Recap 1-17-14


There’s just not a whole lot going on right now, big picture wise. Bonds and stocks are both consolidating ahead of FOMC at month end, with the consensus for another 10bn taper. Bonds tried to sell off but 10y yields peaked at 3% and look unlikely to breach it before the next Fed meeting. Equities tried to sell off last week but with no follow through, it quickly retraced. Yet equities aren’t moving higher, possibly because valuations are back near the highs from the last cycle. Indicators of cash on the sidelines suggest investors have decent amounts of dry powder, although that may be because investors intend to use the cash to buy bonds. The consensus is certainly fairly bullish, so markets may be waiting to for clarity from earnings and/or the Fed. In the meantime, people are buying protection. The put/call ratio is very elevated, and people are also loaded up on VIX calls. As a result, my take is that markets need a catalyst of some sort before recent trends can continue or reverse. Surprises next week in the BoJ announcement or EU PMI prints are possible candidates.


  • UK Retail Sales jumped to 2.8% in Dec vs 0.3% exp and 0.4% prev
  • US Housing Starts declined by -9.8% vs 9.7% exp and 22.7% prev
  • UMichigan Confidence declined to 80.4 vs 83.5 exp and 82.5 prev
  • GS take on the big 4 US banks: While dispersion of results has been wide so far in 4Q, the most consistent theme has been better than expected credit and spread income offsetting lackluster fee income (capital markets/mortgage banking) and elevated litigation charges. In aggregate, we raise our 2014/2015 estimates by 1%/1% (mainly to reflect “lower-for-longer” credit). With 8% upside to price targets, we reiterate our Attractive coverage view as the group remains a relatively inexpensive and levered play on the domestic recovery.
  • SNB Chairman Jordan: "the minimum-exchange rate will be the focus of monetary policy implementation for the foreseeable future”, but “imbalances are developing on the mortgage and real estate markets, thereby posing a risk to financial stability”
  • In China, ICBC will not stand behind a $500mm investment product it distributed in 2010. JPM said we believe that the chance of trust investors getting repaid is high; the question is by whom?

Upcoming Data:

  • Mon: US Holiday, China Data,
  • Tue: German ZEW, Australia CPI
  • Wed: BoJ, UK Employment, BoE Minutes, BoC, China HSBC Flash Mfg PMI
  • Thu: EU PMI, Canada Retail Sales, US Jobless Claims, Markit PMI, EU Consumer Confidence, US Existing Home Sales
  • Fri: Carney Speaks, Canada CPI