Recap 8-13-13


A weird day today – we got a sizable bear steepening in treasuries without much of a catalyst. A SF Fed paper on how QE was not especially effective was cited by brokers, but that does not explain the move in the front ends. It is also possible that with major central bankers on vacation, short term players are testing for stops. Furthermore, intra day price action suggests that someone is short gamma at ~2.66% on 10’s. Thin summer market liquidity may have contributed to the size of the move also, but that’s all just one speculation after another. In any case, stocks held despite the excuse to sell off, with the S&P rallying ~1% off the morning lows. 2.75 is the local high and a key level for 10’s however, so a break higher will be a more significant test.

Separately, some BAML Fund Manager Survey Charts:

EM equities are very under-owned, although trend remains negative:

Only 3% of investors expect long term yields to be higher in 12 months. The percentage expecting higher rates has been higher only once, in early 2004:

But responses to positioning do not suggest a reversal yet, although cash levels are reportedly elevated at 4.5%.

Equity ownership is high, lead by the ownership of US stocks:

Investors are warming towards EU stocks:

But few expect double digit earnings growth there:

Finally, China tail risk fears are moderating:


  • US Retail Sales rose 0.2% vs 0.3% exp and 0.4% prev. The Control group rose 0.5% vs 0.4% exp. Weakness in the headline measure appears to have been driven by autos.
  • German Zew improved to 42 vs 39.9 exp and 36.3 prev
  • UK CPI declined to 2.8% YoY as exp vs 2.9% prev. The Core measure declined to 2.0% vs 2.2% exp and 2.3% prev
  • UK RICS house price balance jumped to 36 vs 24 exp and 21 prev
  • Australia Business Confidence declined to -3 vs 0 prev.
  • Japan Machine Orders rose 4.9% YoY in June vs 2.6% exp and 16.5% prev
  • Japan moved higher on talk that Abe was considering cutting corporate income taxes to offset the consumption tax hike. “Prime Minister Shinzo Abe has called for a study on lowering the corporate tax as a confidence-boosting counterweight to a consumption tax hike, government sources told The Nikkei on Monday.” Nikkei
  • A San Francisco Fed paper started the bond market selloff yesterday. “Asset purchase programs like QE2 appear to have, at best, moderate effects on economic growth and inflation.” It went on to say “Our analysis suggests that communication about when the Fed will begin to raise the federal funds rate from its near-zero level will be more important than signals about the precise timing of the end of QE3.” The thinking is that the research gives the Fed more confidence to taper.

Upcoming Data:

  • Wed: France GDP, Employment, BoE Minutes, UK Unemployment,
  • Thu: UK Retail Sales, US Jobless Claims, CPI, NAHB Survey, Philly Fed
  • Fri: US Labor Costs, Housing Starts