Recap 9-10-13: Some Observations Supportive of Further Risk-On


First, here’s an interesting fact: the fiscal tightening essentially ended as of June. After contracting by 2.8% (non annualized) of GDP in the first 2Q, the deficit has already hit projections for the year and is forecast to contract just 0.1% by year end and another 0.4% in 2014.

It’s not clear exactly what the fiscal multiplier is, and hence what the growth impact is. There doesn’t appear to have been a surge of government employees getting laid off as a result of this, so perhaps the multiplier is on the low side: (h/t FTA)

Second, note the new Nasdaq 100 highs today: (h/t tBP, Bespoke)

Also supportive of further gains is this study from Quantifiable Edges:

Finally, note that the CFTC position reports released today show that speculators have continued to get short, but net positioning is not yet at levels that have coincided with major yield highs in the past. Odds are, we have not seen the highs just yet:


  • Syria agreed to a Russian proposal to allow control of its chemical weapons by outside parties. – Interfax via the Syrian Foreign Minister
  • UK RICS House Price Balance improved to 40% vs 39% exp and 36% prev
  • Australia NAB Business Confidence improved to +6 vs -3 prev
  • China Data:
  1. M2 rose to 14.7% YoY vs 14.6% exp and 14.5% prev
  2. IP rose 10.4% YoY vs 9.9% exp and 9.7% prev
  3. Retail Sales rose 13.4% YoY vs 13.3% exp and 13.2% prev
  4. Fixed Assets YTD YoY rose to 20.3% vs 20.2% exp and 20.1% prev

US Jolts data show a fall in job openings. Barclay’s notes that the ratio of unemployed job seekers to job opening has fallen to 3.1, just above the peak from the 2003 recession, when unemployment peaked at 6.3%:

Canada Housing Starts declined to 180.3k vs 190kexp and 193k prev

WFC spoke at the Barclays conf and said originations would fall to $80B in Q3 while gain-on-sale margins also would slump. A bunch of mortgage firms (inc. WFC and BAC) have said they would cut jobs in response to the lower volume outlook.

ECB’s Assmussen: While unconventional monetary policy actions were necessary, we also need to pay attention to the related risks. Let me briefly discuss them together with broader challenges for monetary policy.

  1. One risk is complacency.
  2. Another risk relates to the side effects of globally low yields, which has already been widely debated in international fora. Risks of capital misallocations, stemming from low risk premia and yields, are not confined to domestic economies.
  3. A third risk relates to exit strategies from monetary accommodation. Exit risks are now taking centre stage in the debate.
  4. forward guidance is geared to reach two objectives: to reduce the volatility in the corridor, in which we have succeeded so far, and to make sure that economic data do not cause overreactions in the market interest rates. On this ground we have been moderately successful. It is still early days and it remains to be seen how this evolves in an environment of improving economic data and a generalised increase in global long-term rates.
  5. The Governing Council is evaluating how to enrich the communication strategy of the ECB. I believe that publishing the minutes of Governing Council meetings would be an important element of a richer communication strategy. In my personal view the minutes, summarising the main policy discussions, should include who voted for what, and the reasoning behind that vote. Publishing the minutes in such a way will sharpen our mandate, because the ECB will then have to explain why its decisions are in line with its European mandate.

Upcoming Data:

  • Wed: UK Employment, Australia Employment,
  • Thu: US Jobless Claims, USDA WASDE
  • Fri: US Retail Sales, UMichigan Confidence
  • Mon: US Empire Mfg, Canada Existing Home Sales
  • Tue: UK Inflation, German Zew, EU Trade Balance, US NAHB Survey, TIC flows