Recap 9-19-12: EU Economic Data Tomorrow

Commentary:

Tomorrow’s PMI figures for Europe will be closely monitored for signs of a continuation of the bounce in EU data. Consensus expectations are for a marginal increase of less than 0.5 pts for most series. There may be a bit more room for positive surprises, as expectations continues to be depressed.

Separately, the BoJ was a dud. USDJPY is likely to continue to depreciate against the MoF ‘vocal intervention’ levels of ~78. Model outputs suggests ‘fair value’ is about 5 figures lower, but it’s hard to see that happening given intervention threats. As a result, option sales look interesting.

Notable:

  • BoJ increased its purchase program from 70trn to 80trn yen, half via TBills and half via JGBs. It will also now buy bonds with a yield less than 0.1%.
  • US Existing Home sales jumped to 4.82mm in Aug vs 4.56mm exp and 4.47mm prev.

Upcoming Data:

  • Thu: China HSBC PMI, EU PMI, US Jobless Claims, Philly Fed
  • Fri: Canada CPI, Quadruple Witching
  • Mon: German IFO, Dallas Fed
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2 thoughts on “Recap 9-19-12: EU Economic Data Tomorrow

  1. NSC warned after hours. The transports are truly not confirming this rally and it seems to me that we may be in some sort of “me too” phase where the positioning has reached extreme bullishness. I think as the market begins to digest the fact QE is not going to prevent this slow down (has QE or monetary policy ever been proven to be effective? It is debatable at best IMO.) the risks to the downside mount, especially since this rally has been based on *multiple expansion* and not earnings.

    1. It’s interesting – sentiment and positioning reports are not telling the same story these days. Positioning is at reasonably high (but not crazy) levels, but sentiment remains pretty bearish/cautious. That may explain why the defensive sectors are outperforming so much.

      S&P going up on multiple expansion is, I think, a scenario very few saw coming this year, but I’m not sure yet what could derail it. Theoretically, the Fed can print for 10 years and people just migrate from bonds to stocks. We may see a repeat of the ‘Nifty Fifty’ phenomenon from the 1960’s-70’s.

      I dislike all this very much because we’ve been trained to look at fundamentals for investing, but maybe that won’t work for a while. It’s hard to say – but a depressing thought – because by implication that means we’re getting another bubble. But – as Soros said – it’s better to invest in a bubble and get out than to fight it.

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