Recap 6-21-12

Main Items:

  • US Markit Preliminary PMI declined to 52.9 in June vs 53.3 exp and 54 prev
  • Philly Fed dropped to -16.6 in June vs 0 exp and -5.8 prev
  • US Initial Jobless Claims was stable at 387k last week vs 383k exp
  • US Existing Home sales declined to 4.55m in May vs 4.57m exp and 4.62m prev


  • EU Composite PMI was stable at 46 in June vs 45.5 exp. Mfg PMI declined to 44.8 as exp vs 45.1 prev. Services PMI improved to 46.8 vs 46.4 exp and 46.7 prev. Both German figures were weaker than expected, but both French figures were stronger.
  • China HSBC Mfg PMI declined to 48.1 in June vs 48.4 prev.
  • UK Retail Sales ex Auto Fuel jumped to 3.0% YOY in May vs 2.7% exp and -0.3% prev

Upcoming Data:

  • Fri: German IFO, Canada CPI
  • Mon: Chicago Fed Index, US New Home Sales, Dallas Fed
  • Tues: US Consumer Confidence, RichmondFed, South Korea Business Survey
  • Wed: German CPI, US DGO, Pending Home Sales, Japan PMI

Commentary & Links:

We should remember that monetary policy works with variable lags. In prior instances of QE & Twist, the announcement of monetary easing occurred after the cyclical data has turned upward. That is not the case this time. Goldman published a purely statistical study of the effects of prior Fed eases this cycle yesterday. A blind application of that study to Twist 2 would yield expectations for an 8% rally in the S&P. One could argue that the 6% rally since 6/1 in the face of weak data means the effects were already been priced in.

Also, some participants interpreted yesterday’s minutes and Q&A as an indication that the Fed is unlikely to ease further in the near future. (Next meeting is on August 1st) This may be a reason treasuries only rallied marginally on the day, despite the horrible performance of risk assets. Or it could reflect expected deleveraging as a result of the expected downgrades today. In any case, the upside for yields may be limited as long as the data stays weak. 1.70 and 1.80 both look like good points for long positions if they are touched.

Separately, some interesting survey results from a UBS reserve manager conference, from FTAlphaville:

When most people agree that an asset is too rich, it often means that view is already fully priced in – suggesting that the bund rally could continue.

Finally, Barclay’s notes that current oil prices are now below breakeven for most producers, which suggests that a supply response is likely forthcoming:

2 thoughts on “Recap 6-21-12

  1. be interesting to see if $copper decides to jump off and join the party, it started in with $wtic in May but now looks like it’s waffling a bit.
    I think a little $vix here, as it bumps above 20 again, may help me sleep. Judging by the volume of the etf I follow it looks like I’m not alone.
    Thanks for the posts, a daily must read for me.

    1. Good point – copper chart doesn’t look good. Looks like expectations of credit expansion in China will be needed to reverse it. Interesting that the price action is so bearish despite the drop in global inventories over the past few months.

      VIX is interesting, but the carry seems expensive. July Vix futures are trading 3+ pts above spot VIX, for a negative carry of 15% / month.

      It seems likely OPEC is going to cut production this summer. At these rates, lots of producers aren’t economical, which means they’ve cut production unless it’s already hedged. If OPEC doesn’t cut, that probably means the governments are running out of money and more social unrest in the middle east is likely.

      Thanks for visiting & commenting. Have a great weekend.

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