Recap 7-11-13: Central bankers mis-speak, but positive signs for stocks

Commentary:

Very relevant posts from TMM today:

http://macro-man.blogspot.com/2013/07/more-central-banker-brass-balls.html

http://macro-man.blogspot.com/2013/07/fed-guidance.html

http://macro-man.blogspot.com/2013/07/central-banks-three-heads-are-worse.html

Separately, Citi data apparently shows that VIX-related contracts make up about 34 percent of overall volatility trading on the S&P 500 and as much as 44 percent of the short-term, 2-month volatility. Also according to them, "Pre-2008, around 10 percent of the (assets under management) internationally was invested in European equities. That’s now sub-1 for the last four years. Europe won’t take off until those people come back."

Also interesting post from Quantifiable Edges suggesting that that there is a good chance for higher gains for stocks over the rest of the month:

Goldman did a study on equity drawdowns within bull markets. They found that:

  • The size of a drawdown is positively related to the longer-term volatility and in some cases to market skew also. Markets experiencing higher volatility and higher skew tend to have higher drawdowns.
  • The size of a drawdown is NOT related to the strength of the preceding rally. This suggests that drawdowns do not stem from overly exuberant markets.
  • Following a drawdown, market trends tend to remain positive, but are perhaps slightly more moderate than the market trends that held sway prior to the drawdown. The depth of the drawdown seems to have a negative impact on longer term, forward returns.

Finally, this photo seems to be an apt metaphor for equity markets and the investing public these past few years:

Notable:

  • During Q&A after his speech yesterday, Bernanke’s answers were interpreted very dovishly, noting that 6.5% likely overstates the improvement, and noted that the Fed might want to “push back” on a further tightening in financial conditions.
  • US Jobless Claims rose to 260k vs 340k exp and 343k prev, although seasonal factors related to summer auto plant shutdowns may have been a factor
  • Australia Employment rose 10.3k in June vs 0k exp and 1.1k prev. But Unemployment rose to 5.7% vs 5.6% exp and 5.5% prev as the participation rate ticked higher to 65.3%. Moreover, the
  • BoJ kept policy unchanged as exp
  • Brazil hiked rates by 50bps to 8.50%, inline with market expectations. The statement said the committee decided to “continue the adjustment of the interest rate” which JPM noted is applied during the middle of cycles. The vote was unanimous and the 50bps pace could continue for some time.

Upcoming Data:

  • Fri: UMichigan Confidence, JPM and WFC reports
  • Mon: China GDP, IP, Retail Sales, US Empire Mfg, Retail Sales
  • Tue: UK CPI, German Zew, US CPI, NAHB Housing Market index
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