- MPC minutes showed that Posen and Miles dissented in favor of a larger QE increase, vs consensus expectations of a unanimous vote.
- US Existing Home Sales declined to 4.57mm SAAR in Jan vs 4.66 exp and 4.61 prev. The Dec print was revised down to 4.38mm.
- The UN nuclear agency IAEA has declared its latest inspection visit to Iran a failure. Iran has refused to allow int’l inspectors to observe certain sites within the country. China, India and Japan are planning cuts of at least 10 percent in Iranian crude imports as tightening U.S. sanctions make it difficult to continue doing business. The countries together buy about 45 percent of Iran’s crude exports. – NYT, WSJ, Reuters
- Portugal is reportedly pushing for better terms with the troika – FT
- According to a report in Shanghai Securities News, the city of Shanghai has eased some home purchase restrictions to allow a broader pool of buyers to purchase a second property.
- Ford said it would add ~$3.8B into its pension and is now targeting an ~80% bond allocation over time (as recently as 2006, Ford was targeting a 70% equities allocation). Reuters
- The Australian gov’t came close to a “crisis” Wed after Kevin Rudd unexpectedly resigned as foreign minister, setting up a possible leadership challenge to PM Julia Gillard as early as next week – WSJ
- China HSBC Mfg PMI improved to 49.7 in Feb vs 48.8 prev
- EU PMI for Feb declined a bit:
- Composite: declined to 49.7 vs 50.5 exp and 50.4 prev
- Mfg: improved to 49 vs 49.4 exp and 48.8 prev
- Services: declined to 49.4 vs 50.6 exp and 50.4 prev
- Both German and French indices remained above the 50 mark, with German services remaining well above.
French CPI declined to 2.6% YoY in Jan vs 2.7% exp and prev
- German IFO, US initial Jobless Claims, South Korea Business Survey
Based on the EU PMI prints today, the bulk of the EU growth bounce may be over. And less than a month after the Fed committed to being super dovish, energy prices are have hit new highs on the back of tight supplies and Iranian bellicosity. Finally, the next 3yr LTRO next week, the ECB liquidity spigot will be turned off, at least for now. As a result, the effects of recent strong positive growth surprises, central bank easing, and declining inflation – all growth supportive factors – are fading. While it doesn’t necessarily suggest that a turn in risk assets is imminent, the pace of this pro-risk rally is likely to slow from here. On a rolling 22 day basis, the S&P hasn’t had a negative rate of change since Dec 19th, the longest stretch since a year ago:
As a result, the plan is to spend more time looking at RV type bets. Long EU rates vs short Canadian & Australian rates are themes I’ve written about separately before. In equities space, the rally in Japanese equities on the back of last week’s BoJ action & subsequent Yen depreciation is starting to look overdone, especially given that 10y JGB yields and growth expectations have barely moved. Also, I’ve been an advocate of being short implied vol. While not an RV bet, the very steep implied vol term structure along with the wide differential between implied and realized vol suggest the trade has positive expected value in most scenarios except for a growth scare. (note that FTAlphaville suggests there could be a short squeeze in TVIX)
If any readers have additional ideas, feel free to share!