Recap 11-21-13


NB: There will be no update tomorrow

Note that Chinese 10y Government bond yields have hit 4.7%, the highest level in 10 years. One theory is that the PBoC is trying to squeeze the shadow banking system. Note however, that yields have been rising in line with inflation; the 10y – CPI differential remains stable at around 1%.

More here:


  • EU Mfg PMI was inline at 51.5 vs 51.3 prev. The Service Figure was weak at 50.9 vs 51.9 exp and 51.6 prev. France was weak, Germany was strong.
  • US Jobless Claims declined to 323k vs 335k exp and 339k prev
  • US Markit Preliminary PMI improved to 54.3 vs 52.3 exp and 51.8 prev
  • US Philly Fed declined to 6.5 in Nov vs 15 exp and 19.8 prev
  • EU Consumer Confidence declined to -15.4 vs -14 exp and -14.5 prev
  • BoC Governor Poloz says he wants Canada inflation higher
  • RBA Governor Stevens said he remains “open-minded” on currency intervention
  1. In the end it is not possible to come to a definitive assessment on the extent of currency misalignment at the moment, on the basis of standard metrics (and having regard to the statistical imprecision of such metrics). Having said that, my judgement is that the Australian dollar is currently above levels we would expect to see in the medium term.
  2. in my view, the Australian dollar is probably above its longer-run equilibrium at present, it is far from clear that we can assume that the mean level we saw in the 1980s to the early 2000s will be the relevant one in the future.
  3. Overall, in this episode so far, the Bank has not been convinced that large-scale intervention clearly passed the test of effectiveness versus cost. But that doesn’t mean we will always eschew intervention. In fact we remain open-minded on the issue.
  4. At various times we have worried that the market was behaving irrationally, believing that the exchange rate should have been somewhere other than where it was. And sometimes we were right about that. Yet, looking back, on balance the evidence suggests, I think, that the market has mostly moved the exchange rate to about the right place, sooner or later. We sometimes didn’t like the pathway. But if I ask the question of whether I would have consistently done a better job setting that price, even had that been feasible (which it wasn’t), I don’t think I could confidently answer in the affirmative.

BoJ left policy unchanged as expected. Kuroda said the economy is moving towards the 2% inflation target but the central bank has room to conduct more easing.

China Flash Mfg PMI declined to 50.4 vs 50.8 exp and 50.9 prev

House Representative Cole told Reuters that the negotiating committee are aiming to strike a two year deal that would ease some of the sequester cuts while ending the divisive fiscal battles from the last two years. The FT said a breakthrough has been made in the past few days. Politico said hopes are growing for a budget deal.

VIX options/futures gapped up on the open in their final session before expiration, closed at a level not reached during the day’s session, Adam Warner of Schaeffer’s Investment Research. Every Dec. VXX strike traded at least one contract at the open and the VIX value can be manipulated by such activity.

GS – the co’s weak FICC numbers in Q3 were driven in part by an FX trade that wound up going against the company. According to the WSJ, GS made a wrong bet on the direction of the USD/JPY and that led the overall FX desk to post a loss in the period. WSJ

Upcoming Data:

  • Fri: German IFO, Canada CPI,
  • Mon: US Pending Home Sales,
  • Tue: US Housing Starts, Consumer Confidence, South Korea Mfg Survey
  • Wed: UK 3Q GDP, US Jobless Claims, Durable Goods Orders, Chicago PMI, U Michigan Confidence, Japan Retail Trade
  • Thu: US Holiday, EU Money Supply, Japan PMI, CPI, IP, UK GfK Consumer Confidence