Economic data was all around pretty positive everywhere, so it’s quite curious to see risk assets going nowhere today.
China’s strength is driving EM stocks as well as copper and energy. Everything else – developed market stocks, bonds, currencies, other commodities – are more or less flat.
I reckon most people are staying the heck out with US election and Fed meeting right around the corner.
I still like risk assets for the remainder of the year as well as a smallish long bet on USD to build up to a substantial position over time. BUT with investor sentiments being pretty one-sided already we really need to keep eyes on our positions.
Tomorrow morning we will see final Oct manufacturing data out of Europe which can drive European stocks. We should see continuation of strong core and weak peripheral theme. There should not be a big surprise here because prelim numbers were already released a week ago.
Korea – inflation accelerates to 4.1% from 3.6%
• This will pressure rate hike and strengthening in KRW.
China – manufacturing very strong in Oct
• As expected, China has stabilized and now on a rebound path.
• Signs of inflation is becoming more noticeable in input costs. It is likely that China will continue to tighten. While this will give the market periodic jolts this is not something we need to worry in short to medium term.
UK manufacturing shows a surprise upturn in Oct
• The latest Markit/Chartered Institute of Purchasing and Supply survey, published by Reuters, showed the headline October activity index rising to 54.9 from 53.5 in September, confounding analysts' forecast for a slowdown, with the median prediction for a 53.0 outturn.
• This was the first monthly rise in the index since May. These latest data will underscore most analysts' belief the Bank of England Monetary Policy Committee will not relaunch Quantitative Easing at this month's meeting.
US Sep - income drops but spending rises
• How can that happen? People are borrowing again.
• Personal incomes in the U.S. fell in September and spending increased, leading to a drop in household savings rate to its lowest level in more than a year.
• What this tells you is that any consumption growth has been on an extremely shaky footing.
• Meanwhile, the annual growth rate of the core PCE (personal consumption expenditure) deflator fell from 1.3% in August to 1.2% in September. This is another measure of inflation (kind of like the official CPI) the Fed watches closely and the gradual decline highlights why more quantitative easing will be announced on Wednesday.
US Oct manufacturing - expanded at the fastest pace in five months
• New Orders sub-index, generally considered to be one of the best leading indicator of manufacturing activities – rose which is a very good news.
• This ISM reading eases fear we’re sliding into any kind of recession in near future.
Monday, November 1, 2010
Friday, October 29, 2010
2010 10 29
I am feeling nervous.
US GDP was basically in-line with trend : so-so. Not great but not bad enough to warrant a sell-off. I believe the path of least resistance is still up for risk assets based purely on fundamentals.
Next week will be HUGE.
Monday is a flood of manufacturing data for Oct from around the world.
Tues-Wed is Fed meeting where the market is eagerly awaiting on details for QE2.
Curiously Japan moved up its BoJ meeting from Nov14 to Nov 4, presumably to respond to US Fed loosening which can push up yen even higher. I am guessing a massive stimulus package from Japan which could push down Yen and push up Nikkei – in the short term. I would use this opportunity to short Nikkei.
In general though I think we are coming close to end of this rally that began in early Sep. I don’t see any great economic upside surprise coming from anywhere in the world. Central banks would have more or less exhausted their bullets after next week (I think BoE and ECB will loosen too but that would impact mostly currency and bonds and not have a system wide impact like US Fed). AND investor sentiment is already extremely high.
We must tread with extreme caution here.
Japan data continues to get pounded by bad data
• Industrial production for Sep comes in way short of expectation
• On top of very weak retail sales data from yesterday.
Korea – weaker industrial production for Sep
A rare bad news for Germany – retail sales dip in Sep first time since March 2008
• German retail sales posted their biggest monthly drop in 2-1/2 years in September, clashing with recent figures that had painted a rosier picture of consumer demand in Europe's largest economy.
• "This is a very weak result. It dampens the expectations that private consumption is taking off like a rocket," said Ralph Solveen from Commerzbank. "However, one should not forget that retail sales data often fluctuate heavily and are revised frequently."
• A survey by market research group GfK on Tuesday showed consumer morale remains at its highest level since May 2008 going into November on expectations of a continuing recovery, bolstering hopes that improved domestic demand will take up much of the slack if export growth runs out of steam.
US GDP – Not Good, Not Bad, just OK
• The theme continues. It’s not as bad as recession. But pretty poor and future does not look very good.
• 2% is nothing to cheer about as US needs about 2.5%-3% just to maintain the same employment. Although it was better than 1.7% in Q2.
• Consumption growth was solid enough, increasing by 2.6%, up from 2.2% in the second quarter. But households had to dip into their savings to afford even that modest increase.
US GDP was basically in-line with trend : so-so. Not great but not bad enough to warrant a sell-off. I believe the path of least resistance is still up for risk assets based purely on fundamentals.
Next week will be HUGE.
Monday is a flood of manufacturing data for Oct from around the world.
Tues-Wed is Fed meeting where the market is eagerly awaiting on details for QE2.
Curiously Japan moved up its BoJ meeting from Nov14 to Nov 4, presumably to respond to US Fed loosening which can push up yen even higher. I am guessing a massive stimulus package from Japan which could push down Yen and push up Nikkei – in the short term. I would use this opportunity to short Nikkei.
In general though I think we are coming close to end of this rally that began in early Sep. I don’t see any great economic upside surprise coming from anywhere in the world. Central banks would have more or less exhausted their bullets after next week (I think BoE and ECB will loosen too but that would impact mostly currency and bonds and not have a system wide impact like US Fed). AND investor sentiment is already extremely high.
We must tread with extreme caution here.
Japan data continues to get pounded by bad data
• Industrial production for Sep comes in way short of expectation
• On top of very weak retail sales data from yesterday.
Korea – weaker industrial production for Sep
A rare bad news for Germany – retail sales dip in Sep first time since March 2008
• German retail sales posted their biggest monthly drop in 2-1/2 years in September, clashing with recent figures that had painted a rosier picture of consumer demand in Europe's largest economy.
• "This is a very weak result. It dampens the expectations that private consumption is taking off like a rocket," said Ralph Solveen from Commerzbank. "However, one should not forget that retail sales data often fluctuate heavily and are revised frequently."
• A survey by market research group GfK on Tuesday showed consumer morale remains at its highest level since May 2008 going into November on expectations of a continuing recovery, bolstering hopes that improved domestic demand will take up much of the slack if export growth runs out of steam.
US GDP – Not Good, Not Bad, just OK
• The theme continues. It’s not as bad as recession. But pretty poor and future does not look very good.
• 2% is nothing to cheer about as US needs about 2.5%-3% just to maintain the same employment. Although it was better than 1.7% in Q2.
• Consumption growth was solid enough, increasing by 2.6%, up from 2.2% in the second quarter. But households had to dip into their savings to afford even that modest increase.
Thursday, October 28, 2010
2010 10 28
Quiet day in stocks and commodities (except gold which was up big) while USD weakened quite a bit and bonds rose on swinging macro sentiments.
Japan looks bad in almost every metric, but it seems likely the government would announce an aggressive stimulus maybe on Nov 4 or 5 as BOJ rescheduled its policy meeting (from Nov 15 and 16). BOJ might want to promptly fight off any further yen strength following FOMC announcement.
Europe data continues to impress but most of it is due to Germany.
US data continues to be – just OK. But that’s probably good enough for the markets to continue to run.
Tomorrow is a fairly busy day : Korea/Japan industrial production, Japan CPI, UK banking and credit market reports, Eurozone inflation estimate, EU unemployment rate, Swiss KOF leading indicator
But the two biggest pieces of data are US Q3 GDP and October Chicago PMI. Usually GDP is not a big deal as it is an old news, but in these days of macro uncertainty it seems to have an outsized impact. It would probably come in low-mid 2% range which is not good but good enough for the time being. If Chicago PMI comes in weak that could be grounds for a real concern as manufacturing has been the only source of strength in US. Sentiment is frazzled there after a very weak durable goods orders.
The chances are market is in holding pattern until the Fed QE2 announcement until next week.
I want to re-highlight my email from earlier today on investor sentiment:
So as I said I feel optimistic on the stocks near term. However, after seeing this chart it makes me pause because apparently everyone else is also optimistic.
Below is weekly chart of American Association of Individual Investors Survey on bullish sentiment. The most recent data just came out today.
As you see the current reading is at an extremely high level. More importantly, the last couple times when sentiment reached this high – early Jan and mid April, we saw some big sell offs follow soon after. With lukewarm fundamentals and with investor sentiment this bullish already, it makes me doubt if being long risk is a good trade at this point. I think we need to put in stop limits.
Japanese stock market continues to underperform by a wide margin.
• Bank of Japan Governor Masaaki Shirakawa said Thursday that the central bank may expand its asset purchase from the current level if the economic situation deteriorates.
• “The BOJ will examine effects and side effects of these measures and if we think find the economic situation changing significantly, we may expand the fund,” Shirakawa told reporters in Tokyo.
• BOJ might be emboldened to take even larger intervention if US’s QE announcement next week has a big impact.
German unemployment – not quite as good as expected but still very good
• Unemployment in Germany fell below 3m in October for the first time in 18 years, according to unadjusted figures released by the federal labour office.
Eurozone bank lending survey shows demand loans is robust
• The European Central Bank said net demand for loans in Europe was positive for the first time in more than two years, driven by financing needs for inventory and working capital.
• Borrowing by households also improved as more banks approved loans, signalling increased optimism about the economic situation and housing markets.
• This is in stark contrast versus US where loan demand is still weak because there is just no demand to consume or invest. Despite what all the businesses complain about lack of stimulus and Obama and whatnot the real problem is that there is no demand and there are no productive assets to invest in US.
Eurozone economic sentiment rises yet again
• The European Commission’s monthly economic sentiment indicator rose 0.9 points to 104.1 in October, a 34-month high. Analysts had forecast a smaller increase following several months of rapid growth.
• The eurozone figure concealed wide differences between the so-called “core” economies such as France and Germany, which rose, and the weaker “peripheral” group including Spain and Portugal, struggling with deep fiscal problems.
• “The eurozone growth divergence is certainly not disappearing,” said Peter Vanden Houte, economist at ING, referring to indicators in the past year that have pointed to a divergent recovery in Europe.
• The strong showing was partly down to improved expectations in the labour market, raising policymakers’ hopes that bullishness will now boost domestic demand – the weak link in the economic recovery.
US initial jobless claims – better than it has been but once again LUKEWARM
Japan looks bad in almost every metric, but it seems likely the government would announce an aggressive stimulus maybe on Nov 4 or 5 as BOJ rescheduled its policy meeting (from Nov 15 and 16). BOJ might want to promptly fight off any further yen strength following FOMC announcement.
Europe data continues to impress but most of it is due to Germany.
US data continues to be – just OK. But that’s probably good enough for the markets to continue to run.
Tomorrow is a fairly busy day : Korea/Japan industrial production, Japan CPI, UK banking and credit market reports, Eurozone inflation estimate, EU unemployment rate, Swiss KOF leading indicator
But the two biggest pieces of data are US Q3 GDP and October Chicago PMI. Usually GDP is not a big deal as it is an old news, but in these days of macro uncertainty it seems to have an outsized impact. It would probably come in low-mid 2% range which is not good but good enough for the time being. If Chicago PMI comes in weak that could be grounds for a real concern as manufacturing has been the only source of strength in US. Sentiment is frazzled there after a very weak durable goods orders.
The chances are market is in holding pattern until the Fed QE2 announcement until next week.
I want to re-highlight my email from earlier today on investor sentiment:
So as I said I feel optimistic on the stocks near term. However, after seeing this chart it makes me pause because apparently everyone else is also optimistic.
Below is weekly chart of American Association of Individual Investors Survey on bullish sentiment. The most recent data just came out today.
As you see the current reading is at an extremely high level. More importantly, the last couple times when sentiment reached this high – early Jan and mid April, we saw some big sell offs follow soon after. With lukewarm fundamentals and with investor sentiment this bullish already, it makes me doubt if being long risk is a good trade at this point. I think we need to put in stop limits.
Japanese stock market continues to underperform by a wide margin.
• Bank of Japan Governor Masaaki Shirakawa said Thursday that the central bank may expand its asset purchase from the current level if the economic situation deteriorates.
• “The BOJ will examine effects and side effects of these measures and if we think find the economic situation changing significantly, we may expand the fund,” Shirakawa told reporters in Tokyo.
• BOJ might be emboldened to take even larger intervention if US’s QE announcement next week has a big impact.
German unemployment – not quite as good as expected but still very good
• Unemployment in Germany fell below 3m in October for the first time in 18 years, according to unadjusted figures released by the federal labour office.
Eurozone bank lending survey shows demand loans is robust
• The European Central Bank said net demand for loans in Europe was positive for the first time in more than two years, driven by financing needs for inventory and working capital.
• Borrowing by households also improved as more banks approved loans, signalling increased optimism about the economic situation and housing markets.
• This is in stark contrast versus US where loan demand is still weak because there is just no demand to consume or invest. Despite what all the businesses complain about lack of stimulus and Obama and whatnot the real problem is that there is no demand and there are no productive assets to invest in US.
Eurozone economic sentiment rises yet again
• The European Commission’s monthly economic sentiment indicator rose 0.9 points to 104.1 in October, a 34-month high. Analysts had forecast a smaller increase following several months of rapid growth.
• The eurozone figure concealed wide differences between the so-called “core” economies such as France and Germany, which rose, and the weaker “peripheral” group including Spain and Portugal, struggling with deep fiscal problems.
• “The eurozone growth divergence is certainly not disappearing,” said Peter Vanden Houte, economist at ING, referring to indicators in the past year that have pointed to a divergent recovery in Europe.
• The strong showing was partly down to improved expectations in the labour market, raising policymakers’ hopes that bullishness will now boost domestic demand – the weak link in the economic recovery.
US initial jobless claims – better than it has been but once again LUKEWARM
Wednesday, October 27, 2010
2010 10 27
The markets were looking ugly by lunch time in NYC, but then staged a good sized come back undoing much of the morning action.
Seems like the WSJ report of the Fed going soft into QE2 had scared a lot of the investors initially – and it could very well have impacted the bond market which sold off steadily throughout the day. USD was stronger versus every G10 currency but not by a big margin except in Australia where weak inflation is likely to slow rate hike cycle.
Looking at fundamental data the theme is clear – things are CLEARLY SLOWING DOWN everywhere in the world. But I do not believe in double dip or anything near that for 2010. For the final two months I am still optimistic on equities and like USD. In the bonds space the yields have risen rather sharply in the last two weeks making me doubt if risk/reward is still attractive to short bonds at this point. Fundamentally current yield levels are totally justifiable, and over longer term we would go lower in yields as 2011 unfolds.
Korea GDP slows down drastically
• South Korea's GDP growth slowed in the third quarter to 0.7 percent from 1.4 percent in the previous quarter, as exports fell drastically in the wake of cooling global growth.
• The exports sector gained just 1.9 percent in the third quarter, led mainly by increased exports of petrochemical products, semiconductor and automobiles. This was sharply lower than the 7 percent growth recorded in the previous quarter.
• A marked reduction of exports to China in September to an 11-month low weighed on third-quarter growth figures. China accounts for as much as a quarter of shipments from South Korea. Analysts say a further slowing of Chinese domestic demand resulting from a recent rate hike by the Chinese central bank will further erode confidence in the Korean exports sector.
Australia – benign inflation data means RBA likely to take time on rate hikes
France – consumer spending in Sep surprises to the upside
• Basically offsets fall in Aug. (1.5% rise in Sep after 1.6% fall in Aug) and surely an encouraging sign.
• However, French private sector activity growth slowed in October to its lowest level in more than a year, according to Markit Economics. Purchasing Managers' survey signaled a downshift in growth at the start of the fourth quarter as production and new order growth weakened.
US – durable goods orders were not good if you subtract airplanes
• Orders for durable goods—manufactured items meant to last at least three years, such as copper coil and cars—rose 3.3% in September from August, the Commerce Department said Wednesday. That increase owed entirely to orders for nondefense aircraft and parts, which more than doubled. Indeed, Boeing Co. reported that it received orders for 117 planes in September, up from 10 in August. Stripping out aircraft, orders fell 0.1%.
• Aircrafts are hugely pricey and tend to come in lumps, so economists usually exclude them in durable goods data analysis – similar to why foods and energy are excluded from CPI (price volatility)
• That suggests that the rebound in capital spending that began in the second half of last year—as companies made purchases they had deferred during the downturn—may be coming to an end.
Seems like the WSJ report of the Fed going soft into QE2 had scared a lot of the investors initially – and it could very well have impacted the bond market which sold off steadily throughout the day. USD was stronger versus every G10 currency but not by a big margin except in Australia where weak inflation is likely to slow rate hike cycle.
Looking at fundamental data the theme is clear – things are CLEARLY SLOWING DOWN everywhere in the world. But I do not believe in double dip or anything near that for 2010. For the final two months I am still optimistic on equities and like USD. In the bonds space the yields have risen rather sharply in the last two weeks making me doubt if risk/reward is still attractive to short bonds at this point. Fundamentally current yield levels are totally justifiable, and over longer term we would go lower in yields as 2011 unfolds.
Korea GDP slows down drastically
• South Korea's GDP growth slowed in the third quarter to 0.7 percent from 1.4 percent in the previous quarter, as exports fell drastically in the wake of cooling global growth.
• The exports sector gained just 1.9 percent in the third quarter, led mainly by increased exports of petrochemical products, semiconductor and automobiles. This was sharply lower than the 7 percent growth recorded in the previous quarter.
• A marked reduction of exports to China in September to an 11-month low weighed on third-quarter growth figures. China accounts for as much as a quarter of shipments from South Korea. Analysts say a further slowing of Chinese domestic demand resulting from a recent rate hike by the Chinese central bank will further erode confidence in the Korean exports sector.
Australia – benign inflation data means RBA likely to take time on rate hikes
France – consumer spending in Sep surprises to the upside
• Basically offsets fall in Aug. (1.5% rise in Sep after 1.6% fall in Aug) and surely an encouraging sign.
• However, French private sector activity growth slowed in October to its lowest level in more than a year, according to Markit Economics. Purchasing Managers' survey signaled a downshift in growth at the start of the fourth quarter as production and new order growth weakened.
US – durable goods orders were not good if you subtract airplanes
• Orders for durable goods—manufactured items meant to last at least three years, such as copper coil and cars—rose 3.3% in September from August, the Commerce Department said Wednesday. That increase owed entirely to orders for nondefense aircraft and parts, which more than doubled. Indeed, Boeing Co. reported that it received orders for 117 planes in September, up from 10 in August. Stripping out aircraft, orders fell 0.1%.
• Aircrafts are hugely pricey and tend to come in lumps, so economists usually exclude them in durable goods data analysis – similar to why foods and energy are excluded from CPI (price volatility)
• That suggests that the rebound in capital spending that began in the second half of last year—as companies made purchases they had deferred during the downturn—may be coming to an end.
Tuesday, October 26, 2010
2010 10 26
Basically nothing happened today with commodities and stocks flat.
Bonds fell today. Seems like all of a sudden we are hearing more chatters of inflation fear – especially with the TIPS auction with negative yield. The question is : is this rising fear of inflation just a blip or a turning point? I will have to do some more research here. Frankly I don’t have an opinion yet. Economic data seems weak enough and Fed dovish enough that I think QE would be quite substantial.
USD was broadly strong with exception of GBP where Q3 GDP came in better than expected. But keep in mind this is 1-4 months old data. UK data has been surprisingly good for a while – deterioration has been seen in October and could worsen rapidly as austerity measures get implemented. This rise would probably lose out over the next day or two.
Tomorrow’s big data release is US durable goods order.
Bonds fell today. Seems like all of a sudden we are hearing more chatters of inflation fear – especially with the TIPS auction with negative yield. The question is : is this rising fear of inflation just a blip or a turning point? I will have to do some more research here. Frankly I don’t have an opinion yet. Economic data seems weak enough and Fed dovish enough that I think QE would be quite substantial.
USD was broadly strong with exception of GBP where Q3 GDP came in better than expected. But keep in mind this is 1-4 months old data. UK data has been surprisingly good for a while – deterioration has been seen in October and could worsen rapidly as austerity measures get implemented. This rise would probably lose out over the next day or two.
Tomorrow’s big data release is US durable goods order.
Monday, October 25, 2010
2010 10 25
Slow day in terms of news but a pretty eventful day in markets. Basically the same story this month : dollar down everything else up
Further poor sentiment toward the dollar was probably fueled by further G20 statements over the weekend – basically there seems to be no real agreement or actionable plans being devised.
This week will be the peak of earnings reporting. So far this quarter has not been as good as the previous few, but still it has been VERY GOOD and will provide tailwind for the stock market.
This promises to be a fairly busy week with economic data. In US : GDP, consumer confidence, durable goods orders, Chicago PMI
In Europe : consumer and business confidence, German unemployment and UK GDP
Tomorrow’s big data are UK GDP and US consumer confidence
I think trend will be that US econ data holds up – at a low level but certainly faring better than recession. Europe data I think would stay strong enough with Germany (and everyone looking the other way on peripheral Europe). This presents a favorable backdrop to risky assets – stocks and commodities. Although while I am hesitant to stay long (and probably even add length) with SP500 up more than 10% in last two months it’s hard to see what would reverse the trend in the near term.
I do recommend either getting rid of Eurostoxx short or switching that with Nikkei and TSX combo.
One thing for sure, by middle of next week we will have some MAJOR news come out : the fed would have announced much more details on QE by Nov 2-3 meeting, Q3 earnings being basically over, global PMI data and build up to G20 summit on Nov 20.
Next week can be a very different market than this week. This calm is really somewhat scary, but fundamentally – just looking at economic data I feel bullish. Basically I went from being bullish US and bearish Europe to being bullish both rest of the year. That and EM of course.
Further poor sentiment toward the dollar was probably fueled by further G20 statements over the weekend – basically there seems to be no real agreement or actionable plans being devised.
This week will be the peak of earnings reporting. So far this quarter has not been as good as the previous few, but still it has been VERY GOOD and will provide tailwind for the stock market.
This promises to be a fairly busy week with economic data. In US : GDP, consumer confidence, durable goods orders, Chicago PMI
In Europe : consumer and business confidence, German unemployment and UK GDP
Tomorrow’s big data are UK GDP and US consumer confidence
I think trend will be that US econ data holds up – at a low level but certainly faring better than recession. Europe data I think would stay strong enough with Germany (and everyone looking the other way on peripheral Europe). This presents a favorable backdrop to risky assets – stocks and commodities. Although while I am hesitant to stay long (and probably even add length) with SP500 up more than 10% in last two months it’s hard to see what would reverse the trend in the near term.
I do recommend either getting rid of Eurostoxx short or switching that with Nikkei and TSX combo.
One thing for sure, by middle of next week we will have some MAJOR news come out : the fed would have announced much more details on QE by Nov 2-3 meeting, Q3 earnings being basically over, global PMI data and build up to G20 summit on Nov 20.
Next week can be a very different market than this week. This calm is really somewhat scary, but fundamentally – just looking at economic data I feel bullish. Basically I went from being bullish US and bearish Europe to being bullish both rest of the year. That and EM of course.
Friday, October 22, 2010
2010 10 22
Another quiet day on minimal news.
Next week we should see some more action:
US durable goods orders (Wed) Q3 GDP (Fri)
Europe manufacturing new orders (Mon) inflation (Fri)
UK Nationwide house prices (Mon) Q3 GDP (Tue) consumer confidence (Thu)
Japan Industrial production (Fri)
Really the main driving theme lately has been QE2 – which has dominated over earnings news (very good once again this quarter). On Nov 3 we should hear more specific word on how QE2 would be implemented. So far it has been all speculation on how and when.
On the other hand, economic data continues to be pretty decent in US which is what we expected – that US will NOT fall into recession. However, the continuing strength in Europe – especially Germany – has surprised me. Therefore, I am formally stepping off my view on long US vs short Europe for now. This also means that I would rather not short Eurostoxx. I think we should consider as shorts Nikkei and TSX vs long DAX and Dow Jones. I think Nikkei will continue to suffer on strong Yen, and Canadian economic data has been on weak side as it gets dragged down by US. I still like Dow Jones because these are high quality cash rich international companies.
I also like Hang Seng on both China ties as well as USD peg (HKD is pegged to USD).
I see nothing but bad news on horizon for UK. I think we should increase short on GBP. Maybe ½ against USD and ½ against Euro.
I still hesitate to make a move in bond futures.
Next week we should see some more action:
US durable goods orders (Wed) Q3 GDP (Fri)
Europe manufacturing new orders (Mon) inflation (Fri)
UK Nationwide house prices (Mon) Q3 GDP (Tue) consumer confidence (Thu)
Japan Industrial production (Fri)
Really the main driving theme lately has been QE2 – which has dominated over earnings news (very good once again this quarter). On Nov 3 we should hear more specific word on how QE2 would be implemented. So far it has been all speculation on how and when.
On the other hand, economic data continues to be pretty decent in US which is what we expected – that US will NOT fall into recession. However, the continuing strength in Europe – especially Germany – has surprised me. Therefore, I am formally stepping off my view on long US vs short Europe for now. This also means that I would rather not short Eurostoxx. I think we should consider as shorts Nikkei and TSX vs long DAX and Dow Jones. I think Nikkei will continue to suffer on strong Yen, and Canadian economic data has been on weak side as it gets dragged down by US. I still like Dow Jones because these are high quality cash rich international companies.
I also like Hang Seng on both China ties as well as USD peg (HKD is pegged to USD).
I see nothing but bad news on horizon for UK. I think we should increase short on GBP. Maybe ½ against USD and ½ against Euro.
I still hesitate to make a move in bond futures.
2010 10 21
First of all, China data all came out pretty good. GDP is on a slowing trend (9.6% in Q3 vs 10.3% in Q2) but still at a very healthy level. Inflation remained reasonable (around 3.6%) which surprised some who thought inflation was spiking hence the surprise rate hike.
Europe preliminary PMI for October first came out and it also showed weakening trend except – guess who – Germany! It would probably be another month or two for stronger Euro to take effect, but it is really impressive that Germany is maintaining the strength. Rest of Europe is undoubtedly in a weakening path however. I expect Germany to follow that but at this point I push out the date yet again to January 2011.
Eurozone consumer confidence also came in pretty decent. I am now thinking Europe would remain OK through end of this year but the tipping point to be reached early next year when the austerity measures start rolling out.
In UK, retail sales surprising fell yet again for the second month. This is especially bad news since severe government spending cuts and tax raises have not even begun yet. There are diverging stances from UK government to BoE. Conservative finance minister George Osborne, dismissed fears today that his austerity drive is too harsh, and repeated his government's mantra that monetary policy can take up the strain as deficit cuts bite. On the other hand, One BoE policymaker, Adam Posen, has already called for more stimulus and there are signs others could be edging towards his view. BoE rate-setter David Miles said on Thursday there was still scope to help the economy if needed. I think we should add to short GBP and also initiate short GILTS.
In US, weekly initial jobless was mostly a non-news coming in right around at 450k.
Stocks were flat in US and up in Europe. Nikkei continues to outperform. Wish we shorted Nikkei instead of just getting out earlier in the month but hindsight is always 20/20. I think though it might not be a bad idea to split our stocks shorts 50/50 Nikkei/Eurostoxx.
Commodities were hit pretty hard pretty broadly even though dollar did not strengthen that much. USD, however, was up against all G10 currencies today.
It seems to me like QE is fully priced in FX and bond markets. I think yields are low enough – for the data we are seeing now – and negative sentiment toward USD has become too consensus. Tactically I would advocate to adding some long dollar positions.
Europe preliminary PMI for October first came out and it also showed weakening trend except – guess who – Germany! It would probably be another month or two for stronger Euro to take effect, but it is really impressive that Germany is maintaining the strength. Rest of Europe is undoubtedly in a weakening path however. I expect Germany to follow that but at this point I push out the date yet again to January 2011.
Eurozone consumer confidence also came in pretty decent. I am now thinking Europe would remain OK through end of this year but the tipping point to be reached early next year when the austerity measures start rolling out.
In UK, retail sales surprising fell yet again for the second month. This is especially bad news since severe government spending cuts and tax raises have not even begun yet. There are diverging stances from UK government to BoE. Conservative finance minister George Osborne, dismissed fears today that his austerity drive is too harsh, and repeated his government's mantra that monetary policy can take up the strain as deficit cuts bite. On the other hand, One BoE policymaker, Adam Posen, has already called for more stimulus and there are signs others could be edging towards his view. BoE rate-setter David Miles said on Thursday there was still scope to help the economy if needed. I think we should add to short GBP and also initiate short GILTS.
In US, weekly initial jobless was mostly a non-news coming in right around at 450k.
Stocks were flat in US and up in Europe. Nikkei continues to outperform. Wish we shorted Nikkei instead of just getting out earlier in the month but hindsight is always 20/20. I think though it might not be a bad idea to split our stocks shorts 50/50 Nikkei/Eurostoxx.
Commodities were hit pretty hard pretty broadly even though dollar did not strengthen that much. USD, however, was up against all G10 currencies today.
It seems to me like QE is fully priced in FX and bond markets. I think yields are low enough – for the data we are seeing now – and negative sentiment toward USD has become too consensus. Tactically I would advocate to adding some long dollar positions.
Tuesday, October 19, 2010
2010 10 19
A rather eventful day!
We could expect a weak open last night when Apple announced earnings at 430pm. The earnings were great but they missed on sales for iPads which a lot of analysts believe to be the next big thin for Apple, the result was pretty weak looking after market action for Apple. That combined with lukewarm IBM earnings kind of set the stage for a weak looking open.
Then really a lot of action burst out when I came in office at 7am. China surprised everyone with a 0.25% rate hike. Now this was a major surprise because officials had been fairly open about keeping the interest rate at current level. The fact that it was 0.25% - and not the "normal" 0.27% they normally use (from old tradition. supposedly easier to use this number with abacus) probably made everyone say "huh?" including yours truly. The hike was especially surprising since earlier in the night Australia decided to not hike its rate (where rate hike was widely expected).
This tightening prompted a major reversal to the liquidity rally we have seen lately - stocks and commodities down sharply while US dollar rallied.
China tightening - and there are Europeans rioting on TV.
Last time we saw this it was in mid January when China increased mandatory bank reserves and Greek crisis erupted. SP500 slipped 6% in the final two weeks of that month.
Now, I don't really think this 0.25% rate hike is a HUGE deal. But it has been futile to forecast Chinese government actions and nobody knows what is really going on inside that country. As far as impacting what we do, I don't imagine 0.25% rate hike would have a big impact on commodity imports (higher financing cost would generally be a negative).
But it concerns me economic momentum is slowing everywhere - US, Europe, Japan, UK and Asia. Austerity measures are meeting huge resistance. I always thought they will fail which is why i have bearish long term view on Euro and I think we should look to start shorting some Euro to add to our short GBP position in Porc and IQ UCITS.
Making things much worse in the afternoon were Bloomberg reporting that NY Fed, PIMCO and BlackRock were suing BofA over mortgage problems. This news pushed financials down sharply which impacted most indices.
I need to think things over more, but I am having tough time finding reasons to feel bullish. Earnings this season have been much less upbeat than the past few quarters as well. Seems to me like it has been a while we saw any economic news that was a big surprise to the upside. The rally we saw in Sep and so far this month has been on a fragile ground.
We could expect a weak open last night when Apple announced earnings at 430pm. The earnings were great but they missed on sales for iPads which a lot of analysts believe to be the next big thin for Apple, the result was pretty weak looking after market action for Apple. That combined with lukewarm IBM earnings kind of set the stage for a weak looking open.
Then really a lot of action burst out when I came in office at 7am. China surprised everyone with a 0.25% rate hike. Now this was a major surprise because officials had been fairly open about keeping the interest rate at current level. The fact that it was 0.25% - and not the "normal" 0.27% they normally use (from old tradition. supposedly easier to use this number with abacus) probably made everyone say "huh?" including yours truly. The hike was especially surprising since earlier in the night Australia decided to not hike its rate (where rate hike was widely expected).
This tightening prompted a major reversal to the liquidity rally we have seen lately - stocks and commodities down sharply while US dollar rallied.
China tightening - and there are Europeans rioting on TV.
Last time we saw this it was in mid January when China increased mandatory bank reserves and Greek crisis erupted. SP500 slipped 6% in the final two weeks of that month.
Now, I don't really think this 0.25% rate hike is a HUGE deal. But it has been futile to forecast Chinese government actions and nobody knows what is really going on inside that country. As far as impacting what we do, I don't imagine 0.25% rate hike would have a big impact on commodity imports (higher financing cost would generally be a negative).
But it concerns me economic momentum is slowing everywhere - US, Europe, Japan, UK and Asia. Austerity measures are meeting huge resistance. I always thought they will fail which is why i have bearish long term view on Euro and I think we should look to start shorting some Euro to add to our short GBP position in Porc and IQ UCITS.
Making things much worse in the afternoon were Bloomberg reporting that NY Fed, PIMCO and BlackRock were suing BofA over mortgage problems. This news pushed financials down sharply which impacted most indices.
I need to think things over more, but I am having tough time finding reasons to feel bullish. Earnings this season have been much less upbeat than the past few quarters as well. Seems to me like it has been a while we saw any economic news that was a big surprise to the upside. The rally we saw in Sep and so far this month has been on a fragile ground.
Monday, October 18, 2010
2010 10 18
The day started off with a selloff but ended in a generally positive note despite a disappointing September industrial production data from US today. Can’t say I can explain this market move. But I generally think it’s a time to start taking some chips off table when economic data trends south while asset markets trend north.
Stocks would probably be driven more by earnings than macro especially now the earnings season is on in earnest. This season isn’t off to a blistering start like we saw in the past few. We will see how things shape up. I do believe the earnings will be good enough to provide some tailwind for US stocks another week or two.
Switching into DAX from Nikkei has served well as DAX has outperformed lately.
Tomorrow is German ZEW economic expectations for October as well as US housing starts. Would be interesting to see if strengthening Euro is having any impact on business outlook.
This week Thursday shaping up to be particularly big with major China data (GDP, inflation, retail sales, industrial production), European October flash PMI and US initial jobless claims.
I feel particularly uneasy at how quiet the market has been lately.
Stocks would probably be driven more by earnings than macro especially now the earnings season is on in earnest. This season isn’t off to a blistering start like we saw in the past few. We will see how things shape up. I do believe the earnings will be good enough to provide some tailwind for US stocks another week or two.
Switching into DAX from Nikkei has served well as DAX has outperformed lately.
Tomorrow is German ZEW economic expectations for October as well as US housing starts. Would be interesting to see if strengthening Euro is having any impact on business outlook.
This week Thursday shaping up to be particularly big with major China data (GDP, inflation, retail sales, industrial production), European October flash PMI and US initial jobless claims.
I feel particularly uneasy at how quiet the market has been lately.
Thursday, October 14, 2010
2010 10 14
Another pretty quiet day in asset markets. Gold and silver continues to march upward. Flatish day in stocks and commodities with a little bit of selling in US treasuries. US dollar continues to grind lower.
Wanted to visit fixed income. We have been debating whether the QE has been fully reflected in pricing yet. We have seen some rather poor economic data the past couple days combined with very weak PPI today and yield is heading up. I am thinking maybe now the time is right to establish some tactical shorts.
I actually like shorting gilts the most – they’re backtracking on austerity and this could serve as a catalyst to push yield up in the near term.
Treasuries sell off after a lukewarm 30 year bond auction today
• We are going to continue to see yield curve steepen 10-30yr. It is widely expected that the Fed when they do QE they would not buy much bonds further out than 10 year because that is where most commercial and retail loans use as benchmarks.
Singapore Q3 GDP grows 10.3% from the previous year – but that’s actually a drastic slowdown
• Q2 GDP was +19.6% year over year. Economists had expected +10.8% for Q3 so this is a slight disappointment.
• Manufacturing saw a notable year over year decline. Manufacturing, which accounts for about a quarter of Singapore’s economy, climbed 12.1 percent from a year earlier in the three months through September, after surging a revised 46.1 percent in the second quarter.
• But keep in mind the base effect from 2009 when things were still looking dismal in Q2.
• Singapore is typically a bellwether for the region’s export outlook and it is the first to show cracks as global growth slows.
• Singapore decision to let its currency strengthen was a big surprise and stands as a major contrast versus its asian peers who are fighting tooth and nail to keep their currencies weak. Korea for example decided to not hike interest rate despite rapidly rising inflation.
US PPI surprises to the upside but it’s still very modest
• September PPI printed +0.4% and core +0.1% which translates to +4.0% overall and +1.6% core on an annual basis.
• Food prices jumped BIG. Food prices rose 1.2% overall as butter (at +17.2%, its biggest gain since November 2009), meats, chicken, and vegetables jumped.
• I can tell you : in the past couple weeks my local thai restaurants raised prices about 5-10% across the menu and today I just found the Indian takeout place near work added $1 across every item on menu. That’s 10-20% increase!
• However, US government plays the game where they disregard food and energy in calculation of inflation.
• Plus, in this environment of weak consumers the chances are merchants would just eat the price increase initially – but that cannot go on forever.
• At any rate, current inflation data is not enough for the US Fed to think inflation is a concern.
US trade deficit grows larger in Aug – especially with China
• The Commmerce Department said the trade gap expanded to $46.3 billion in August, up 8.7% from July and 49% from a year ago.
• The trade deficit with China totaled $28 billion, up from July's $25.9 billion.
• Exports stopped sliding but it only grew 0.1% from July. Imports grew 2.1%.
• At any rate, growing trade deficit is a bad news for GDP as net exports is one of the components of GDP calculation. So if imports are greater than exports then that subtracts from overall GDP.
US crude data shows slight fall in inventory – but still at the upper limit of range for this time of year
• oil refinery inputs averaged 13.9 million barrels per day during the week, which were 231,000 barrels per day below the previous week's average. Refiners are reacting to still extremely high inventory for heating oil and gasoline.
• Meantime, U.S. crude oil imports during the week averaged 8.1 million barrels per day last week, down by 798,000 barrels per day from the previous week, official data revealed. Over the last four weeks imports have averaged 8.8 million barrels per day, which were 444,000 barrels per day below the same four-week period last year.
• Combined – these data points show extremely weak oil demand (EIA computed “implied” oil demand by looking at production + import – export + inventory change), which contributed to some selling in energy today.
Jobless claims ticked up slightly but within range
• I don’t think anyone is expecting clear trend of falling jobless claims. At least I am not. I think we would see 445k-470k at least through November. I think this number was within everyone’s expected range.
Wanted to visit fixed income. We have been debating whether the QE has been fully reflected in pricing yet. We have seen some rather poor economic data the past couple days combined with very weak PPI today and yield is heading up. I am thinking maybe now the time is right to establish some tactical shorts.
I actually like shorting gilts the most – they’re backtracking on austerity and this could serve as a catalyst to push yield up in the near term.
Treasuries sell off after a lukewarm 30 year bond auction today
• We are going to continue to see yield curve steepen 10-30yr. It is widely expected that the Fed when they do QE they would not buy much bonds further out than 10 year because that is where most commercial and retail loans use as benchmarks.
Singapore Q3 GDP grows 10.3% from the previous year – but that’s actually a drastic slowdown
• Q2 GDP was +19.6% year over year. Economists had expected +10.8% for Q3 so this is a slight disappointment.
• Manufacturing saw a notable year over year decline. Manufacturing, which accounts for about a quarter of Singapore’s economy, climbed 12.1 percent from a year earlier in the three months through September, after surging a revised 46.1 percent in the second quarter.
• But keep in mind the base effect from 2009 when things were still looking dismal in Q2.
• Singapore is typically a bellwether for the region’s export outlook and it is the first to show cracks as global growth slows.
• Singapore decision to let its currency strengthen was a big surprise and stands as a major contrast versus its asian peers who are fighting tooth and nail to keep their currencies weak. Korea for example decided to not hike interest rate despite rapidly rising inflation.
US PPI surprises to the upside but it’s still very modest
• September PPI printed +0.4% and core +0.1% which translates to +4.0% overall and +1.6% core on an annual basis.
• Food prices jumped BIG. Food prices rose 1.2% overall as butter (at +17.2%, its biggest gain since November 2009), meats, chicken, and vegetables jumped.
• I can tell you : in the past couple weeks my local thai restaurants raised prices about 5-10% across the menu and today I just found the Indian takeout place near work added $1 across every item on menu. That’s 10-20% increase!
• However, US government plays the game where they disregard food and energy in calculation of inflation.
• Plus, in this environment of weak consumers the chances are merchants would just eat the price increase initially – but that cannot go on forever.
• At any rate, current inflation data is not enough for the US Fed to think inflation is a concern.
US trade deficit grows larger in Aug – especially with China
• The Commmerce Department said the trade gap expanded to $46.3 billion in August, up 8.7% from July and 49% from a year ago.
• The trade deficit with China totaled $28 billion, up from July's $25.9 billion.
• Exports stopped sliding but it only grew 0.1% from July. Imports grew 2.1%.
• At any rate, growing trade deficit is a bad news for GDP as net exports is one of the components of GDP calculation. So if imports are greater than exports then that subtracts from overall GDP.
US crude data shows slight fall in inventory – but still at the upper limit of range for this time of year
• oil refinery inputs averaged 13.9 million barrels per day during the week, which were 231,000 barrels per day below the previous week's average. Refiners are reacting to still extremely high inventory for heating oil and gasoline.
• Meantime, U.S. crude oil imports during the week averaged 8.1 million barrels per day last week, down by 798,000 barrels per day from the previous week, official data revealed. Over the last four weeks imports have averaged 8.8 million barrels per day, which were 444,000 barrels per day below the same four-week period last year.
• Combined – these data points show extremely weak oil demand (EIA computed “implied” oil demand by looking at production + import – export + inventory change), which contributed to some selling in energy today.
Jobless claims ticked up slightly but within range
• I don’t think anyone is expecting clear trend of falling jobless claims. At least I am not. I think we would see 445k-470k at least through November. I think this number was within everyone’s expected range.
Wednesday, October 13, 2010
2010 10 13
Equity markets rallying hard today on…
Well, it seems nowadays the market just wants to run. As we debated the macro picture in today’s investment meeting, I reckon the theme is just not go against the trend.
For stocks we had JPM and Intel both with solid numbers. European markets are doing especially well after Eurozone industrial production surprised to the upside – it’s a good thing we switched out of Nikkei into DAX this has gotten us a lot of positive performance in the past few days.
Energy having a solid day after it was known that Chinese September oil import was very strong. But the rally could be due to dollar weakness or just momentum. Copper is also up a decent amount.
Gold right at $1370 today.
Bit of weakness for bonds with corn and wheat taking a break from the recent rally.
We seem to be in an environment where if economic news is good markets rally, and if the news is bad then the markets rally on expectation of additional stimulus and monetary loosening.
The key question now is : how much of the QE is priced in? There is really no precise mathematical way to measure it. Global equity market has gained well over a trillion dollars in market cap since the announcement of QE2. Is that enough?
I think for the remainder of the week we ride out the trend and consider becoming more defensive next week after re-examining the data and market conditions.
Japan machinery orders unexpectedly increase in Aug for third month in a row
• Core machinery orders, a closely-watched indicator of future business investment, rose 10.1% in August. The result was far better than the 4% drop economists had predicted.
• Much of this support came from domestic demand which is holding up well BUT overseas demand, an indicator of prospects for Japanese exports, fell 3.7% in its first decline for four months.
Australian consumer sentiment bounces back in Oct
• Consumer confidence in Australia rebounded in October following the Reserve Bank of Australia's surprise decision to keep rates unchanged for a fifth straight month.
• Strong jobs growth, the delay in the tightening cycle, and the rally in both equities and the AUD all suggest confidence will remain robust this month - despite the ongoing softening in house prices.
UK employment picture looks mixed
• Unemployment rate fell but initial jobless claims rose for the second straight month in Sep.
• The rise in the more timely claimant-count measure doesn't bode well for the economy, particularly as it comes a week ahead of the coalition government's comprehensive spending review.
Eurozone industrial production up 1% in Aug
• Industrial output in the 16 countries that use the euro rose by a monthly 1 percent in August, official figures showed Wednesday, easing concerns that the sector's recovery was grinding to a halt.
• The rise reported from Eurostat, the EU's statistics office, is likely to ease fears that the eurozone economy is facing a sharp slowdown in the wake of the faltering recovery in the United States. Much of the eurozone's economic growth in the second quarter of the year was based on a bounceback in the industrial sector, particularly in Germany.
• Make no mistake however that the data points to significant slowdown – just not as bad as feared. If you look at details though you see peripheral Europe- Spain, Greece, Portugal all seeing big declines.
China trade surplus just keeps growing and growing
• China’s Sep surplus came in at $17B which made Q3 the biggest surplus quarter since 2008.
• Exports grew 25.1% from a year earlier and imports climbed at 24.1%.
• This will further flame US’s stance that China is a currency manipulator and must revalue Yuan. Chinese really wouldn’t care whatever US has to say. While this build up in political tension is definitely a key issue it wouldn’t impact the asset markets at least not in short term.
Tomorrow we will see US PPI and initial jobless claims. I do not expect either to be a major market mover.
Well, it seems nowadays the market just wants to run. As we debated the macro picture in today’s investment meeting, I reckon the theme is just not go against the trend.
For stocks we had JPM and Intel both with solid numbers. European markets are doing especially well after Eurozone industrial production surprised to the upside – it’s a good thing we switched out of Nikkei into DAX this has gotten us a lot of positive performance in the past few days.
Energy having a solid day after it was known that Chinese September oil import was very strong. But the rally could be due to dollar weakness or just momentum. Copper is also up a decent amount.
Gold right at $1370 today.
Bit of weakness for bonds with corn and wheat taking a break from the recent rally.
We seem to be in an environment where if economic news is good markets rally, and if the news is bad then the markets rally on expectation of additional stimulus and monetary loosening.
The key question now is : how much of the QE is priced in? There is really no precise mathematical way to measure it. Global equity market has gained well over a trillion dollars in market cap since the announcement of QE2. Is that enough?
I think for the remainder of the week we ride out the trend and consider becoming more defensive next week after re-examining the data and market conditions.
Japan machinery orders unexpectedly increase in Aug for third month in a row
• Core machinery orders, a closely-watched indicator of future business investment, rose 10.1% in August. The result was far better than the 4% drop economists had predicted.
• Much of this support came from domestic demand which is holding up well BUT overseas demand, an indicator of prospects for Japanese exports, fell 3.7% in its first decline for four months.
Australian consumer sentiment bounces back in Oct
• Consumer confidence in Australia rebounded in October following the Reserve Bank of Australia's surprise decision to keep rates unchanged for a fifth straight month.
• Strong jobs growth, the delay in the tightening cycle, and the rally in both equities and the AUD all suggest confidence will remain robust this month - despite the ongoing softening in house prices.
UK employment picture looks mixed
• Unemployment rate fell but initial jobless claims rose for the second straight month in Sep.
• The rise in the more timely claimant-count measure doesn't bode well for the economy, particularly as it comes a week ahead of the coalition government's comprehensive spending review.
Eurozone industrial production up 1% in Aug
• Industrial output in the 16 countries that use the euro rose by a monthly 1 percent in August, official figures showed Wednesday, easing concerns that the sector's recovery was grinding to a halt.
• The rise reported from Eurostat, the EU's statistics office, is likely to ease fears that the eurozone economy is facing a sharp slowdown in the wake of the faltering recovery in the United States. Much of the eurozone's economic growth in the second quarter of the year was based on a bounceback in the industrial sector, particularly in Germany.
• Make no mistake however that the data points to significant slowdown – just not as bad as feared. If you look at details though you see peripheral Europe- Spain, Greece, Portugal all seeing big declines.
China trade surplus just keeps growing and growing
• China’s Sep surplus came in at $17B which made Q3 the biggest surplus quarter since 2008.
• Exports grew 25.1% from a year earlier and imports climbed at 24.1%.
• This will further flame US’s stance that China is a currency manipulator and must revalue Yuan. Chinese really wouldn’t care whatever US has to say. While this build up in political tension is definitely a key issue it wouldn’t impact the asset markets at least not in short term.
Tomorrow we will see US PPI and initial jobless claims. I do not expect either to be a major market mover.
Tuesday, October 12, 2010
2010 10 12
A very quiet day until the Fed meeting note got released at 2pm. Stocks rose slightly and bonds fell – although there was really nothing new in the notes. The notes basically shows that the FOMC members were disappointed with economic progress. No further insight on what actions they might take.
A weak 3yr treasury auction might be to blame for a lackluster day for bonds.
More or less flat day for stocks.
Energy was down very slightly while ags remained strong with corn up another 4%.
GBP fell on lackluster economic data especially on housing which showed home prices fell across England in September. UK inflation remained stubbornly high. Inflation exceeded the government’s 3% limit for a seventh month in September as higher clothing and food costs kept up price pressures in the economy.
Intel reported after market close and beat both earnings and revenue (but not by a big margin). CSX, a major railroad operator, also narrowly beat out earnings and revenue expectation. JPM is the big one reporting tomorrow after market close. So far this earnings season seems to be off to another great start.
With QEII now baked into asset pricing, I expect earnings reports to drive the stock market. Looks like it’s shaping up to be another good quarter with exception of perhaps financials.
Very good thing we switched out of Nikkei – it has been getting crushed the past few days on relentless strengthening of yen. I think it’d be a good idea to short some more Nikkei from here.
Tomorrow:
• Japan Aug machinery orders for Aug
• UK unemployment data for Aug
• Euroland industrial production for Aug
• China trade balance for Sep
A weak 3yr treasury auction might be to blame for a lackluster day for bonds.
More or less flat day for stocks.
Energy was down very slightly while ags remained strong with corn up another 4%.
GBP fell on lackluster economic data especially on housing which showed home prices fell across England in September. UK inflation remained stubbornly high. Inflation exceeded the government’s 3% limit for a seventh month in September as higher clothing and food costs kept up price pressures in the economy.
Intel reported after market close and beat both earnings and revenue (but not by a big margin). CSX, a major railroad operator, also narrowly beat out earnings and revenue expectation. JPM is the big one reporting tomorrow after market close. So far this earnings season seems to be off to another great start.
With QEII now baked into asset pricing, I expect earnings reports to drive the stock market. Looks like it’s shaping up to be another good quarter with exception of perhaps financials.
Very good thing we switched out of Nikkei – it has been getting crushed the past few days on relentless strengthening of yen. I think it’d be a good idea to short some more Nikkei from here.
Tomorrow:
• Japan Aug machinery orders for Aug
• UK unemployment data for Aug
• Euroland industrial production for Aug
• China trade balance for Sep
Monday, October 11, 2010
2010 10 11
A quiet day all around with US bond market closed due to Columbus day.
The ag market continued Friday’s gain but in a more subdued manner.
Right now the main question is how much of QEII is priced into the market. My guess is that the markets are pretty fully valued in QEII terms – meaning that I believe further bad economic news would be a negative impact on stock and commodities. Lately, bad news was seen as boosting likelihood of strong QE -> assets rise. I think this effect is wearing off.
US FOMC meeting note will be released tomorrow and it will shed light on what the Fed is thinking and is likely to be a big market mover.
In UK we will see the inflation data for Sep. My guess is that we will see a drop due to falling home price and decelerating economy. I think it’d exert a downward pressure on GBP
The ag market continued Friday’s gain but in a more subdued manner.
Right now the main question is how much of QEII is priced into the market. My guess is that the markets are pretty fully valued in QEII terms – meaning that I believe further bad economic news would be a negative impact on stock and commodities. Lately, bad news was seen as boosting likelihood of strong QE -> assets rise. I think this effect is wearing off.
US FOMC meeting note will be released tomorrow and it will shed light on what the Fed is thinking and is likely to be a big market mover.
In UK we will see the inflation data for Sep. My guess is that we will see a drop due to falling home price and decelerating economy. I think it’d exert a downward pressure on GBP
2010 10 08
Friday's payroll data came in - well - in my opinion fairly poor. The net result is further job less of about 95,000 in September much of it due to loss of temporary US census workers.
Private payroll (non-government jobs) did increase by 64,000 but that's losing momentum from 100,000+ in july and 93,000 increase in Aug. Also, more than half the job gains in Sep were in bar and restaurants industry - not exactly a place a lot of people are excited to work in.
But this data solidified one thing - that the US FED would certainly engage in a vigorous QE to try to stimulate economy.
Still, no huge actions in stocks, currencies or bonds. Generally stocks were up dollar was down and bonds were up - but all fairly slightly.
Commodities had a good day with just about everything up. I wonder if commodities complex was driven more generally on ags news - US WASDE report cut domestic crop harvest expectation second month in a row. The result was corn, soybean and wheat all being up by exchange limits. Sugar also rallied hugely on crop concerns. Gains in energy and metals were much more muted but we would take any up day.
Looking ahead the most important single piece of data is probably the FOMC meeting minutes to be released on Tuesday. Once again it seems all assets are being driven by politicians and central bankers.
Private payroll (non-government jobs) did increase by 64,000 but that's losing momentum from 100,000+ in july and 93,000 increase in Aug. Also, more than half the job gains in Sep were in bar and restaurants industry - not exactly a place a lot of people are excited to work in.
But this data solidified one thing - that the US FED would certainly engage in a vigorous QE to try to stimulate economy.
Still, no huge actions in stocks, currencies or bonds. Generally stocks were up dollar was down and bonds were up - but all fairly slightly.
Commodities had a good day with just about everything up. I wonder if commodities complex was driven more generally on ags news - US WASDE report cut domestic crop harvest expectation second month in a row. The result was corn, soybean and wheat all being up by exchange limits. Sugar also rallied hugely on crop concerns. Gains in energy and metals were much more muted but we would take any up day.
Looking ahead the most important single piece of data is probably the FOMC meeting minutes to be released on Tuesday. Once again it seems all assets are being driven by politicians and central bankers.
2010 10 07
BoE signaled loosening stance in its meeting while ECB said a lot that didn’t mean much of anything (how FX volatility is a bad thing – who doesn’t know that?).
Now, ECB remains the only major central bank not actively pursuing further loosening. That will change before 2010 is over.
Basically a flat day in stocks , bonds and currencies. Macro commodities (energy, base+precious metals) took a bit of whacking. Ags are having a better day with corn up and sugar having a monster day.
Tomorrow is of course the US payroll data which would rule everything. General consensus is unemployment rate to tick up from 9.6% to 9.7% BUT that there will be a gain in private payroll. The ADP data suggests that this might not materialize. If private payroll disappoints we would probably see falling USD, rallying treasuries and gold. We will hold our breath until 830AM NYC time tomorrow.
UK industry production – Surprisingly good in August
• Manufacturing output grew 0.3% in August for 4th consecutive rise about this size which makes for about 6% annual growth rate which is the highest rate since Dec 1994.
• Still, this is not enough to prop up UK economy if consumers and government sector retrench amidst uncertain economic outlook and coming austerity budget cuts.
Germany industry production – NOT losing steam
• Germany continues to defy gravity. While manufacturing has seen some slowdown since April it is still holding up at a very high level? When would the impact of currency be felt? We will see.
• As I said yesterday I am now changing my mind to say that German outperformance is likely to last longer than I thought. Say until November or December. But it certainly seems non-core Europe is decelerating sharply. And with domestic consumption looking very weak German economy cannot crank along forever. Even then – I think Germany is better situated than US.
Now, ECB remains the only major central bank not actively pursuing further loosening. That will change before 2010 is over.
Basically a flat day in stocks , bonds and currencies. Macro commodities (energy, base+precious metals) took a bit of whacking. Ags are having a better day with corn up and sugar having a monster day.
Tomorrow is of course the US payroll data which would rule everything. General consensus is unemployment rate to tick up from 9.6% to 9.7% BUT that there will be a gain in private payroll. The ADP data suggests that this might not materialize. If private payroll disappoints we would probably see falling USD, rallying treasuries and gold. We will hold our breath until 830AM NYC time tomorrow.
UK industry production – Surprisingly good in August
• Manufacturing output grew 0.3% in August for 4th consecutive rise about this size which makes for about 6% annual growth rate which is the highest rate since Dec 1994.
• Still, this is not enough to prop up UK economy if consumers and government sector retrench amidst uncertain economic outlook and coming austerity budget cuts.
Germany industry production – NOT losing steam
• Germany continues to defy gravity. While manufacturing has seen some slowdown since April it is still holding up at a very high level? When would the impact of currency be felt? We will see.
• As I said yesterday I am now changing my mind to say that German outperformance is likely to last longer than I thought. Say until November or December. But it certainly seems non-core Europe is decelerating sharply. And with domestic consumption looking very weak German economy cannot crank along forever. Even then – I think Germany is better situated than US.
Wednesday, October 6, 2010
2010 10 06
Another fairly light day in economic news. No huge move in any one market although treasuries and bunds had a good day as did gold.
Nikkei continues to perform well. Up about +0.8% today (CME futures) offsetting. Dow turned in a modestly positive day. Gold is knocking on $1350. Gold miner ETF up another +1.5% today.
Euro gained another 0.7% against USD nearing 1.40 level.
Another positive news out of Germany : a jump in manufacturing orders in August which sharply exceeded expectations. Although this indicator is very volatile so it’s hard to rely on any one indicator, I am now thinking German outperformance would continue to longer than I thought BUT that wouldn’t hold the rest of Europe from a substantial slowdown to come. We might want to revisit DAX vs Europe later.
Energy saw a decent rally after DOE report showed draws in refined products – continuing the constructive trend from last week – but it sort of fizzled later in the day. Energy and industrial metals continued to perform well today but who knows – maybe it’s all due to dollar weakness and not much more.
Tomorrow is a busier day. Official leading indicator for Japan, UK industrial production for Aug, German industrial production for July, ECB meeting (but no big news expected as usual), and the BIG ONE : weekly US initial jobless claims.
In terms of positions, after further look at data I do like lightening up on gold. I do like smooth trend but vertical line upward is scary. There is a huge investor pile-on into gold and whenever consensus becomes this drastic there is usually a sharp reversal to follow. Of course the question is when and how much.
You all know I am not a big fan of short term trading. But given our good history of tactical trading, I think it’s a decent risk/reward to get more aggressive than say just locking in profit or going to benchmark weight.
Actually, Euro is basically in the same spot as gold – near vertical rise with a clear consensus among investors. The major difference is that the long term fundamentals are behind gold (which is why I am even more reluctant to trade around) while Euro is every bit if not more flawed than USD.
Nikkei continues to perform well. Up about +0.8% today (CME futures) offsetting. Dow turned in a modestly positive day. Gold is knocking on $1350. Gold miner ETF up another +1.5% today.
Euro gained another 0.7% against USD nearing 1.40 level.
Another positive news out of Germany : a jump in manufacturing orders in August which sharply exceeded expectations. Although this indicator is very volatile so it’s hard to rely on any one indicator, I am now thinking German outperformance would continue to longer than I thought BUT that wouldn’t hold the rest of Europe from a substantial slowdown to come. We might want to revisit DAX vs Europe later.
Energy saw a decent rally after DOE report showed draws in refined products – continuing the constructive trend from last week – but it sort of fizzled later in the day. Energy and industrial metals continued to perform well today but who knows – maybe it’s all due to dollar weakness and not much more.
Tomorrow is a busier day. Official leading indicator for Japan, UK industrial production for Aug, German industrial production for July, ECB meeting (but no big news expected as usual), and the BIG ONE : weekly US initial jobless claims.
In terms of positions, after further look at data I do like lightening up on gold. I do like smooth trend but vertical line upward is scary. There is a huge investor pile-on into gold and whenever consensus becomes this drastic there is usually a sharp reversal to follow. Of course the question is when and how much.
You all know I am not a big fan of short term trading. But given our good history of tactical trading, I think it’s a decent risk/reward to get more aggressive than say just locking in profit or going to benchmark weight.
Actually, Euro is basically in the same spot as gold – near vertical rise with a clear consensus among investors. The major difference is that the long term fundamentals are behind gold (which is why I am even more reluctant to trade around) while Euro is every bit if not more flawed than USD.
Tuesday, October 5, 2010
2010 10 05
The biggest news by far was BoJ’s additional easing. This was one of the bet going into September and why Nikkei was added long positions. Nikkei (CME futures) popped 3% today versus +2% for Eurostoxx and +1.5% for Dow. Remains to see whether Nikkei can outperform for the month. Is stimulus juice baked in? Yen actually got stronger today. Stocks and commodities gained.
A welcome relief in ag complex with a big gain for corn.
Another notable winner was gold which rose nearly 2% with futures touching $1340. Gold miner ETF rose 3%.
The bond market was pretty quiet with minimal moves in bunds and treasuries.
The big loser was – who else – the US dollar which is a great news for US. In the currency war the dollar (and yuan) has been the undisputed winner. AUD underperformed on RBA pause on rate hike.
On economic data front – both UK and US services PMI (ISM for US) came in better than expected. Both surveys are consistent with a very weak expansion. Nothing to cheer about but does not seem like dip into recession. Eurozone retail sales dipped slightly in August – tells me domestic consumption remains anemic there as well so strong Euro will hurt.
Fairly quiet tomorrow with exception of Australia employment which would impact AUD (but we have no exposure). Thursday again is weekly initial jobless claims.
A welcome relief in ag complex with a big gain for corn.
Another notable winner was gold which rose nearly 2% with futures touching $1340. Gold miner ETF rose 3%.
The bond market was pretty quiet with minimal moves in bunds and treasuries.
The big loser was – who else – the US dollar which is a great news for US. In the currency war the dollar (and yuan) has been the undisputed winner. AUD underperformed on RBA pause on rate hike.
On economic data front – both UK and US services PMI (ISM for US) came in better than expected. Both surveys are consistent with a very weak expansion. Nothing to cheer about but does not seem like dip into recession. Eurozone retail sales dipped slightly in August – tells me domestic consumption remains anemic there as well so strong Euro will hurt.
Fairly quiet tomorrow with exception of Australia employment which would impact AUD (but we have no exposure). Thursday again is weekly initial jobless claims.
2010 10 04
A light day in terms of economic data or news – BUT that didn’t prevent the markets from moving.
For whatever reason the stock market slid while bonds rallied. Currency and commodity markets were fairly quiet.
Since there is any notable news today to discuss, I will just lay down some general thoughts and observations.
Really the two biggest moves of late have been in USD and treasuries – no doubt both moves fueled by QE.
FX move has been most notable in EURUSD now near 1.37. AUD also has been very strong on good economic data and renewed hope of interest rate hike.
The rally in EUR has come despite continuing concerns over PIIGS as well as slowing economic momentum. Is QE really THAT big of deal to currency? What would happen when ECB needs to step in? Because that will come at some point.
Last Friday was busy with manufacturing data (ISM in US and PMI elsewhere) that comes out first business day each month. China PMI did come in better than expected, providing a bit of a boost to risk sentiment. All indications are that China reached a trough in July and now seems to be on a bit of rebound helped further by loosening financial condition. US ISM report was not bad – only slightly missed expectation – but new orders were weak which signals further slowing. PMIs basically slowed down everywhere especially in major European countries.
A very nice rally in crude as of late – thanks to decent econ data out of US and China and a welcome draw in DOE inventory report.
This coming week most important data are:
Nonfarm payroll and unemployment rate data for US comes out on Friday. If this comes in ugly watch out treasuries and USD because more QE is surely coming.
There are also some major central bank meetings – ECB, RBA, BoE, BoJ. ECB and BoE probably non-events with no new announcement. There is expectation that RBA would hike 25bps and that can give further boost to AUD. It would be interesting to see if BoJ attempts to loosen further to spark economy.
For Europe, we get the August industrial production data which would provide a pretty accurate picture of the manufacturing sector. Most likely it would show further slowing from July. If data doesn’t soften much then we’d likely have to wait longer to see US vs Europe view pan out. Sentiment toward US is definitely more negative than Europe, but so far the hard data supports that view. If this pattern holds up then USD can weaken further providing some tailwind for commodities.
For whatever reason the stock market slid while bonds rallied. Currency and commodity markets were fairly quiet.
Since there is any notable news today to discuss, I will just lay down some general thoughts and observations.
Really the two biggest moves of late have been in USD and treasuries – no doubt both moves fueled by QE.
FX move has been most notable in EURUSD now near 1.37. AUD also has been very strong on good economic data and renewed hope of interest rate hike.
The rally in EUR has come despite continuing concerns over PIIGS as well as slowing economic momentum. Is QE really THAT big of deal to currency? What would happen when ECB needs to step in? Because that will come at some point.
Last Friday was busy with manufacturing data (ISM in US and PMI elsewhere) that comes out first business day each month. China PMI did come in better than expected, providing a bit of a boost to risk sentiment. All indications are that China reached a trough in July and now seems to be on a bit of rebound helped further by loosening financial condition. US ISM report was not bad – only slightly missed expectation – but new orders were weak which signals further slowing. PMIs basically slowed down everywhere especially in major European countries.
A very nice rally in crude as of late – thanks to decent econ data out of US and China and a welcome draw in DOE inventory report.
This coming week most important data are:
Nonfarm payroll and unemployment rate data for US comes out on Friday. If this comes in ugly watch out treasuries and USD because more QE is surely coming.
There are also some major central bank meetings – ECB, RBA, BoE, BoJ. ECB and BoE probably non-events with no new announcement. There is expectation that RBA would hike 25bps and that can give further boost to AUD. It would be interesting to see if BoJ attempts to loosen further to spark economy.
For Europe, we get the August industrial production data which would provide a pretty accurate picture of the manufacturing sector. Most likely it would show further slowing from July. If data doesn’t soften much then we’d likely have to wait longer to see US vs Europe view pan out. Sentiment toward US is definitely more negative than Europe, but so far the hard data supports that view. If this pattern holds up then USD can weaken further providing some tailwind for commodities.
2010 10 01
US stock market post a modest gain while Europe generally struggles. We will see if this pattern upholds – we certainly hope so.
USD keeps getting clobbered. There is no real news to warrant this. Perhaps momentum at work.
The world basically looks like this:
China – was looking weak for a while but looks like they’re fine and making a bit of comeback Asian EM – still going strong with no real sign of slowdown Europe – Slowdown is notable especially outside of Germany and France. And perhaps just a little glimmer of weakening Germany is starting to show… Japan – an outright mess. There is no good data here. But expectation is at rock bottom UK – slowdown slowdown slowdown US – Nothing to cheer about data shows that US is still on a recovery - just not a strong one
Macro commodities – energy and industrial metals – are enjoying a good day as are gold and silver. Ags didnt fare as well.
South Korean inflation surprises to upside
• September CPI surged to 3.6% due to robust domestic economy powered by exports. Weak KRW probably contributed to inflation. This would probably result in a rate hike and some appreciation in KRW.
• Inflation remains extremely weak in developed world but we are definitely seeing it creep up in EM especially Asia.
Japan – still in deflation Nationwide August CPI is at -1% yeat over year. But very slightly better than it was in July.
• Meanwhile unemployment edged slightly lower but this is likely due to discouraged folks dropping out of job market.
• Two words to describe Japan : BAD ECONOMY
• Translated to : MORE STIMULUS TO COME
China manufacturing in September – on solid footing and rebounding
• China's September PMI rose to 53.8 from 51.7 in August
• China's upbeat PMI reading indicates that the negative impact of government measures to control the property market is probably waning, ING's Mr. Condon said. This means China's slowdown will probably be less abrupt than expected, especially in the fourth quarter
• As I said China has been stabilizing and rebounding from a notable slowdown since early in the year. Industrial production, fixed asset investments, retail sales all showed stabilization in August and this makes second straight month PMI did well. I like industrial metals as it seems to me China managed a soft landing. Even if the property market cools infrastructure buildout will continue.
A rare bad news for Germany – august retail sales drop
• Retail sales in Germany fell unexpectedly in August, casting doubt on a strong recovery of the country's weak private consumption.
• Perhaps the positive business environment isn’t stoking consumer enthusiasm? Understandable given coming austerity.
• I wont take this news seriously on its own as any one piece of econ data is volatile but I think we will continue to see disappointing data pile up from germany and Europe throughout this month although it probably wouldn’t be a huge pile for another month or so.
Euroland manufacturing – very much inline with earlier flash data
• No new data here. Manufacturing slowed everywhere except France.
UK manufacturing slips to 10 month low
• Activity in Britain's manufacturing sector grew at its slowest pace in 10 months in September
• The figures are likely to reinforce concerns that Britain's recovery is losing steam after strong growth in the Q2, and could lend weight to Bank of England policymaker Adam Posen's view the BoE should inject more stimulus.
• In particular the PMI report showed plummeting demand for export –perhaps due to strong pound. Would BoE also engage in currency devaluation? I think so.
US manufacturing – not great but certain better than many feared.
• US manufacturing activity grew more weakly than predicted in September and the slowdown is expected to continue in the fourth quarter, a key survey showed Friday.
• ISM is now at 10 month low. Particularly concerning is slowdown in New Orders – widely considered to be the best leading indicator of manufacturing.
US personal income – better than expected.
• Spending picked up in August with non-durable goods purchases leading the way. August is a big month for back to school shopping and the gains here are consistent with the August retail sales report. Even in hard times, consumers make sure the kids have what they need for school.
• But overall, the reported figures were all right in the expected range. No big surprise here.
USD keeps getting clobbered. There is no real news to warrant this. Perhaps momentum at work.
The world basically looks like this:
China – was looking weak for a while but looks like they’re fine and making a bit of comeback Asian EM – still going strong with no real sign of slowdown Europe – Slowdown is notable especially outside of Germany and France. And perhaps just a little glimmer of weakening Germany is starting to show… Japan – an outright mess. There is no good data here. But expectation is at rock bottom UK – slowdown slowdown slowdown US – Nothing to cheer about data shows that US is still on a recovery - just not a strong one
Macro commodities – energy and industrial metals – are enjoying a good day as are gold and silver. Ags didnt fare as well.
South Korean inflation surprises to upside
• September CPI surged to 3.6% due to robust domestic economy powered by exports. Weak KRW probably contributed to inflation. This would probably result in a rate hike and some appreciation in KRW.
• Inflation remains extremely weak in developed world but we are definitely seeing it creep up in EM especially Asia.
Japan – still in deflation Nationwide August CPI is at -1% yeat over year. But very slightly better than it was in July.
• Meanwhile unemployment edged slightly lower but this is likely due to discouraged folks dropping out of job market.
• Two words to describe Japan : BAD ECONOMY
• Translated to : MORE STIMULUS TO COME
China manufacturing in September – on solid footing and rebounding
• China's September PMI rose to 53.8 from 51.7 in August
• China's upbeat PMI reading indicates that the negative impact of government measures to control the property market is probably waning, ING's Mr. Condon said. This means China's slowdown will probably be less abrupt than expected, especially in the fourth quarter
• As I said China has been stabilizing and rebounding from a notable slowdown since early in the year. Industrial production, fixed asset investments, retail sales all showed stabilization in August and this makes second straight month PMI did well. I like industrial metals as it seems to me China managed a soft landing. Even if the property market cools infrastructure buildout will continue.
A rare bad news for Germany – august retail sales drop
• Retail sales in Germany fell unexpectedly in August, casting doubt on a strong recovery of the country's weak private consumption.
• Perhaps the positive business environment isn’t stoking consumer enthusiasm? Understandable given coming austerity.
• I wont take this news seriously on its own as any one piece of econ data is volatile but I think we will continue to see disappointing data pile up from germany and Europe throughout this month although it probably wouldn’t be a huge pile for another month or so.
Euroland manufacturing – very much inline with earlier flash data
• No new data here. Manufacturing slowed everywhere except France.
UK manufacturing slips to 10 month low
• Activity in Britain's manufacturing sector grew at its slowest pace in 10 months in September
• The figures are likely to reinforce concerns that Britain's recovery is losing steam after strong growth in the Q2, and could lend weight to Bank of England policymaker Adam Posen's view the BoE should inject more stimulus.
• In particular the PMI report showed plummeting demand for export –perhaps due to strong pound. Would BoE also engage in currency devaluation? I think so.
US manufacturing – not great but certain better than many feared.
• US manufacturing activity grew more weakly than predicted in September and the slowdown is expected to continue in the fourth quarter, a key survey showed Friday.
• ISM is now at 10 month low. Particularly concerning is slowdown in New Orders – widely considered to be the best leading indicator of manufacturing.
US personal income – better than expected.
• Spending picked up in August with non-durable goods purchases leading the way. August is a big month for back to school shopping and the gains here are consistent with the August retail sales report. Even in hard times, consumers make sure the kids have what they need for school.
• But overall, the reported figures were all right in the expected range. No big surprise here.
Thursday, September 30, 2010
2010 09 30
What a stark contrast between Korea and Japan. Here is what I had written back on Aug 31:
Korea – Japan – Germany : all major exporters.
• Korean Won is still about 20% weaker now than before the financial crisis.
• Euro is at the lowest level since mid-2006
• Yen is about 30% stronger now than back in mid-2007 when it was over 120.
Guess which economy and stock market is underperforming.
Can anything go wrong with Germany? They continue to crank along and defy the gravity pulling down everyone else in Europe. I think we won’t see the first signs of slowdown until end of Oct.
Chicago PMI surprised to the upside and market rallied initially, but stock market ended the day slightly down. On Sep 1 the massive September to Remember rally was fueled by upside surprise in ISM manufacturing report (September ISM to be released tomorrow). Is the juice out on manufacturing? If so, this might be a bad time to be long. However, it gives me some confidence in our view that US is not as bad as people think. But that might already be baked into stock prices already after a 9% run in SP500 this month.
Another huge day in energy. Perhaps on short squeeze. I feel better on copper vs crude at this level.
Tomorrow is all about ISM and PMI. My guess though is that we won’t see a big pop like we saw on Sep 1.
Korea’s manufacturing activities continue to power ahead in August but signs of slowdown loom
• Korea’s industrial output grew for a 14th consecutive month in August, underscoring the country’s ongoing economic recovery from the global financial crisis.
• However, we are seeing some signs of slowdown here as well as August saw a small decline from July – first monthly decline since October 2009.
• Officials attributed the dip to the summer vacation period and companies upgrading their assembly lines.
• Statistics Korea said the leading economic composite index edged down 0.8 percentage points from July, the eighth straight month of contraction. The index is used to predict economic performance eight to 15 months ahead.
• Statistics Korea, however, added that while the leading economic composite index continued to fall, the trend does not automatically signify that the economy will cool in the near future.
Meanwhile, Japan’s industrial production looks UGLY
• Japan's industrial production fell a seasonally adjusted 0.3% during August, the Ministry of Economy, Trade and Industry said Thursday, with the result way below analysts' forecasts.
• A survey of economists reported by Dow Jones Newswires had tipped a rise of 1.1%. The drop in output marked the third straight month of declines, the ministry said.
Australian job market looks strong
• The total number of job vacancies in Australia in August 2010 was 181,300, which was an increase of 9.8 per cent from the previous quarterly survey, conducted in May 2010.
• The number of job vacancies in the private sector was 163,800 in August, a rise of 9.5 per cent from May.
• We have been seeing a very strong job market in Australia lately which is a source of RBA concerns over inflation and a motivation for them to hike rates.
German unemployment drops sharply
• Is there anything the Germans can do wrong?
• German unemployment decreased sharply in September, and total jobless is expected to fall below the politically sensitive 3 million in October, underscoring the country's strong economic recovery over the summer months.
• The good performance contrasts starkly with other euro-zone states, where unemployment rose markedly during the crisis and is not expected to fall, because of sluggish economic growth and a dire fiscal outlook.
• The German economy is booming, with gross domestic product expected to grow well over 3% this year. Italy, by comparison, will hardly muster 1% growth and the Spanish economy is widely forecast to contract this year and next.
Chicago PMI – STRONGER than expected
• Chicago PMI, generally believed to forecast the ISM because the Chicago area is the manufacturing hub of US, came in stronger than expected for September bucking a series of weak Fed regional reports (somewhat like back in Aug).
• Particularly encouraging was a big jump in New Orders which is believed to the best leading indicator among PMI data.
• This eases concern that ISM to be released on Oct 1 would dip below the 50 mark.
Jobless claims continue to edge lower but still WAY TOO HIGH
• The number of Americans filing for first-time unemployment benefits declined last week but continued to drift in the same range they have been since November.
• There were 453,000 initial jobless claims filed in the week ended Sept.18, down 16,000 from an upwardly revised 469,000 the previous week, according to the Labor Department's weekly report.
Korea – Japan – Germany : all major exporters.
• Korean Won is still about 20% weaker now than before the financial crisis.
• Euro is at the lowest level since mid-2006
• Yen is about 30% stronger now than back in mid-2007 when it was over 120.
Guess which economy and stock market is underperforming.
Can anything go wrong with Germany? They continue to crank along and defy the gravity pulling down everyone else in Europe. I think we won’t see the first signs of slowdown until end of Oct.
Chicago PMI surprised to the upside and market rallied initially, but stock market ended the day slightly down. On Sep 1 the massive September to Remember rally was fueled by upside surprise in ISM manufacturing report (September ISM to be released tomorrow). Is the juice out on manufacturing? If so, this might be a bad time to be long. However, it gives me some confidence in our view that US is not as bad as people think. But that might already be baked into stock prices already after a 9% run in SP500 this month.
Another huge day in energy. Perhaps on short squeeze. I feel better on copper vs crude at this level.
Tomorrow is all about ISM and PMI. My guess though is that we won’t see a big pop like we saw on Sep 1.
Korea’s manufacturing activities continue to power ahead in August but signs of slowdown loom
• Korea’s industrial output grew for a 14th consecutive month in August, underscoring the country’s ongoing economic recovery from the global financial crisis.
• However, we are seeing some signs of slowdown here as well as August saw a small decline from July – first monthly decline since October 2009.
• Officials attributed the dip to the summer vacation period and companies upgrading their assembly lines.
• Statistics Korea said the leading economic composite index edged down 0.8 percentage points from July, the eighth straight month of contraction. The index is used to predict economic performance eight to 15 months ahead.
• Statistics Korea, however, added that while the leading economic composite index continued to fall, the trend does not automatically signify that the economy will cool in the near future.
Meanwhile, Japan’s industrial production looks UGLY
• Japan's industrial production fell a seasonally adjusted 0.3% during August, the Ministry of Economy, Trade and Industry said Thursday, with the result way below analysts' forecasts.
• A survey of economists reported by Dow Jones Newswires had tipped a rise of 1.1%. The drop in output marked the third straight month of declines, the ministry said.
Australian job market looks strong
• The total number of job vacancies in Australia in August 2010 was 181,300, which was an increase of 9.8 per cent from the previous quarterly survey, conducted in May 2010.
• The number of job vacancies in the private sector was 163,800 in August, a rise of 9.5 per cent from May.
• We have been seeing a very strong job market in Australia lately which is a source of RBA concerns over inflation and a motivation for them to hike rates.
German unemployment drops sharply
• Is there anything the Germans can do wrong?
• German unemployment decreased sharply in September, and total jobless is expected to fall below the politically sensitive 3 million in October, underscoring the country's strong economic recovery over the summer months.
• The good performance contrasts starkly with other euro-zone states, where unemployment rose markedly during the crisis and is not expected to fall, because of sluggish economic growth and a dire fiscal outlook.
• The German economy is booming, with gross domestic product expected to grow well over 3% this year. Italy, by comparison, will hardly muster 1% growth and the Spanish economy is widely forecast to contract this year and next.
Chicago PMI – STRONGER than expected
• Chicago PMI, generally believed to forecast the ISM because the Chicago area is the manufacturing hub of US, came in stronger than expected for September bucking a series of weak Fed regional reports (somewhat like back in Aug).
• Particularly encouraging was a big jump in New Orders which is believed to the best leading indicator among PMI data.
• This eases concern that ISM to be released on Oct 1 would dip below the 50 mark.
Jobless claims continue to edge lower but still WAY TOO HIGH
• The number of Americans filing for first-time unemployment benefits declined last week but continued to drift in the same range they have been since November.
• There were 453,000 initial jobless claims filed in the week ended Sept.18, down 16,000 from an upwardly revised 469,000 the previous week, according to the Labor Department's weekly report.
Wednesday, September 29, 2010
2010 09 29
There is no bright news on the horizon on Japan as Eurozone hold on strong thanks mostly to Germany? Switzerland also defying the chokehold of strong CHF. It seems we are nearing the inflection point for Germany, Switzerland and UK for the worse turn in economy. My estimate is late Oct when we start seeing some trace in data. These could be big trades for Q4.
Markets were quiet – minimal actions in stocks, currencies, bonds and commodities. The exception was in energy where much greater than expected draw in refined products sent all energy futures up.
Japan Tankan survey – current sentiment is OK but outlook is deteriorating
• The Bank of Japan's September tankan survey results, published before the opening bell, showed that sentiment among the country's big manufacturers picked up for the sixth consecutive quarter. But the survey also showed that companies expect conditions to worsen sharply over the coming quarter.
• Sentiment among small businesses may fall more than at larger ones in five of six export-driven industries, such as automobiles and machinery, the survey also showed.
• “The Tankan shows the strengthening yen hurts the confidence of manufacturers, with small businesses especially vulnerable to the currency’s gain,” said Daisuke Uno, chief strategist at the unit of Japan’s third-largest banking group. “More small and midsize firms may reduce capital spending to secure cash on hand. The survey also points to their difficulty in raising funds.”
Eurozone business confidence rises to near three-year high
• Businesses in the 16 nations that use the euro continued to become more confident about their prospects in September, while consumers became less upbeat about the economic outlook.
• Business and consumer confidence in the 16-nation eurozone jumped to the highest level for nearly three years in September with a strong gain in Germany, an EU survey said on Wednesday.
• The improvement in sentiment was driven by a surprise rise in the measure of industrial confidence to -2 from -3 in August. Economists had expected a decline to -5. Manufacturers reported an improvement in order books, in part due to a continued pickup in export orders.
• Sentiment was also up in other industries – services, retail and construction.
• However, consumer confidence dipped slightly : Consumers became less fearful of losing their jobs, but less optimistic about the economic outlook, and the headline measure of confidence was unchanged.
• Germany continues to outperform leading the Eurozone. Remains to be seen whether this can continue. I continue to believe that Germany will see notable slowdown later in October.
UK consumer confidence deteriorates
• U.K. consumer confidence fell sharply in September, with the headline measure dropping to -17 from -13 as Britons became much more downbeat about the economic outlook and more fearful of losing their jobs.
• UK is about to see some very restrictive austerity measures start getting implemented soon and I expect it to be a huge drag in economy. I don’t like GBP. I am thinking going long gilt vs bund or treasury might be a good trade but need to research deeper into UK economics.
Swiss’ leading indicator (KOF) remains stable
• The KOF indicator – which attempts to forecast economic condition in about 6 months time – remained stable which is better than analyst forecast. This indicator had been up 14 straight months.
• The Swiss PMI, meanwhile, continues to strike record highs. For the time being, at least, there seems to be no evidence that the strength of the CHF is hurting the Swiss economy.
• At its monetary policy review on Sept. 16, the SNB kept its interest rate target unchanged at an ultra-low 0.25 percent, predicting a significant slowdown as the strength of the Swiss franc and the cooling of the global economy hit the Alpine country.
• The euro zone is Switzerland's biggest trading partner, and the Swiss franc has appreciated more than 10 percent against the euro since the start of the year, prompting business groups to warn exports could be hurt. But so far Swiss economy has been able to endure the strong currency just fine unlike Japan.
Energy up on declines of refined products inventory
• Crude oil rose to a seven-week high after a U.S. government report showed unexpected declines in supplies of gasoline and distillate fuel as refiners cut
• operating rates to the lowest level since April.
• Gasoline inventories fell 3.47 million barrels to 222.6 million in the week ended Sept. 24, the Energy Department report showed. They were forecast to rise by 350,000 barrels, according to the median of 14 analyst estimates in a Bloomberg News survey.
• Distillates, including heating oil and diesel, declined 1.27 million barrels to 173.6 million, compared with a forecast increase of 325,000 barrels.
Markets were quiet – minimal actions in stocks, currencies, bonds and commodities. The exception was in energy where much greater than expected draw in refined products sent all energy futures up.
Japan Tankan survey – current sentiment is OK but outlook is deteriorating
• The Bank of Japan's September tankan survey results, published before the opening bell, showed that sentiment among the country's big manufacturers picked up for the sixth consecutive quarter. But the survey also showed that companies expect conditions to worsen sharply over the coming quarter.
• Sentiment among small businesses may fall more than at larger ones in five of six export-driven industries, such as automobiles and machinery, the survey also showed.
• “The Tankan shows the strengthening yen hurts the confidence of manufacturers, with small businesses especially vulnerable to the currency’s gain,” said Daisuke Uno, chief strategist at the unit of Japan’s third-largest banking group. “More small and midsize firms may reduce capital spending to secure cash on hand. The survey also points to their difficulty in raising funds.”
Eurozone business confidence rises to near three-year high
• Businesses in the 16 nations that use the euro continued to become more confident about their prospects in September, while consumers became less upbeat about the economic outlook.
• Business and consumer confidence in the 16-nation eurozone jumped to the highest level for nearly three years in September with a strong gain in Germany, an EU survey said on Wednesday.
• The improvement in sentiment was driven by a surprise rise in the measure of industrial confidence to -2 from -3 in August. Economists had expected a decline to -5. Manufacturers reported an improvement in order books, in part due to a continued pickup in export orders.
• Sentiment was also up in other industries – services, retail and construction.
• However, consumer confidence dipped slightly : Consumers became less fearful of losing their jobs, but less optimistic about the economic outlook, and the headline measure of confidence was unchanged.
• Germany continues to outperform leading the Eurozone. Remains to be seen whether this can continue. I continue to believe that Germany will see notable slowdown later in October.
UK consumer confidence deteriorates
• U.K. consumer confidence fell sharply in September, with the headline measure dropping to -17 from -13 as Britons became much more downbeat about the economic outlook and more fearful of losing their jobs.
• UK is about to see some very restrictive austerity measures start getting implemented soon and I expect it to be a huge drag in economy. I don’t like GBP. I am thinking going long gilt vs bund or treasury might be a good trade but need to research deeper into UK economics.
Swiss’ leading indicator (KOF) remains stable
• The KOF indicator – which attempts to forecast economic condition in about 6 months time – remained stable which is better than analyst forecast. This indicator had been up 14 straight months.
• The Swiss PMI, meanwhile, continues to strike record highs. For the time being, at least, there seems to be no evidence that the strength of the CHF is hurting the Swiss economy.
• At its monetary policy review on Sept. 16, the SNB kept its interest rate target unchanged at an ultra-low 0.25 percent, predicting a significant slowdown as the strength of the Swiss franc and the cooling of the global economy hit the Alpine country.
• The euro zone is Switzerland's biggest trading partner, and the Swiss franc has appreciated more than 10 percent against the euro since the start of the year, prompting business groups to warn exports could be hurt. But so far Swiss economy has been able to endure the strong currency just fine unlike Japan.
Energy up on declines of refined products inventory
• Crude oil rose to a seven-week high after a U.S. government report showed unexpected declines in supplies of gasoline and distillate fuel as refiners cut
• operating rates to the lowest level since April.
• Gasoline inventories fell 3.47 million barrels to 222.6 million in the week ended Sept. 24, the Energy Department report showed. They were forecast to rise by 350,000 barrels, according to the median of 14 analyst estimates in a Bloomberg News survey.
• Distillates, including heating oil and diesel, declined 1.27 million barrels to 173.6 million, compared with a forecast increase of 325,000 barrels.
Tuesday, September 28, 2010
2010 09 28
Poor consumer confidence didn’t hold the stock market back as stocks staged a late rally.
Bonds are up sharply today on another GREAT treasury auction this time 5 years. No doubt the expectation of QE is running high.
USD is getting punished again down against all currencies except GBP. Hence gold is up again (as is silver).
Richmond Fed survey came in way below expected at -2 in september from +11 in August. Market was expecting +6. September we are again seeing poor regional Fed surveys but then we got surprised by much better than expected ISM which was later confirmed by industrial production and durable goods data. Wonder if that would happen again.
WTI recovered somewhat very late after API data indicated a decent amount of draw in inventory.
Quiet day tomorrow in US but busier elsewhere: BoJ Tankan business sentiment survey, French consumer confidence, Euroland consumer and business confidence, KOF (Switzerland) leading indicator/business sentiment.
U.S. Crude Oil to Average $83 in 2011: Reuters Poll
• U.S. crude oil prices are forecast to average less than previously expected in 2011 due to weak demand and bulging inventories, according to the latest monthly Reuters poll.
China sets 2011 non-state crude and fuel oil quotas
• BEIJING, Sept 28 (Reuters) - China has set the 2011 non-state crude oil import quota at 29.1 million tonnes, 15 percent more than this year, as part of Beijing's commitments to the World Trade Organisation it joined nine years ago.
• The amount, equivalent to about 14 percent of China's total crude imports last year, will be allotted to traders outside the dominant four state traders -- Unipec, Chinaoil, Sinochem and Zhuhai Zhenrong -- but these non-state traders will have to sell back the crude they import to the oil duopoly Sinopec and PetroChina.
Bonds are up sharply today on another GREAT treasury auction this time 5 years. No doubt the expectation of QE is running high.
USD is getting punished again down against all currencies except GBP. Hence gold is up again (as is silver).
Richmond Fed survey came in way below expected at -2 in september from +11 in August. Market was expecting +6. September we are again seeing poor regional Fed surveys but then we got surprised by much better than expected ISM which was later confirmed by industrial production and durable goods data. Wonder if that would happen again.
WTI recovered somewhat very late after API data indicated a decent amount of draw in inventory.
Quiet day tomorrow in US but busier elsewhere: BoJ Tankan business sentiment survey, French consumer confidence, Euroland consumer and business confidence, KOF (Switzerland) leading indicator/business sentiment.
U.S. Crude Oil to Average $83 in 2011: Reuters Poll
• U.S. crude oil prices are forecast to average less than previously expected in 2011 due to weak demand and bulging inventories, according to the latest monthly Reuters poll.
China sets 2011 non-state crude and fuel oil quotas
• BEIJING, Sept 28 (Reuters) - China has set the 2011 non-state crude oil import quota at 29.1 million tonnes, 15 percent more than this year, as part of Beijing's commitments to the World Trade Organisation it joined nine years ago.
• The amount, equivalent to about 14 percent of China's total crude imports last year, will be allotted to traders outside the dominant four state traders -- Unipec, Chinaoil, Sinochem and Zhuhai Zhenrong -- but these non-state traders will have to sell back the crude they import to the oil duopoly Sinopec and PetroChina.
Monday, September 27, 2010
2010 09 27
Pretty slow day again in terms of economic data.
One notable piece of data – although it was no surprise – is falling Japan exports no doubt exacerbated by strong yen. Japan’s economy continues to be a mess but it is quite tricky how to play this market now. There is building expectation that a massive stimulus on the way and BoJ would undertake greater currency intervention. Even though it makes no sense to me, BoJ intervention efforts did result in a rather sizeable rally in Nikkei. In fact, Japan is the best performing stock market in the developed world this year.
Investors are piling onto dividend stocks and investment grade corporate bonds seeking both some safety and yield. I used to hold LQD – investment grade corporate bond ETF – in IQ UCITS until I got rid of them in order to make room for Porcupine in the portfolio (there is a limit to how much total non-UCITS approved securities we can hold). I would add a little of both LQD and DVY (iShared dividends ETF) to IQ BVI in September.
Bond markets (treasuries and bunds) rallied hard today on an exceptionally good 2-year treasury auction in US. It drew the highest level of demand since August 2007. This is partially due to expectation of more Fed buying.
Outside bond market price moves are pretty muted everywhere else.
The biggest news tomorrow is US consumer confidence for Sep. A great month for stock market (this has been the best September in 70 years) should have served as a tailwind but dismal employment picture is expected to push confidence lower.
August Japan Trade Balance – trade surplus falls on slowing exports
• The Japanese economy reported today a narrowing trade surplus in August, as imports increased and the nation’s exports -which are the main pillar of the growth- grew at a slower pace as global demand cooled.
• Breaking down by region exports to US were particularly slow and there is every reason to expect Asia would follow as Asian economy still depends hugely on US consumption.
• Both slowing global economy and strong yen are proving to be a major drag on Japan exports.
Dry U.S. Midwest to spur corn, soybean harvest
• SINGAPORE, Sept 27 (Reuters) - Much-needed dry weather forecast for much of the U.S. Midwest this week is likely to encourage farmers to boost corn and soybean harvesting, a forecaster said on Monday.
• "The outlook calls for dry weather during the next 7 days," said Mike Palmerino, agricultural meteorologist for Telvent DTN in a forecast for the western Midwest.
Shanghai copper hits five-month peak; tight supply
• SINGAPORE, Sept 27 (Reuters) - Shanghai copper hit a five -month high on supply tightness as the market reopened following a public holiday last week.
• "The backwardation, however small, shows that supply in the global market is expected to be tight through the year-end," said a Shanghai-based trader, adding that buying from China was not very active due to unfavourable price differentials.
One notable piece of data – although it was no surprise – is falling Japan exports no doubt exacerbated by strong yen. Japan’s economy continues to be a mess but it is quite tricky how to play this market now. There is building expectation that a massive stimulus on the way and BoJ would undertake greater currency intervention. Even though it makes no sense to me, BoJ intervention efforts did result in a rather sizeable rally in Nikkei. In fact, Japan is the best performing stock market in the developed world this year.
Investors are piling onto dividend stocks and investment grade corporate bonds seeking both some safety and yield. I used to hold LQD – investment grade corporate bond ETF – in IQ UCITS until I got rid of them in order to make room for Porcupine in the portfolio (there is a limit to how much total non-UCITS approved securities we can hold). I would add a little of both LQD and DVY (iShared dividends ETF) to IQ BVI in September.
Bond markets (treasuries and bunds) rallied hard today on an exceptionally good 2-year treasury auction in US. It drew the highest level of demand since August 2007. This is partially due to expectation of more Fed buying.
Outside bond market price moves are pretty muted everywhere else.
The biggest news tomorrow is US consumer confidence for Sep. A great month for stock market (this has been the best September in 70 years) should have served as a tailwind but dismal employment picture is expected to push confidence lower.
August Japan Trade Balance – trade surplus falls on slowing exports
• The Japanese economy reported today a narrowing trade surplus in August, as imports increased and the nation’s exports -which are the main pillar of the growth- grew at a slower pace as global demand cooled.
• Breaking down by region exports to US were particularly slow and there is every reason to expect Asia would follow as Asian economy still depends hugely on US consumption.
• Both slowing global economy and strong yen are proving to be a major drag on Japan exports.
Dry U.S. Midwest to spur corn, soybean harvest
• SINGAPORE, Sept 27 (Reuters) - Much-needed dry weather forecast for much of the U.S. Midwest this week is likely to encourage farmers to boost corn and soybean harvesting, a forecaster said on Monday.
• "The outlook calls for dry weather during the next 7 days," said Mike Palmerino, agricultural meteorologist for Telvent DTN in a forecast for the western Midwest.
Shanghai copper hits five-month peak; tight supply
• SINGAPORE, Sept 27 (Reuters) - Shanghai copper hit a five -month high on supply tightness as the market reopened following a public holiday last week.
• "The backwardation, however small, shows that supply in the global market is expected to be tight through the year-end," said a Shanghai-based trader, adding that buying from China was not very active due to unfavourable price differentials.
Thursday, September 23, 2010
2010 09 23
On economy:
September European flash PMIs were released today. Markit's Eurozone Flash Services Purchasing Manager's Index is made up of surveys of around 2,000 businesses, and basically asks them how their businesses are faring. The reading fell to 53.6 in September from 55.9 in August. This was the survey's lowest reading since February and clearly shows the declining trend. Europeans stock markets were clearly lower today.
The most worrisome was notable drop in German reading which is significantly below the high reached in summer. Germany had been more or less the lone brightspot in global manufacturing over the summer in maintaining accelerating growth. It seems like that has clearly come to an end. It is possible significant strengthening in Euro since early June is finally having its impact on German exports.
I expect US stocks to outperform Europeans stocks and USD to strengthen versus EUR in Q4 as sentiment catches up to Europe’s reality.
In US, weekly initial jobless claims came in on a disappointing side while existing home sales registered a mild positive surprise in growth from the dismal number the month before.
Tomorrow we will see German IFO survey (business sentiment). If we see a large slip here then I can feel more confidence that European slowdown is going to unfold in full force come October. US August durable goods orders would give us a good indication of how true the upbeat August ISM number was. If this doesn’t come in good I think we have a reason to believe that we were fooled in September on inaccurate data.
On stocks and corporate credit:
The lone bright spot in the US economy has been the strength in the corporate sector (banks excluded) where we have seen a strong rebound in profits and extremely cash-loaded balance sheets.
Corporate cash hoarding so far has benefitted corporate bond investors who as a group have no other want other than the companies to not default. Bond holders tend to object to business spending, dividends or stock buybacks. Obviously it’s hard to default on debt if you have a ton of cash on hand. Corporate bonds have rallied hard lately on both risk aversion and falling treasury yields.
We are starting to see the sign that some of the excess cash might be getting deployed. M&A is picking up in a big way and dividends are starting to rise. Both are tailwinds for stock investors. One could argue that for the broad economy the cash would be better spent on hiring, but companies refuse to do so based on uncertain economic picture. Hence recovery in employment is kept muted which feeds into weak consumer confidence. It has been a bad cycle. We will see if we can break out of it in the next couple quarters.
Outlook and sentiment vary greatly among companies based on their size. Larger companies with significant international presence are relatively upbeat while smaller businesses with limited geographic footprint and limited access to credit are suffering. This is why we are more heavily weighted in megacap stocks in our equity holdings. We see this as a continuing theme in US.
On precious metals:
Gold is knocking on the $1,300 mark again today and I expect this to be breached before October. We have seen a remarkable run in gold and silver since early August. While I do not see an up 5% month to be a norm going forward, I believe the economic and financial environment remains very bullish for precious metals. Emerging market central bank purchases, private sector investment, opening up of Chinese gold market, and additional quantitative easing around the world all provide favorable backdrop to continue the rally.
On industrial metals:
Copper continues to creep higher as LME inventory continues to fall (in a stark contrast versus crude oil). Copper is up 21% since July while SP500 is up 9%. Copper is benefitting from robust emerging market demand especially from China – more on that tomorrow. I continue to believe that industrial metals are better place to be than energy in next 3 months.
On the agricultural front:
Russia is expected to increase imports throughout 2011 amidst the shortfall following this summer's drought and wildfires. Russia, typically a net exporter, will have to import nearly 6 million tons of grains, according to SovEcon. The Moscow based research firm also believes that the government's official supply estimate of 90 million tons is grossly overstated and is expected to only be between 77 and 81 million tons. This should keep pressure on grain prices in the upcoming year as more countries will rely on the US, Canada and Australia to provide the world's grain.
Prices of Robusta coffee have risen to their highest prices in a month on concerns that there will be issues with the harvest in Vietnam. Vietnam often has issues in getting coffee to port due to poor infrastructure and poor husbandry. Demand for Robusta coffee, used in instant coffees, is expected to rise due to an increase in the price of higher quality Arabica coffee. As prices for the high quality coffee rise, consumers naturally switch to the cheaper priced coffee. Continued issues with the weather in Brazil have increased prices to historical levels. Many roasters who are not fully hedged will now turn to the Robusta coffee as a way to cut costs.
Australia sugar areas set for wet December qtr
• SYDNEY, Sept 23 (Reuters) - Above-average rain is forecast for much of eastern Australia through the end of the year, threatening to disrupt the sugar harvest and new crop planting but boding well for summer crops such as cotton.
• Australia's northern sugar and cotton growing regions and eastern grain growing regions are all expected to record above-average rain in the last three months of the year as the La Nina weather event intensifies, Australia's weather bureau said on Thursday.
Mexico opens sugar quota to cover demand
• MEXICO CITY, Sept 22 (Reuters) - Mexico's economy ministry approved on Wednesday a quota to import 100,000 tonnes of sugar to help stabilize prices amid a shortage caused by bad weather hurting cane fields.
• The import quota would be the second opened this year in Mexico, which generally produces enough sugar to cover domestic needs and some exports. But now the country is reeling from two straight years of lower-than-expected harvests from aging cane fields with lower yields and bad weather.
September European flash PMIs were released today. Markit's Eurozone Flash Services Purchasing Manager's Index is made up of surveys of around 2,000 businesses, and basically asks them how their businesses are faring. The reading fell to 53.6 in September from 55.9 in August. This was the survey's lowest reading since February and clearly shows the declining trend. Europeans stock markets were clearly lower today.
The most worrisome was notable drop in German reading which is significantly below the high reached in summer. Germany had been more or less the lone brightspot in global manufacturing over the summer in maintaining accelerating growth. It seems like that has clearly come to an end. It is possible significant strengthening in Euro since early June is finally having its impact on German exports.
I expect US stocks to outperform Europeans stocks and USD to strengthen versus EUR in Q4 as sentiment catches up to Europe’s reality.
In US, weekly initial jobless claims came in on a disappointing side while existing home sales registered a mild positive surprise in growth from the dismal number the month before.
Tomorrow we will see German IFO survey (business sentiment). If we see a large slip here then I can feel more confidence that European slowdown is going to unfold in full force come October. US August durable goods orders would give us a good indication of how true the upbeat August ISM number was. If this doesn’t come in good I think we have a reason to believe that we were fooled in September on inaccurate data.
On stocks and corporate credit:
The lone bright spot in the US economy has been the strength in the corporate sector (banks excluded) where we have seen a strong rebound in profits and extremely cash-loaded balance sheets.
Corporate cash hoarding so far has benefitted corporate bond investors who as a group have no other want other than the companies to not default. Bond holders tend to object to business spending, dividends or stock buybacks. Obviously it’s hard to default on debt if you have a ton of cash on hand. Corporate bonds have rallied hard lately on both risk aversion and falling treasury yields.
We are starting to see the sign that some of the excess cash might be getting deployed. M&A is picking up in a big way and dividends are starting to rise. Both are tailwinds for stock investors. One could argue that for the broad economy the cash would be better spent on hiring, but companies refuse to do so based on uncertain economic picture. Hence recovery in employment is kept muted which feeds into weak consumer confidence. It has been a bad cycle. We will see if we can break out of it in the next couple quarters.
Outlook and sentiment vary greatly among companies based on their size. Larger companies with significant international presence are relatively upbeat while smaller businesses with limited geographic footprint and limited access to credit are suffering. This is why we are more heavily weighted in megacap stocks in our equity holdings. We see this as a continuing theme in US.
On precious metals:
Gold is knocking on the $1,300 mark again today and I expect this to be breached before October. We have seen a remarkable run in gold and silver since early August. While I do not see an up 5% month to be a norm going forward, I believe the economic and financial environment remains very bullish for precious metals. Emerging market central bank purchases, private sector investment, opening up of Chinese gold market, and additional quantitative easing around the world all provide favorable backdrop to continue the rally.
On industrial metals:
Copper continues to creep higher as LME inventory continues to fall (in a stark contrast versus crude oil). Copper is up 21% since July while SP500 is up 9%. Copper is benefitting from robust emerging market demand especially from China – more on that tomorrow. I continue to believe that industrial metals are better place to be than energy in next 3 months.
On the agricultural front:
Russia is expected to increase imports throughout 2011 amidst the shortfall following this summer's drought and wildfires. Russia, typically a net exporter, will have to import nearly 6 million tons of grains, according to SovEcon. The Moscow based research firm also believes that the government's official supply estimate of 90 million tons is grossly overstated and is expected to only be between 77 and 81 million tons. This should keep pressure on grain prices in the upcoming year as more countries will rely on the US, Canada and Australia to provide the world's grain.
Prices of Robusta coffee have risen to their highest prices in a month on concerns that there will be issues with the harvest in Vietnam. Vietnam often has issues in getting coffee to port due to poor infrastructure and poor husbandry. Demand for Robusta coffee, used in instant coffees, is expected to rise due to an increase in the price of higher quality Arabica coffee. As prices for the high quality coffee rise, consumers naturally switch to the cheaper priced coffee. Continued issues with the weather in Brazil have increased prices to historical levels. Many roasters who are not fully hedged will now turn to the Robusta coffee as a way to cut costs.
Australia sugar areas set for wet December qtr
• SYDNEY, Sept 23 (Reuters) - Above-average rain is forecast for much of eastern Australia through the end of the year, threatening to disrupt the sugar harvest and new crop planting but boding well for summer crops such as cotton.
• Australia's northern sugar and cotton growing regions and eastern grain growing regions are all expected to record above-average rain in the last three months of the year as the La Nina weather event intensifies, Australia's weather bureau said on Thursday.
Mexico opens sugar quota to cover demand
• MEXICO CITY, Sept 22 (Reuters) - Mexico's economy ministry approved on Wednesday a quota to import 100,000 tonnes of sugar to help stabilize prices amid a shortage caused by bad weather hurting cane fields.
• The import quota would be the second opened this year in Mexico, which generally produces enough sugar to cover domestic needs and some exports. But now the country is reeling from two straight years of lower-than-expected harvests from aging cane fields with lower yields and bad weather.
Wednesday, September 22, 2010
2010 09 22
Another very slow day in terms of newsflow.
It seems like the ramification of probable US QE is still working its way through the market.
Gold continues to surge and bonds are being bid up. US dollar continues to slide versus most currencies.
In the middle of all this what’s being missed is the action around silver.
Since end of April when markets started tanking, silver is up 13%. During the same period gold is up 9% and SP500 is down 4%.
Silver has benefitted lately on two fronts:
Much better than expected manufacturing data out of US and China on Sep 1 are what kickstarted this Sep rally. Silver, unlike gold, derives huge part of its demand from manufacturing and industrial activities – around 60% of total demand. Better than expected manufacturing activities are restoring faith in silver. We believe that while the peak in manufacturing activities was reached earlier this year, they will continue to remain in expansionary territory (i.e. it would not fall into “recession”) for the foreseeable future. This will lend support to silver.
Gold has pierced through its all-time high and continues to march higher. There are many investors who feel like gold may be overvalued at this point and are reluctant to jump onboard. These people tend to look to silver which is still about 40% below its all time high.
Until 2006, gold’s previous all time nominal (not inflation adjusted) high was $667 in Sep 1980. Silver’s all time nominal high still rests at $35 back in Feb 1980. Silver trades at $21 today. Jim Rogers put it succinctly : one is at all time high and one is well below its all time high. Which is a better value?
Tomorrow would be a big day. September flash PMI data comes out across the Euroland. It would be very interesting to see if Germany can continue to hold up. My guess is that Germany would be ok through this month but show slowdown starting Oct.
And of course US weekly initial jobless claims. I expect it to stay at an elevated level around 440-450k.
Without further good news the stock market rally we have seen this month could very well slip from here.
It seems like the ramification of probable US QE is still working its way through the market.
Gold continues to surge and bonds are being bid up. US dollar continues to slide versus most currencies.
In the middle of all this what’s being missed is the action around silver.
Since end of April when markets started tanking, silver is up 13%. During the same period gold is up 9% and SP500 is down 4%.
Silver has benefitted lately on two fronts:
Much better than expected manufacturing data out of US and China on Sep 1 are what kickstarted this Sep rally. Silver, unlike gold, derives huge part of its demand from manufacturing and industrial activities – around 60% of total demand. Better than expected manufacturing activities are restoring faith in silver. We believe that while the peak in manufacturing activities was reached earlier this year, they will continue to remain in expansionary territory (i.e. it would not fall into “recession”) for the foreseeable future. This will lend support to silver.
Gold has pierced through its all-time high and continues to march higher. There are many investors who feel like gold may be overvalued at this point and are reluctant to jump onboard. These people tend to look to silver which is still about 40% below its all time high.
Until 2006, gold’s previous all time nominal (not inflation adjusted) high was $667 in Sep 1980. Silver’s all time nominal high still rests at $35 back in Feb 1980. Silver trades at $21 today. Jim Rogers put it succinctly : one is at all time high and one is well below its all time high. Which is a better value?
Tomorrow would be a big day. September flash PMI data comes out across the Euroland. It would be very interesting to see if Germany can continue to hold up. My guess is that Germany would be ok through this month but show slowdown starting Oct.
And of course US weekly initial jobless claims. I expect it to stay at an elevated level around 440-450k.
Without further good news the stock market rally we have seen this month could very well slip from here.
Tuesday, September 21, 2010
2010 09 21
A fairly quiet day on a no real new news.
FOMC did not quite deliver explicit message they’re about to embark on additional QE of buying up government securities, but they reiterated a very dovish tone. This is what I had expected as I wrote yesterday – given some upside surprises we saw this month the Fed can afford to wait until next month.
The dovish tone was enough however to push long bonds up and dollar down. As you can expect gold had a big up day now right at 1290 mark.
WTI had a fairly bad day down 2% today on expectation of low refinery utilization and continual build-up in inventory.
Crude has decoupled from stock market this month. The fundamentals have caught up. Connor and I had a brief discussion on crude. I think it’s stuck in range 72-77.
Meanwhile, the Chinese commodity imports data just came out for August. At a glance it seems like the demand is picking back up especially for metals.
China refined copper imports rise 18.9 pct in Aug
• China's imports of refined copper rose 18.9 percent in August from a month earlier, up for a second straight month, as importers received more metal ahead of the peak consumption season in the fourth quarter.
• The world's top copper consumer imported 267,153 tonnes of refined copper in August, up from July's 224,723 tonnes, data from the General Administration of Customs showed on Tuesday.
FOMC did not quite deliver explicit message they’re about to embark on additional QE of buying up government securities, but they reiterated a very dovish tone. This is what I had expected as I wrote yesterday – given some upside surprises we saw this month the Fed can afford to wait until next month.
The dovish tone was enough however to push long bonds up and dollar down. As you can expect gold had a big up day now right at 1290 mark.
WTI had a fairly bad day down 2% today on expectation of low refinery utilization and continual build-up in inventory.
Crude has decoupled from stock market this month. The fundamentals have caught up. Connor and I had a brief discussion on crude. I think it’s stuck in range 72-77.
Meanwhile, the Chinese commodity imports data just came out for August. At a glance it seems like the demand is picking back up especially for metals.
China refined copper imports rise 18.9 pct in Aug
• China's imports of refined copper rose 18.9 percent in August from a month earlier, up for a second straight month, as importers received more metal ahead of the peak consumption season in the fourth quarter.
• The world's top copper consumer imported 267,153 tonnes of refined copper in August, up from July's 224,723 tonnes, data from the General Administration of Customs showed on Tuesday.
Monday, September 20, 2010
2010 09 20
No real noteworthy economic news today.
Stocks push higher yet again on no substantial economic news. It’s possible additional news of M&A out of the tech sector (IBM) is providing positive sentiment.
Treasuries, commodities and gold all higher as well. Bunds flat to slightly lower. USD seems to be only asset down today perhaps the market is putting a lot of faith that FOMC would announce more QE measures tomorrow.
Fears that the US economy is headed into a “double dip” have eased a bit as data surprises have swung to the upside. September has been dominated by upside surprises on data ranging from the ISM manufacturing index to payrolls and from the trade balance to retail sales. This stands in sharp contrast to the experience of July and August. No doubt this has led to a huge rally we have seen in August.
The BoJ intervention appears to be working so far – JPY hovering right around 85.5- 85.9 level yet. I still believe BoJ’s effort to push down yen would be successful in the longer run due to : (1) persistent trade surplus (2) lack of carry trade around the world (3) speculators’ desire to test BoJ (4) lingering possibility of deteriorating US and European economies. However, I would wait longer before jumping to go long yen. The intervention has just begun and it could last months (last time BoJ tried to intervene it was from around March 2003 – March 2004).
Tomorrow:
Australia RBA minutes – I think going long AUD might be a good trade their economy is doing well and Asia continues to power ahead. This could increase pressure to raise rates and give some boost to AUD. If I were to go long AUD I would probably do it against NZD rather than USD as to reduce exposure to investor sentiment swings.
US housing starts – probably bad. But I do not think the US housing news impacts the markets any more. Everyone knows this market is dead.
US FOMC meeting – everyone seems to expect news of further QE. I think this expectation is too high given the upside surprise we have seen this month but QE is probably very likely coming sometime this year.
Global stainless steel output jumps 44 pct in H1 2010
• Global stainless steel production rose more than 40 percent in the first half of this year on the back of strong restocking as the global economy slowly recovered after 2009's recession. This can explain nickel’s huge outperformance (+25% ytd) over other metals (copper +5% ally -2%)
• Total stainless steel crude production rose to 15.6 million tonnes, rising 44.3 percent compared with the first half of 2009, preliminary figures from the Brussels-based International Stainless Steel Forum (ISSF) showed on Monday.
Stocks push higher yet again on no substantial economic news. It’s possible additional news of M&A out of the tech sector (IBM) is providing positive sentiment.
Treasuries, commodities and gold all higher as well. Bunds flat to slightly lower. USD seems to be only asset down today perhaps the market is putting a lot of faith that FOMC would announce more QE measures tomorrow.
Fears that the US economy is headed into a “double dip” have eased a bit as data surprises have swung to the upside. September has been dominated by upside surprises on data ranging from the ISM manufacturing index to payrolls and from the trade balance to retail sales. This stands in sharp contrast to the experience of July and August. No doubt this has led to a huge rally we have seen in August.
The BoJ intervention appears to be working so far – JPY hovering right around 85.5- 85.9 level yet. I still believe BoJ’s effort to push down yen would be successful in the longer run due to : (1) persistent trade surplus (2) lack of carry trade around the world (3) speculators’ desire to test BoJ (4) lingering possibility of deteriorating US and European economies. However, I would wait longer before jumping to go long yen. The intervention has just begun and it could last months (last time BoJ tried to intervene it was from around March 2003 – March 2004).
Tomorrow:
Australia RBA minutes – I think going long AUD might be a good trade their economy is doing well and Asia continues to power ahead. This could increase pressure to raise rates and give some boost to AUD. If I were to go long AUD I would probably do it against NZD rather than USD as to reduce exposure to investor sentiment swings.
US housing starts – probably bad. But I do not think the US housing news impacts the markets any more. Everyone knows this market is dead.
US FOMC meeting – everyone seems to expect news of further QE. I think this expectation is too high given the upside surprise we have seen this month but QE is probably very likely coming sometime this year.
Global stainless steel output jumps 44 pct in H1 2010
• Global stainless steel production rose more than 40 percent in the first half of this year on the back of strong restocking as the global economy slowly recovered after 2009's recession. This can explain nickel’s huge outperformance (+25% ytd) over other metals (copper +5% ally -2%)
• Total stainless steel crude production rose to 15.6 million tonnes, rising 44.3 percent compared with the first half of 2009, preliminary figures from the Brussels-based International Stainless Steel Forum (ISSF) showed on Monday.
Thursday, September 16, 2010
2010 09 16
Quiet day in the market
Most notable is oil where the news of Enbridge reopening the pipeline is pushing the price lower.
Gold continues to perform well.
This is going to be very range bound market driven by sentiments that would continue to over and undershoot reality.
Economic data show that we are right on the line between recovery and recession.
Inflation data show that we are right on the line between inflation and deflation.
The only asset I would hold naked long now is gold. And maybe some ags depending on their own micro drivers. Relative value and tactical trades would be key.
Japan manufacturing sentiment rapidly falling apart
• Japanese manufacturing confidence worsened in September from the previous month for the first time in nearly a year as companies struggle with a persistent yen rise that threatens a fragile, export-reliant economic recovery, a Reuters poll showed.
• There were numerous comments that (1) profitability has declined on dollar-denominated contracts due to yen strength, (2) incoming order growth is sluggish, and (3) the sense of recovery in the market has stalled. Moreover, the December outlook deteriorated to +2, 15 points down on the current outlook of +17, marking the largest deterioration since the survey was started in 1998.
U.K. Retail Sales Post Surprise Fall, manufacturing orders are weakening and job market continues to falter
• U.K. retail sales fell unexpectedly and sharply in August, reflecting consumers' concerns about government spending cuts and a reversal in the job market.
• The volume of retail sales dropped 0.5% from July, the first decrease since January, and the annual rate of growth slowed to 0.4%, the government statistics office said. The agency observed a broad-based decline across both food and nonfood stores.
• The result, together with other news Thursday of contracting order bookings among U.K. manufacturers, added to evidence that Britain's economic recovery is losing pace in the second half of the year.
• The faltering recovery is in line with that of the 16-nation euro zone, where only Germany is bucking the trend with robust growth, led by exporters and consumers.
Switzerland keeps interest rate stable and cuts inflation outlook. No comment on strength of CHF
• SNB kept interest rate the same and made some dovish comments like all the other central banks do (we are concerned about global recovery…)
• SNB also stated that domestic recovery was much more powerful than expected but it is likely to slow down substantially due to strength of CHF and slowdown in global economy.
US weekly jobless claims falls more than expected. A minor sigh of relief
• Claims for the week to September 11 fell to 450,000, down 3,000 from the previous week's revised figure, bringing them to their lowest level since May.
• The latest figure was better than most economists' expectations of 460,000 new claims, adding to a string of positive indicators in recent weeks that bolstered optimism about the recovery.
• Still, 450,000 is a DISMAL number given that we’re supposed to be a year into an economic recovery.
US PPI remains at rock bottom
• U.S. producer prices rose for the second month in a row in August at 0.4% as energy costs increased.
• Still, the government report showed that underlying inflation pressures remain very low. Stripping out more-volatile food and energy prices, producer prices rose by just 0.1%.
Philly Fed manufacturing survey weak for second month in a row
• Manufacturing activity in the Philadelphia region has stalled as the survey released Thursday by the Philadelphia Federal Reserve shows the second month of declining new orders and shipments.
• The report covers businesses in the third federal district, which encompasses eastern Pennsylvania, southern New Jersey and Delaware.
Tomorrow:
US CPI
US U of Michigan consumer confidence
Neither likely to be much of a market driver
Most notable is oil where the news of Enbridge reopening the pipeline is pushing the price lower.
Gold continues to perform well.
This is going to be very range bound market driven by sentiments that would continue to over and undershoot reality.
Economic data show that we are right on the line between recovery and recession.
Inflation data show that we are right on the line between inflation and deflation.
The only asset I would hold naked long now is gold. And maybe some ags depending on their own micro drivers. Relative value and tactical trades would be key.
Japan manufacturing sentiment rapidly falling apart
• Japanese manufacturing confidence worsened in September from the previous month for the first time in nearly a year as companies struggle with a persistent yen rise that threatens a fragile, export-reliant economic recovery, a Reuters poll showed.
• There were numerous comments that (1) profitability has declined on dollar-denominated contracts due to yen strength, (2) incoming order growth is sluggish, and (3) the sense of recovery in the market has stalled. Moreover, the December outlook deteriorated to +2, 15 points down on the current outlook of +17, marking the largest deterioration since the survey was started in 1998.
U.K. Retail Sales Post Surprise Fall, manufacturing orders are weakening and job market continues to falter
• U.K. retail sales fell unexpectedly and sharply in August, reflecting consumers' concerns about government spending cuts and a reversal in the job market.
• The volume of retail sales dropped 0.5% from July, the first decrease since January, and the annual rate of growth slowed to 0.4%, the government statistics office said. The agency observed a broad-based decline across both food and nonfood stores.
• The result, together with other news Thursday of contracting order bookings among U.K. manufacturers, added to evidence that Britain's economic recovery is losing pace in the second half of the year.
• The faltering recovery is in line with that of the 16-nation euro zone, where only Germany is bucking the trend with robust growth, led by exporters and consumers.
Switzerland keeps interest rate stable and cuts inflation outlook. No comment on strength of CHF
• SNB kept interest rate the same and made some dovish comments like all the other central banks do (we are concerned about global recovery…)
• SNB also stated that domestic recovery was much more powerful than expected but it is likely to slow down substantially due to strength of CHF and slowdown in global economy.
US weekly jobless claims falls more than expected. A minor sigh of relief
• Claims for the week to September 11 fell to 450,000, down 3,000 from the previous week's revised figure, bringing them to their lowest level since May.
• The latest figure was better than most economists' expectations of 460,000 new claims, adding to a string of positive indicators in recent weeks that bolstered optimism about the recovery.
• Still, 450,000 is a DISMAL number given that we’re supposed to be a year into an economic recovery.
US PPI remains at rock bottom
• U.S. producer prices rose for the second month in a row in August at 0.4% as energy costs increased.
• Still, the government report showed that underlying inflation pressures remain very low. Stripping out more-volatile food and energy prices, producer prices rose by just 0.1%.
Philly Fed manufacturing survey weak for second month in a row
• Manufacturing activity in the Philadelphia region has stalled as the survey released Thursday by the Philadelphia Federal Reserve shows the second month of declining new orders and shipments.
• The report covers businesses in the third federal district, which encompasses eastern Pennsylvania, southern New Jersey and Delaware.
Tomorrow:
US CPI
US U of Michigan consumer confidence
Neither likely to be much of a market driver
Wednesday, September 15, 2010
2010 09 15
Very quiet day except two assets:
Oil pulled back on the news the broken pipeline might be repaired and would be ready to resume service soon.
Yen weakened significantly on official BoJ intervention.
Otherwise no action in stocks, commodities or currencies.
We saw some sell offs in bonds and bunds especially on long ends but it is merely reversing all of yesterday’s inexplicable strengthening. Sometimes (or often???) there is no real logic behind price moves. Prices just move around.
I would advocate taking some profits on positions that rose the most this month after the initial jobless claims number tomorrow – before the weekend
UK unemployment holds steady – upcoming spending cuts stokes concern
• The number of people unemployed in the UK fell by 8,000 to 2.47 million in the three months to July. This is less than drop of 40,000 that was expecte.
• However, the figures also showed the claimant count - those out of work and receiving unemployment benefit - rose by 2,300 in August to 1.47 million.
• UK is in similar situation as US – unemployment that is stuck at high rate that seems to be getting worse. The main fear is that as spending cuts take effect unemployment can rise sharply.
US industrial production slowed a bit in August from July
• U.S. industrial production rose 0.2% in August, a slower pace than the downwardly revised 0.6% in July. Economists had forecast of 0.1% increase in August industrial production.
• This piece of good news helped offset weaker than expected Empire state manufacturing survey
• It was not a great news, but good enough to hold up the market. This marks 14th straight months of industrial activity growth which remains the bedrock of economic recovery. It will be a scary scenario if manufacturing begins to slip as inventory build reaches normal level.
Oil falls 2nd day as U.S. pipeline seen restarting
• SINGAPORE, Sept 15 (Reuters) - Oil fell for a second day as Enbridge prepared to restart the biggest Canada-U.S. crude pipeline, raising expectations of a short-lived shutdown that would limit the drainage of record-high inventories.
• "This situation has been priced in, so now that it is going to restart earlier than expected, prices have re-adjusted, causing the prompt WTI price to weaken much more than Brent," said Serene Lim, a Singapore-based oil analyst at ANZ.
Tomorrow:
Japan Tankan business survey
UK retail sales
Switzerland SNB meeting (would be interesting to see if they comment on CHF probably not as their economy is holding up just fine)
US initial jobless claims
US Philly fed survey
Oil pulled back on the news the broken pipeline might be repaired and would be ready to resume service soon.
Yen weakened significantly on official BoJ intervention.
Otherwise no action in stocks, commodities or currencies.
We saw some sell offs in bonds and bunds especially on long ends but it is merely reversing all of yesterday’s inexplicable strengthening. Sometimes (or often???) there is no real logic behind price moves. Prices just move around.
I would advocate taking some profits on positions that rose the most this month after the initial jobless claims number tomorrow – before the weekend
UK unemployment holds steady – upcoming spending cuts stokes concern
• The number of people unemployed in the UK fell by 8,000 to 2.47 million in the three months to July. This is less than drop of 40,000 that was expecte.
• However, the figures also showed the claimant count - those out of work and receiving unemployment benefit - rose by 2,300 in August to 1.47 million.
• UK is in similar situation as US – unemployment that is stuck at high rate that seems to be getting worse. The main fear is that as spending cuts take effect unemployment can rise sharply.
US industrial production slowed a bit in August from July
• U.S. industrial production rose 0.2% in August, a slower pace than the downwardly revised 0.6% in July. Economists had forecast of 0.1% increase in August industrial production.
• This piece of good news helped offset weaker than expected Empire state manufacturing survey
• It was not a great news, but good enough to hold up the market. This marks 14th straight months of industrial activity growth which remains the bedrock of economic recovery. It will be a scary scenario if manufacturing begins to slip as inventory build reaches normal level.
Oil falls 2nd day as U.S. pipeline seen restarting
• SINGAPORE, Sept 15 (Reuters) - Oil fell for a second day as Enbridge prepared to restart the biggest Canada-U.S. crude pipeline, raising expectations of a short-lived shutdown that would limit the drainage of record-high inventories.
• "This situation has been priced in, so now that it is going to restart earlier than expected, prices have re-adjusted, causing the prompt WTI price to weaken much more than Brent," said Serene Lim, a Singapore-based oil analyst at ANZ.
Tomorrow:
Japan Tankan business survey
UK retail sales
Switzerland SNB meeting (would be interesting to see if they comment on CHF probably not as their economy is holding up just fine)
US initial jobless claims
US Philly fed survey
Tuesday, September 14, 2010
2010 09 14
The biggest economic news today was largely as expected. Retail sales remains anemic but it’s yet another piece of confirmation that we are not in contraction territory.
In terms of news moving the market it was the result of Japanese election – incumbent prime minister Kan won the party election beating his challenger who was widely believed to be likely to prod BoJ to intervene and weaken the currency. This news pushed Yen even stronger. I have said before that there is nothing BoJ could do even if it wanted to weaken the Yen. It tried once before in 2004 and it was useless. The currency market is too big even for the government. If anything government intervention was seen as sign of weakness and only emboldens speculators. Look at what’s happening to CHF.
It has been a very quiet month for currencies. The biggest move MTD has been in AUD and it has only moved 0.19% against USD.
We also saw sharp advance in gold and bonds (and bunds). News media reports as safe haven buying. Well, it seems odd to me why all of a sudden there is a huge spike in demand for gold and bonds especially today when there is no obvious bad news and stocks and commodities are flat.
I still like gold a lot – macro backdrop is perfect for this asset.
Actually, what has really been racing ahead is silver. Silver was at $18 at the end of July. Today it’s at $20.44.
U.K. Housing Gauge Falls to Lowest Since May 2009
• The housing recovery may be faltering as the prospect of the biggest spending squeeze since World War II deters buyers and banks restrict access to credit.
UK inflation holds steady – higher than expected
• The Office for National Statistics said consumer price inflation came in at 3.1 percent last month in contrast to economists' expectations for a fall to 2.9 percent.
US august retail sales – isn’t good but it is still growing
• Retail sales rose 0.4% on the month, the Commerce Department said. It marked the second straight increase and was the largest gain since March. Excluding autos, August's sales rose 0.6%.
Tomorrow shapes up to be a big day with Euroland Aug CPI and US Aug industrial production and capacity utilization as well as Empire manufacturing survey. The market took off on a huge rally this month primarily on much better than expected PMI number. If these other manufacturing indicators disappoint that would cast a serious doubt that US industrial activities are on a stable footing.
In terms of news moving the market it was the result of Japanese election – incumbent prime minister Kan won the party election beating his challenger who was widely believed to be likely to prod BoJ to intervene and weaken the currency. This news pushed Yen even stronger. I have said before that there is nothing BoJ could do even if it wanted to weaken the Yen. It tried once before in 2004 and it was useless. The currency market is too big even for the government. If anything government intervention was seen as sign of weakness and only emboldens speculators. Look at what’s happening to CHF.
It has been a very quiet month for currencies. The biggest move MTD has been in AUD and it has only moved 0.19% against USD.
We also saw sharp advance in gold and bonds (and bunds). News media reports as safe haven buying. Well, it seems odd to me why all of a sudden there is a huge spike in demand for gold and bonds especially today when there is no obvious bad news and stocks and commodities are flat.
I still like gold a lot – macro backdrop is perfect for this asset.
Actually, what has really been racing ahead is silver. Silver was at $18 at the end of July. Today it’s at $20.44.
U.K. Housing Gauge Falls to Lowest Since May 2009
• The housing recovery may be faltering as the prospect of the biggest spending squeeze since World War II deters buyers and banks restrict access to credit.
UK inflation holds steady – higher than expected
• The Office for National Statistics said consumer price inflation came in at 3.1 percent last month in contrast to economists' expectations for a fall to 2.9 percent.
US august retail sales – isn’t good but it is still growing
• Retail sales rose 0.4% on the month, the Commerce Department said. It marked the second straight increase and was the largest gain since March. Excluding autos, August's sales rose 0.6%.
Tomorrow shapes up to be a big day with Euroland Aug CPI and US Aug industrial production and capacity utilization as well as Empire manufacturing survey. The market took off on a huge rally this month primarily on much better than expected PMI number. If these other manufacturing indicators disappoint that would cast a serious doubt that US industrial activities are on a stable footing.
Monday, September 13, 2010
2010 09 13
Stocks and commodities drifted higher on a day with no major economic news.
Quite possibly the bulls were stoked by new global banking regulations that were far less stringent than many feared. Capital requirements are not very high and banks will have 8 years to comply.
The news that Microsoft will issue debt to pay out dividends helped Nasdaq soar.
Otherwise, China released an assuring news that its august Industrial production rebounded from July, handily beating estimates. This helped industrial metals and copper gain in particular. China also reported better than expected retail sales number for August as well. Seems to me like China has succeeded in managing a soft landing.
On the bonds side, much better than expected budget deficit in US in August helped fuel a huge rally in US treasuries. I reckon even at this rock bottom yield there are people who are scared of default. Thankfully bunds are not moving much.
Basically, the news of the past couple weeks paint the picture that while things are bad, it is not dismal. It has been a very nice run with SP500 up nearly 7% MTD. Could this be one of those months where cutting exposure in second half would pay off?
Tomorrow is shaping up to be more interesting with UK CPI (should affect gilts and GBP) and US retail sales reported.
China majors' fuel stocks down sixth month in row
• Combined inventories of gasoline, diesel and kerosene held by China's top two oil firms were down 6.4 percent in August versus July, the sixth monthly decline, due to robust domestic sales and exports, an industry official said on Monday.
• Diesel stocks held by Sinopec Corp and PetroChina were down a sharp 8.2 percent last month from July, while that of gasoline dropped 2.8 percent, said the official who has knowledge of the data but is not authorised to release them.
India oil product exports may double in 3 yrs
• India's petroleum products exports could reach 80-90 million tonnes per year in 2-3 years, from nearly 40 million tonnes currently, Oil Secretary S. Sundareshan told reporters on Saturday.
• India's product exports were 4.79 million tonnes in July, up from 4.09 million tonnes in June, latest government data show.
U.S. Midwest weather outlook unfavorable for crops
• Corn and soybean crops in the U.S. Midwest face a week of mixed weather with scattered showers forecast from Tuesday through to Friday, a forecaster said on Monday.
• "Wet weather in the western Midwest during the next seven days is unfavourable for maturing corn and soybeans and the early harvest," said Mike Palmerino, agricultural meteorologist with Telvent-DTN Weather.
Quite possibly the bulls were stoked by new global banking regulations that were far less stringent than many feared. Capital requirements are not very high and banks will have 8 years to comply.
The news that Microsoft will issue debt to pay out dividends helped Nasdaq soar.
Otherwise, China released an assuring news that its august Industrial production rebounded from July, handily beating estimates. This helped industrial metals and copper gain in particular. China also reported better than expected retail sales number for August as well. Seems to me like China has succeeded in managing a soft landing.
On the bonds side, much better than expected budget deficit in US in August helped fuel a huge rally in US treasuries. I reckon even at this rock bottom yield there are people who are scared of default. Thankfully bunds are not moving much.
Basically, the news of the past couple weeks paint the picture that while things are bad, it is not dismal. It has been a very nice run with SP500 up nearly 7% MTD. Could this be one of those months where cutting exposure in second half would pay off?
Tomorrow is shaping up to be more interesting with UK CPI (should affect gilts and GBP) and US retail sales reported.
China majors' fuel stocks down sixth month in row
• Combined inventories of gasoline, diesel and kerosene held by China's top two oil firms were down 6.4 percent in August versus July, the sixth monthly decline, due to robust domestic sales and exports, an industry official said on Monday.
• Diesel stocks held by Sinopec Corp and PetroChina were down a sharp 8.2 percent last month from July, while that of gasoline dropped 2.8 percent, said the official who has knowledge of the data but is not authorised to release them.
India oil product exports may double in 3 yrs
• India's petroleum products exports could reach 80-90 million tonnes per year in 2-3 years, from nearly 40 million tonnes currently, Oil Secretary S. Sundareshan told reporters on Saturday.
• India's product exports were 4.79 million tonnes in July, up from 4.09 million tonnes in June, latest government data show.
U.S. Midwest weather outlook unfavorable for crops
• Corn and soybean crops in the U.S. Midwest face a week of mixed weather with scattered showers forecast from Tuesday through to Friday, a forecaster said on Monday.
• "Wet weather in the western Midwest during the next seven days is unfavourable for maturing corn and soybeans and the early harvest," said Mike Palmerino, agricultural meteorologist with Telvent-DTN Weather.
Friday, September 10, 2010
2010 09 10
Another slow day in terms of markets news. The biggest news probably was that of Canadian oil line shut down that send crude futures rise almost 3%.
Next week should get more interesting with US retail sales data on Tues, August industrial production data on Wed and CPI data on Friday . Europe will release its industrial production on Tues and inflation data on Wed.
Stock market continues to drift higher on little news. This week has been good for energy but mainly due to today’s news. Metals, Ags are flat. Currencies didn’t move anywhere. Bonds yields have risen both in US and Europe.
Australia continues to go strong on EM exposure
• Australia's job market keeps growing, adding 30,900 jobs in August, driving the unemployment rate down to 5.1%.
• Strong job numbers are fueling speculation that RBA would need to hike rates but given the weakness in housing and low inflation are putting downward pressure on rates. But at this point the market seems to be pricing in near certain rate hike in the next meeting in Oct.
• Despite all the swings, no currency has moved all that much. In the past 3 months AUD is the only G10 currency that strengthened more than 1% versus USD. Everything else has been basically flat.
More good news out of Europe, France
• July French Industrial production climbed faster than expected as companies started putting more money into investments.
• Investment by French companies increased in the second quarter for the first time in two years, driving a 0.6 percent gain in gross domestic product. While companies may maintain investment to boost productivity, the pace of economic expansion may be curbed by government efforts to reduce the budget deficit and a cooling global economy.
• It remains to be seen whether corporate investments can overcome sluggish customers and government austerity measures. My guess is no. However, relatively strong European data continues.
UK PPI fell to 6 months low
• Falling oil prices weighed more than rising food prices.
• Input prices for materials and fuels purchased by manufacturers rose 8.1% in the year to August but fell 0.5% between July and August. The monthly drop also reflected falls in the price of crude oil which countered a 1.4% rise in the price of home produced food products – mainly due to higher wheat prices.
China – export falls, import rises
• Good news – rising imports suggest Chinese economic slowdown might be less severe than expected
• Bad news – does lower export mean weakening global demand?
• I don’t think weakening global demand is much of news as everyone expects pretty noticeable slowdown in Q3 and Q4 especially from US and Europe. I think the more important news is on the import side. As I have stated before I do not believe things are as bad in China as many fear. Commodity imports for instance remains very strong.
Enbridge shuts major Canada-US oil line due to leak
• CALGARY, Alberta, Sept 9 (Reuters) - Enbridge Inc shut down the largest of its three major oil pipelines on Thursday, reducing supply on the main transit route for Canadian crude into the United States.
• The incident, just six weeks after Enbridge was forced to shut a smaller part of its Lakehead system, pushed prompt crude futures towards $75 as it may ease a glut at the Cushing, Oklahoma delivery point for U.S. crude futures.
China crude imports rebound, new refineries open
• BEIJING, Sept 10 (Reuters) - China imported 13 percent more crude oil in August over a year earlier, in a strong rebound after a pullback the previous month, as firms start new refineries amid stronger-than-expected fuel demand.
• China brought in 20.9 million tonnes of crude last month, or 4.92 million barrels per day (bpd), 450,000 bpd higher than July when imports dipped for the first time in 16 months, the General Administration of Customs said on its website
Next week should get more interesting with US retail sales data on Tues, August industrial production data on Wed and CPI data on Friday . Europe will release its industrial production on Tues and inflation data on Wed.
Stock market continues to drift higher on little news. This week has been good for energy but mainly due to today’s news. Metals, Ags are flat. Currencies didn’t move anywhere. Bonds yields have risen both in US and Europe.
Australia continues to go strong on EM exposure
• Australia's job market keeps growing, adding 30,900 jobs in August, driving the unemployment rate down to 5.1%.
• Strong job numbers are fueling speculation that RBA would need to hike rates but given the weakness in housing and low inflation are putting downward pressure on rates. But at this point the market seems to be pricing in near certain rate hike in the next meeting in Oct.
• Despite all the swings, no currency has moved all that much. In the past 3 months AUD is the only G10 currency that strengthened more than 1% versus USD. Everything else has been basically flat.
More good news out of Europe, France
• July French Industrial production climbed faster than expected as companies started putting more money into investments.
• Investment by French companies increased in the second quarter for the first time in two years, driving a 0.6 percent gain in gross domestic product. While companies may maintain investment to boost productivity, the pace of economic expansion may be curbed by government efforts to reduce the budget deficit and a cooling global economy.
• It remains to be seen whether corporate investments can overcome sluggish customers and government austerity measures. My guess is no. However, relatively strong European data continues.
UK PPI fell to 6 months low
• Falling oil prices weighed more than rising food prices.
• Input prices for materials and fuels purchased by manufacturers rose 8.1% in the year to August but fell 0.5% between July and August. The monthly drop also reflected falls in the price of crude oil which countered a 1.4% rise in the price of home produced food products – mainly due to higher wheat prices.
China – export falls, import rises
• Good news – rising imports suggest Chinese economic slowdown might be less severe than expected
• Bad news – does lower export mean weakening global demand?
• I don’t think weakening global demand is much of news as everyone expects pretty noticeable slowdown in Q3 and Q4 especially from US and Europe. I think the more important news is on the import side. As I have stated before I do not believe things are as bad in China as many fear. Commodity imports for instance remains very strong.
Enbridge shuts major Canada-US oil line due to leak
• CALGARY, Alberta, Sept 9 (Reuters) - Enbridge Inc shut down the largest of its three major oil pipelines on Thursday, reducing supply on the main transit route for Canadian crude into the United States.
• The incident, just six weeks after Enbridge was forced to shut a smaller part of its Lakehead system, pushed prompt crude futures towards $75 as it may ease a glut at the Cushing, Oklahoma delivery point for U.S. crude futures.
China crude imports rebound, new refineries open
• BEIJING, Sept 10 (Reuters) - China imported 13 percent more crude oil in August over a year earlier, in a strong rebound after a pullback the previous month, as firms start new refineries amid stronger-than-expected fuel demand.
• China brought in 20.9 million tonnes of crude last month, or 4.92 million barrels per day (bpd), 450,000 bpd higher than July when imports dipped for the first time in 16 months, the General Administration of Customs said on its website
2010 09 09
This short week has been short on major economic news. Stock market has been drifting higher.
If anything the biggest news has been possible Chinese investigation into speculative trading in commodities. Spreading rumors and fears are affecting many commodities, particularly industrial metals, in a negative way.
Today saw a pretty steep selloff in US treasuries perhaps triggered by lukewarm bond auction results, Bund held in better.
After a blistering start last week for risk assets this week has been decisively more quiet on slow flow of economic data.
U.S. trade gap narrows more than expected in July
• The U.S. trade deficit narrowed more than expected in July, as imports retreated and exports shot to their highest since August 2008
• Exports rose to 1.8 percent to $153.3 billion, led by strong overseas demand for U.S. civilian aircraft, machinery, computers and other capital goods.
• Imports fell 2.1 percent to $196.1 billion, after a 3percent rise in June that had caught many analysts by surprise and lowered estimates of second-quarter U.S. growth.
• This is probably good news for USD – but no big news for stocks, commodities and bonds. However, growth in export is likely to be a positive contributor for Q3 GDP which can be good for risk assets.
US initial jobless claims falls slightly
• Initial jobless claims dropped by 27,000 to 451,000 in the week ended Sept. 4, the lowest level in almost two months.
US petroleum inventory rises to the highest level since 1990
• Petroleum stockpiles, including oil and fuels, rose 196,000 barrels to 1.14 billion last week, according to the Energy Department.
Possible Chinese Commodity Trading probe affecting markets
• Base metals are slipping on talk of Chinese crackdown on illegal funds, led by liquidation in Shanghai zinc where open interest dropped by 50,000 lots or almost 10 percent, traders said.
• "Zinc open interest is down 50,000 lots. It looks like someone was dumping zinc, taking profits and met no buyers and it spread to the rest of the market," a trader in Shanghai said.
If anything the biggest news has been possible Chinese investigation into speculative trading in commodities. Spreading rumors and fears are affecting many commodities, particularly industrial metals, in a negative way.
Today saw a pretty steep selloff in US treasuries perhaps triggered by lukewarm bond auction results, Bund held in better.
After a blistering start last week for risk assets this week has been decisively more quiet on slow flow of economic data.
U.S. trade gap narrows more than expected in July
• The U.S. trade deficit narrowed more than expected in July, as imports retreated and exports shot to their highest since August 2008
• Exports rose to 1.8 percent to $153.3 billion, led by strong overseas demand for U.S. civilian aircraft, machinery, computers and other capital goods.
• Imports fell 2.1 percent to $196.1 billion, after a 3percent rise in June that had caught many analysts by surprise and lowered estimates of second-quarter U.S. growth.
• This is probably good news for USD – but no big news for stocks, commodities and bonds. However, growth in export is likely to be a positive contributor for Q3 GDP which can be good for risk assets.
US initial jobless claims falls slightly
• Initial jobless claims dropped by 27,000 to 451,000 in the week ended Sept. 4, the lowest level in almost two months.
US petroleum inventory rises to the highest level since 1990
• Petroleum stockpiles, including oil and fuels, rose 196,000 barrels to 1.14 billion last week, according to the Energy Department.
Possible Chinese Commodity Trading probe affecting markets
• Base metals are slipping on talk of Chinese crackdown on illegal funds, led by liquidation in Shanghai zinc where open interest dropped by 50,000 lots or almost 10 percent, traders said.
• "Zinc open interest is down 50,000 lots. It looks like someone was dumping zinc, taking profits and met no buyers and it spread to the rest of the market," a trader in Shanghai said.
Friday, September 3, 2010
2010 09 03
Eurozone services sector in a pretty decent shape
• Growth of business activity remained firmly driven by the big-two nations of France and Germany. Italy and Ireland also reported growth, whereas business activity fell slightly in Spain.
• Business confidence improved in Germany (highest since December 2003), Italy (three-month peak) and Ireland (highest since June), but eased in France (13-month low) and Spain.
UK showing signs of slowdown – first manufacturing PMI now services
• The services sector, a massive source of business in the United Kingdom seems to be slowing the pace of expansion as the Markit Economics Services PMI turns out worse than expected.
• The Services PMI indicator was released at 53.1 last month. Amidst expectations of a slight drop to 52.8, the indicator took a dive all the way down to 51.3.
European consumers refuse to open up their purses
• European Union retail trade barely increased in July, data released Friday showed, indicating that the region's recent upswing in growth is not being matched by a rise in consumer spending.
• In Germany - often criticized for holding down domestic consumption while concentrating on exports - retail sales fell by 0.3 per cent on a monthly basis.
• Over the same period, they were up by 2.2 per cent in France and by 1.1 per cent in Britain, while in crisis-hit Spain they were down by 3 per cent.
US employment says that economy is NOT collapsing
• August's payroll report is reassuring, suggesting that while economic growth may have slowed, it is not collapsing.
• One apparent piece of good news was the private sector's ability to create a better-than-expected 67,000 jobs in August.
• Unfortunately, the economy isn't growing fast enough to create the number of extra jobs required to bring the unemployment rate down.
US services sector keeps falling – no bounce back like manufacturing here
• Growth of the key US services sector fell to its lowest level in seven months in August amid a weakening economic recovery, a survey report said Friday.
• The drop in the new orders index to an 8-month low of 52.4, from 56.7, is probably the biggest concern.
Argentine wheat mixed due to patchy rains-exchange
• Dry weather is affecting more than a third of Argentine wheat, but rains have improved the condition of crops in the most-important growing areas, Buenos Aires Grains Exchange said on Thursday.
• Argentina is one of the world's leading wheat suppliers and attention has shifted to dry conditions affecting 2010/11 crops in recent days, especially as the country is seen as helping plug the supply gap left by drought-hit Russia.
Putin says no grain exports before 2011 harvest
• Russia abruptly signaled on Thursday it would extend a grain export ban until late 2011 and ordered authorities to prevent speculators driving up food prices after the worst harvest in years.
• Prime Minister Vladimir Putin's surprise statement on the export ban -- which had been due for review after Dec. 31 -- puzzled analysts and helped send benchmark Chicago wheat prices higher.
• Growth of business activity remained firmly driven by the big-two nations of France and Germany. Italy and Ireland also reported growth, whereas business activity fell slightly in Spain.
• Business confidence improved in Germany (highest since December 2003), Italy (three-month peak) and Ireland (highest since June), but eased in France (13-month low) and Spain.
UK showing signs of slowdown – first manufacturing PMI now services
• The services sector, a massive source of business in the United Kingdom seems to be slowing the pace of expansion as the Markit Economics Services PMI turns out worse than expected.
• The Services PMI indicator was released at 53.1 last month. Amidst expectations of a slight drop to 52.8, the indicator took a dive all the way down to 51.3.
European consumers refuse to open up their purses
• European Union retail trade barely increased in July, data released Friday showed, indicating that the region's recent upswing in growth is not being matched by a rise in consumer spending.
• In Germany - often criticized for holding down domestic consumption while concentrating on exports - retail sales fell by 0.3 per cent on a monthly basis.
• Over the same period, they were up by 2.2 per cent in France and by 1.1 per cent in Britain, while in crisis-hit Spain they were down by 3 per cent.
US employment says that economy is NOT collapsing
• August's payroll report is reassuring, suggesting that while economic growth may have slowed, it is not collapsing.
• One apparent piece of good news was the private sector's ability to create a better-than-expected 67,000 jobs in August.
• Unfortunately, the economy isn't growing fast enough to create the number of extra jobs required to bring the unemployment rate down.
US services sector keeps falling – no bounce back like manufacturing here
• Growth of the key US services sector fell to its lowest level in seven months in August amid a weakening economic recovery, a survey report said Friday.
• The drop in the new orders index to an 8-month low of 52.4, from 56.7, is probably the biggest concern.
Argentine wheat mixed due to patchy rains-exchange
• Dry weather is affecting more than a third of Argentine wheat, but rains have improved the condition of crops in the most-important growing areas, Buenos Aires Grains Exchange said on Thursday.
• Argentina is one of the world's leading wheat suppliers and attention has shifted to dry conditions affecting 2010/11 crops in recent days, especially as the country is seen as helping plug the supply gap left by drought-hit Russia.
Putin says no grain exports before 2011 harvest
• Russia abruptly signaled on Thursday it would extend a grain export ban until late 2011 and ordered authorities to prevent speculators driving up food prices after the worst harvest in years.
• Prime Minister Vladimir Putin's surprise statement on the export ban -- which had been due for review after Dec. 31 -- puzzled analysts and helped send benchmark Chicago wheat prices higher.
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