is just a disaster so I’m stopping out. Combined, these trades are down ~1% since inception. YTD, the hit rate for the 2012 trade recommendations so far is 70%. Of the remaining trades, SIFI debt, Gold, Oil and MBS REITS continue to do well, while EURCHF is down and the S&P vs Eurostoxx is down marginally. Average return per trade is +3.8% benchmarked from the close of the date the recommendations were published.

Separately, note that the Canadian CPI data was quite strong. The 6 month average of the YoY Core CPI is now at early 2009 levels. (when the 2008 commodities price spike was impacting the series) The US Core CPI rate was also strong, and printed at the highest level since Sept 2008. The vertical lines in the chart below mark the first BoC hikes of each cycle.

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