- 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
- 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.