Recap 9-09-13


First, make sure you go and read the post at MacroMan today. Some very pertinent ideas there about how rate markets are moving they way they are.

Second, there are a few points I think are pertinent for a longer term view of US rates and growth that are worth mentioning.

1) I believe that the impact of Fed policies on growth is substantial. There have been a number of articles about how since the excess reserves stay in the banking system, policy doesn’t have that big of an impact. That’s not correct simply because using just some version of the money multiplier to measure impact has been ineffectual for several decades now

2) The short term impact of a rise in rates is mostly likely POSITIVE because of people worrying about rising rates and rushing to lock them in. I’ve read or heard of a number of anecdotal reports from real estate sources that support that view, and we got this bit from the FT today: “Bankers using interest rates to push business – M&A bankers are urging clients to step up their deal making now lest they face higher borrowing costs in the future. Advisors say deal activity is already accelerating (one of the main motivations of VOD/VZ was the fact that rates appear to be on the rise).”

3) Readers can deduce what these points imply for growth next year. Remember to think in terms of second derivatives, since GDP growth change is a second derivative term.

4) Several commentators have noted that in previous episodes of QE, yields were close to fully priced on the day of QE announcement. One such chart is below from JPM. (Thanks S)

I would note, though, that it may be more accurate to say the yields follow data, rather than the date of QE announcement. The chart below shows US yields vs the US economic surprise index, with QE dates highlighted. As you can see, in each of the cases, economic data surprises had already started turning at or before the QE dates. As of now, economic surprise index is at the highest level in 6m, Friday’s data notwithstanding.


  • China Data:
  1. Trade Balance improved to 28.5bn vs 20bn exp and 17.8bn prev. Export growth surprised to the upside, and imports to the downside.
  2. CPI was stable at 2.6% as exp vs 2.7% prev.

Japan Eco Watchers Survey declined to 51.2 vs 53.5 exp and 52.3 prev Australia Home Loans declined to 2.4% MoM vs 2.0% exp and 2.7% prev Canada Building Permits jumped 20.7% MoM vs 3.5% exp and -10.3% prev Tokyo was selected to host the 2020 Olympics, beating out Istanbul and Madrid. Win to boost GDP +.5% with Y4.2 Tril economic impact via construction/tourism Upcoming Data:

  • Mon: UK RICS, Japan Money Supply, Australia NAB Business Confidence
  • Tue: China IP, Retail Sales, Canada Housing Starts
  • Wed: UK Employment, Australia Employment,
  • Thu: US Jobless Claims, USDA WASDE
  • Fri: US Retail Sales, UMichigan Confidence