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.
I see no reason for the yen to strengthen from here as yield differential is non-existent and there is no impetus for carry trade.
However, Nikkei/Topix could be interesting as Japan looks at serious stimulus measures – I doubt that this can do much for the economy however.
Once again, there is no worry over inflation in US or Europe. I don’t see a compelling reason for the bond yield to in the medium term. And I don’t see economic news getting better anytime soon.
US consumer confidence number is no news. Yes the number did go up but it is at a dismal level. But I think this is the pattern we see in Sept and Oct in US – stabilization in economic data – as Europe starts to see deterioration. This is why the trade of Q4 is US vs Europe
Korea continues to be strong on manufacturing front
• South Korea’s industrial production grew faster than estimated in July, logging the 13th straight monthly gain as the nation’s exports withstood global risks.
• Production advanced 1.1 percent from June.
• Exports helped the economy expand 7.6 percent in the first half from a year earlier, the fastest pace in a decade.
• The weaker won buoyed second-quarter earnings at exporters including Samsung Electronics Co. and steelmaker Posco, even as the U.S., Chinese and Japanese economies cooled.
• Manufacturers’ confidence in prospects for September rebounded on the outlook for overseas demand and local holiday shopping, according to a separate report.
Japan sees moderate increase in July industrial production
• Japan's industrial production rose a seasonally adjusted 0.3 percent in July from a month earlier.
• Economists commented that the yen's rise to 15-year highs against the U.S. dollar has yet to adversely affect factories' output, although companies are expected to have to cut their output in the coming months due to slowing demands from emerging markets and the U.S.
German jobless rate holds steady in August
• Germany's unemployment rate held steady at 7.6 percent in August as an improving economy bolstered the labor market.
• "The good economic development further improved the situation on the labor market," agency board member Heinrich Alt said. "The important indicators are developing in the right direction."
Eurozone inflation falls in August
• Eurostat's preliminary estimate of August consumer price inflation showed a 1.6% annual rise, down from a 1.7% increase in July. The figure remains below the ECB's target of just less than 2%
Chicago purchasing managers index drops in August
• Manufacturing activity in the Chicago region expanded at a less rapid pace in August.
• The Chicago purchasing managers index fell to 56.7% from 62.3% in July. The drop was in line with forecasts. Readings over 50% indicate overall business expansion.
US consumer confidence up slightly in August
• The Conference Board, a private research group, said its index of consumer confidence rose to 53.5 this month from a revised 51.0 in July, first reported as 50.4.
• Consumer expectations for economic activity over the next six months – widely considered to be an important leading indicator - rebounded to 72.5 in August, after plunging to a revised 67.5, originally reported as 66.6.
Tuesday, August 31, 2010
Monday, August 30, 2010
2010 08 30
Light (but poor) day in terms of economic data.
• US consumer spending rose 0.4% from last month which met expectation but real disposable income fell. Conseqently we saw savings rate fall slightly to 5.9% in July from 6/2% in June. Rising savings and desire to pay down debt is healthy in the medium to long term but it will continue to cause pain in near term economy
• Dallas Fed survey showed plummeting manufacturing activities in Texas region.
What has been going on
The main unfolding theme in July has been deceleration US activity:
• Weak housing
• Drop in durable goods orders
• Huge downward revision in Q2 US GDP
• Renewed rise in jobless claims
• Falling manufacturing
Meanwhile, Europe seems to hang in better. Flash reading for Aug PMI in Eurozone fell to 55 from 56.7 – bigger drop than expected but still a very healthy figure. August IFO survey came in very strong for Germany and Swiss Aug KOF survey also shows continuing strength.
Bernanke’s Jackson Hole speech basically said the Fed would do keep interest rate low as long as it takes for them to see recovery. If anything yield curve is going to get flatter from here.
Looking ahead
I expect US ISM manufacturing survey to come in very poorly on Sep 1 (the thunder may be stolen on Aug 31 by weak Chicago PMI data) and would push stocks and commodities lower. The next major economic data would be US August nonfarm payrolls and unemployment rate which is also likely to be poor. I believe first week of September would be a poor one for risk assets.
There is a lot of noise coming out of BoJ getting concerned over strength of JPY. The fact is that this is all rhetoric and there is nothing central banks of a major floating currency nation can do to impact FX. Just look at Switzerland. Traders are smelling weakness and only driving the Yen higher. The fact is that with the entire world in low interest rate regime there is nowhere to put carry trade on – and this will continue to prevent JPY from weakening. I do not think we would see JPY above 90 this year or the next.
It would be very interesting how China’s economic data come out. Their manufacturing activities, as indicated by PMI, have fallen sharply as well and it would be very interesting to see what that number comes out to be on Sep 1. I do expect EM to continue to show strength.
In short, I fail to see what would provide boost to stocks, energy and metals. September has been disastrous in many years and I would say let’s take caution on the safe side. I think in Oct on we can put long US vs short Europe trades as Europe economic data catches up with US on slow down. But for now I advocate staying market neutral with trades focused on relative value, agriculture and currency (although these days it’s hard to tell whether risk would drive USD up or down).
As I stated before my favorite trades are (in order of conviction):
• Long DAX vs short Nikkei
• Long copper vs oil
• Long gold
• Long MSCI EM vs MSCI World
• Long commodities vs stocks
• Long bonds
• Short GBP, Euro and CAD. Long CHF and AUD
• US consumer spending rose 0.4% from last month which met expectation but real disposable income fell. Conseqently we saw savings rate fall slightly to 5.9% in July from 6/2% in June. Rising savings and desire to pay down debt is healthy in the medium to long term but it will continue to cause pain in near term economy
• Dallas Fed survey showed plummeting manufacturing activities in Texas region.
What has been going on
The main unfolding theme in July has been deceleration US activity:
• Weak housing
• Drop in durable goods orders
• Huge downward revision in Q2 US GDP
• Renewed rise in jobless claims
• Falling manufacturing
Meanwhile, Europe seems to hang in better. Flash reading for Aug PMI in Eurozone fell to 55 from 56.7 – bigger drop than expected but still a very healthy figure. August IFO survey came in very strong for Germany and Swiss Aug KOF survey also shows continuing strength.
Bernanke’s Jackson Hole speech basically said the Fed would do keep interest rate low as long as it takes for them to see recovery. If anything yield curve is going to get flatter from here.
Looking ahead
I expect US ISM manufacturing survey to come in very poorly on Sep 1 (the thunder may be stolen on Aug 31 by weak Chicago PMI data) and would push stocks and commodities lower. The next major economic data would be US August nonfarm payrolls and unemployment rate which is also likely to be poor. I believe first week of September would be a poor one for risk assets.
There is a lot of noise coming out of BoJ getting concerned over strength of JPY. The fact is that this is all rhetoric and there is nothing central banks of a major floating currency nation can do to impact FX. Just look at Switzerland. Traders are smelling weakness and only driving the Yen higher. The fact is that with the entire world in low interest rate regime there is nowhere to put carry trade on – and this will continue to prevent JPY from weakening. I do not think we would see JPY above 90 this year or the next.
It would be very interesting how China’s economic data come out. Their manufacturing activities, as indicated by PMI, have fallen sharply as well and it would be very interesting to see what that number comes out to be on Sep 1. I do expect EM to continue to show strength.
In short, I fail to see what would provide boost to stocks, energy and metals. September has been disastrous in many years and I would say let’s take caution on the safe side. I think in Oct on we can put long US vs short Europe trades as Europe economic data catches up with US on slow down. But for now I advocate staying market neutral with trades focused on relative value, agriculture and currency (although these days it’s hard to tell whether risk would drive USD up or down).
As I stated before my favorite trades are (in order of conviction):
• Long DAX vs short Nikkei
• Long copper vs oil
• Long gold
• Long MSCI EM vs MSCI World
• Long commodities vs stocks
• Long bonds
• Short GBP, Euro and CAD. Long CHF and AUD
Friday, August 27, 2010
2010 08 27
Market – stocks and commodities - is rallying hard on a day with no real news. It seems perhaps there was way too much fear going into this Q2 GDP and Bernanke speech and neither turned out to be disastrous.
Bernanke basically came out and said that US economy is weak but he will do whatever the Fed can do to keep deflation from happening. The question everyone asks is : what more can the Fed do? I for one do not think that the Fed can do anything to affect economic outcome at this point. Would pushing down long term interest rate by another 50bps spur home sales – when employment remains weak and home price continues to fall? I don’t think so.
Q2 GDP is an old news. It did some in better than many feared but keep in mind that any good news happened in April. It has been all downhill since. Direction is far more important than level in macro trading, and direction is all downhill for US, Europe and Japan. UK, Canada, Switzerland and Australia are not so clear at this point.
We are continuing to see disappointing economic data out of US while Europe prints upside surprises. I expect this trend to continue. I think the PMI numbers to be released next Wed would be particularly bad for US given the poor regional Fed surveys we saw and this could lead to a big selloff in stocks/commodities and USD.
Going into the new month I would advocate taking extra protective stance. I just do not see this economic trend reversing anytime soon. If anything Europe numbers will start to disappoint and that can lead to further selloff but I think we need to wait until September numbers come out at the earliest.
Japan deflation continues
• Consumer prices in Japan were down 1.1 percent on year in July, the Ministry of Internal Affairs and Communications said on Friday, falling for the 17th consecutive month as deflationary pressures persist.
Swiss KOF leading indicator shows Swiss economic growth likely reached peak in July
• Switzerland's KOF economic Institute said Friday that its economic barometer reached 2.18 in August from July's revised 2.22. Economists had forecast a reading of 2.2.
• While this most likely means some slowdown in economic growth this by no means foretells stock or currency underperformance. But we will see how well Swiss economy hangs in there and see of CHF could weaken versus EUR in the coming months.
US Q2 GDP not as horrible as feared.
• Revised 1.6% in Q2 was not as bad as most expected.
• If you dig into details the number really wasn’t as bad as people thought : GDP was cut by smaller than expected inventory build and higher than expected imports while domestic consumption was revised higher from original estimate.
Barclays cuts oil price forecast
• Barclays Capital , one of the most bullish banks on the oil market outlook in recent years, has cut its oil price forecasts for 2011 and this year, citing concern about the economy.
• The bank cut its 2010 price forecast for benchmark U.S. crude by $4 a barrel to $78 and reduced its 2011 forecast by $7 to $85, it said in a report on Thursday.
Weather curbs Brazil CS sugar output
• Brazil's 2010/11 center-south sugar output is seen trimmed to 33.73 million tonnes, down from a March forecast of 34.09 million tonnes, due to the effects of dry weather on yields, the Cane Industry Association (Unica) said on Thursday.
• The region produced a revised 28.64 million tonnes of sugar from the 2009/10 crop, when rains reduced the concentration of sugars in the cane but raised the volume of cane available for harvest.
Argentine 2010/11 corn area to rise 9 percent
• Argentine farmers are expected to plant 9 percent more corn in the 2010/11 sowing campaign, partly spurred on by higher prices, the Buenos Aires Grains Exchange said in a report on Thursday.
• In its first estimate for the new season, the exchange forecast commercial-use corn area of 2.865 million hectares (7.079 million acres) in the world's No. 2 exporter.
Bernanke basically came out and said that US economy is weak but he will do whatever the Fed can do to keep deflation from happening. The question everyone asks is : what more can the Fed do? I for one do not think that the Fed can do anything to affect economic outcome at this point. Would pushing down long term interest rate by another 50bps spur home sales – when employment remains weak and home price continues to fall? I don’t think so.
Q2 GDP is an old news. It did some in better than many feared but keep in mind that any good news happened in April. It has been all downhill since. Direction is far more important than level in macro trading, and direction is all downhill for US, Europe and Japan. UK, Canada, Switzerland and Australia are not so clear at this point.
We are continuing to see disappointing economic data out of US while Europe prints upside surprises. I expect this trend to continue. I think the PMI numbers to be released next Wed would be particularly bad for US given the poor regional Fed surveys we saw and this could lead to a big selloff in stocks/commodities and USD.
Going into the new month I would advocate taking extra protective stance. I just do not see this economic trend reversing anytime soon. If anything Europe numbers will start to disappoint and that can lead to further selloff but I think we need to wait until September numbers come out at the earliest.
Japan deflation continues
• Consumer prices in Japan were down 1.1 percent on year in July, the Ministry of Internal Affairs and Communications said on Friday, falling for the 17th consecutive month as deflationary pressures persist.
Swiss KOF leading indicator shows Swiss economic growth likely reached peak in July
• Switzerland's KOF economic Institute said Friday that its economic barometer reached 2.18 in August from July's revised 2.22. Economists had forecast a reading of 2.2.
• While this most likely means some slowdown in economic growth this by no means foretells stock or currency underperformance. But we will see how well Swiss economy hangs in there and see of CHF could weaken versus EUR in the coming months.
US Q2 GDP not as horrible as feared.
• Revised 1.6% in Q2 was not as bad as most expected.
• If you dig into details the number really wasn’t as bad as people thought : GDP was cut by smaller than expected inventory build and higher than expected imports while domestic consumption was revised higher from original estimate.
Barclays cuts oil price forecast
• Barclays Capital , one of the most bullish banks on the oil market outlook in recent years, has cut its oil price forecasts for 2011 and this year, citing concern about the economy.
• The bank cut its 2010 price forecast for benchmark U.S. crude by $4 a barrel to $78 and reduced its 2011 forecast by $7 to $85, it said in a report on Thursday.
Weather curbs Brazil CS sugar output
• Brazil's 2010/11 center-south sugar output is seen trimmed to 33.73 million tonnes, down from a March forecast of 34.09 million tonnes, due to the effects of dry weather on yields, the Cane Industry Association (Unica) said on Thursday.
• The region produced a revised 28.64 million tonnes of sugar from the 2009/10 crop, when rains reduced the concentration of sugars in the cane but raised the volume of cane available for harvest.
Argentine 2010/11 corn area to rise 9 percent
• Argentine farmers are expected to plant 9 percent more corn in the 2010/11 sowing campaign, partly spurred on by higher prices, the Buenos Aires Grains Exchange said in a report on Thursday.
• In its first estimate for the new season, the exchange forecast commercial-use corn area of 2.865 million hectares (7.079 million acres) in the world's No. 2 exporter.
2010 08 26
Today’s economic data offers no major surprise. Slowing manufacturing activities globally (so far Germany has been the only exception).
German outperformance over Japan: one has currency at all time high and the other all time low. Both are exporters. Pretty straightforward what’s going on there.
We are certainly seeing slowdown in Asian economies (except Japan) but we are coming off extremely high levels of growth and things still look quite healthy – for now.
We are seeing EM stocks outperform developed market stocks in this summer selloff. I think this trend is here to stay.
Europe outside Germany and France managed to limp along but I think we will see some very disappointing data starting September. I do not think this modest recovery can be sustained given that the government's fiscal squeeze has not really taken hold yet and a global slowdown is expected in the second half of the year. Trade of Q4 will be to go long US (stocks and currency) vs Europe as overshoots in sentiment recalibrates.
I don’t see economic data in US or Europe getting better. I think there is still good money to be made going long long-dated bonds.
Tomorrow will be a very busy day:
• Japan inflation and unemployment rate
• German Aug PMI
• Switzerland Aug KOF leading indicator (Swiss economy has been outperforming just like Germany. Would be interesting to see if that holds up)
• US final Q2 GDP – usually revised GDP figures are no big deal but this time the downward revision is expected to be huge.
• Bernanke speaks at Jackson Hole – this will move the market. I expect him to state deep concern over economy which would generally be bad for stocks and good for bonds. I think USD would selloff and this can have a positive impact on commodities.
My main trade ideas at this point are:
• Long DAX vs short Nikkei
• Long MSCI EM vs MSCI World
• Long bonds
• Short GBP, Euro and CAD. Long CHF and AUD
• Long copper vs oil
• Long commodities vs stocks
Overall cautious to bearish
Singapore July manufacturing output slows
• Singapore's manufacturing output grew at its slowest pace in eight months in July but still beat analyst estimates, signaling that the Asian region remains resilient in the face of economic troubles in Europe and the U.S.
• The island nation's manufacturing output grew 9.9% year-to-year in July, faster than the median estimate of 6.3%
Spain Q2 final GDP presents no big surprise
• The Spanish government confirmed that the country's economy expanded by 0.2 percent in the second quarter. By comparison, the German economy climbed by 2.2 percent in the second quarter.
• The government forecasts that the Spanish economy will contract by 0.3 percent in 2010 and then grow by 1.3 percent in 2011, despite an ongoing struggle by the country to get a handle on its huge public deficit.
US initial jobless claims better than expected – but still at a DISMAL level
• Last week's figure was revised up to 504K, making for a large room for improvement. Markets already expected a descent, a mild one to 485K which was bettered by the actual number of 473K.
Kansas city Fed survey – another disappointing outcome
• manufacturing activity in the Kansas City region stalled in August.
• The market reversed its gains after the Federal Reserve Bank of Kansas City's manufacturing index, which measures productivity, fell to 0 this month from 14 in July. The employment index turned to negative territory and the report said expectations for the next six months also weakened.
German outperformance over Japan: one has currency at all time high and the other all time low. Both are exporters. Pretty straightforward what’s going on there.
We are certainly seeing slowdown in Asian economies (except Japan) but we are coming off extremely high levels of growth and things still look quite healthy – for now.
We are seeing EM stocks outperform developed market stocks in this summer selloff. I think this trend is here to stay.
Europe outside Germany and France managed to limp along but I think we will see some very disappointing data starting September. I do not think this modest recovery can be sustained given that the government's fiscal squeeze has not really taken hold yet and a global slowdown is expected in the second half of the year. Trade of Q4 will be to go long US (stocks and currency) vs Europe as overshoots in sentiment recalibrates.
I don’t see economic data in US or Europe getting better. I think there is still good money to be made going long long-dated bonds.
Tomorrow will be a very busy day:
• Japan inflation and unemployment rate
• German Aug PMI
• Switzerland Aug KOF leading indicator (Swiss economy has been outperforming just like Germany. Would be interesting to see if that holds up)
• US final Q2 GDP – usually revised GDP figures are no big deal but this time the downward revision is expected to be huge.
• Bernanke speaks at Jackson Hole – this will move the market. I expect him to state deep concern over economy which would generally be bad for stocks and good for bonds. I think USD would selloff and this can have a positive impact on commodities.
My main trade ideas at this point are:
• Long DAX vs short Nikkei
• Long MSCI EM vs MSCI World
• Long bonds
• Short GBP, Euro and CAD. Long CHF and AUD
• Long copper vs oil
• Long commodities vs stocks
Overall cautious to bearish
Singapore July manufacturing output slows
• Singapore's manufacturing output grew at its slowest pace in eight months in July but still beat analyst estimates, signaling that the Asian region remains resilient in the face of economic troubles in Europe and the U.S.
• The island nation's manufacturing output grew 9.9% year-to-year in July, faster than the median estimate of 6.3%
Spain Q2 final GDP presents no big surprise
• The Spanish government confirmed that the country's economy expanded by 0.2 percent in the second quarter. By comparison, the German economy climbed by 2.2 percent in the second quarter.
• The government forecasts that the Spanish economy will contract by 0.3 percent in 2010 and then grow by 1.3 percent in 2011, despite an ongoing struggle by the country to get a handle on its huge public deficit.
US initial jobless claims better than expected – but still at a DISMAL level
• Last week's figure was revised up to 504K, making for a large room for improvement. Markets already expected a descent, a mild one to 485K which was bettered by the actual number of 473K.
Kansas city Fed survey – another disappointing outcome
• manufacturing activity in the Kansas City region stalled in August.
• The market reversed its gains after the Federal Reserve Bank of Kansas City's manufacturing index, which measures productivity, fell to 0 this month from 14 in July. The employment index turned to negative territory and the report said expectations for the next six months also weakened.
Wednesday, August 25, 2010
2010 08 25
As I have been saying for a while US economic data continues to disappoint and drag markets lower. Germany remains to be lone bright spot in the world.
DAX is down 4% MTD versus -7.25% for Nikkei.
Despite poor economic data USD has strengthened against every currency except JPY and CHF this month.
I believe the next wave of poor news will be from Europe. I think by sometime late next year Euro and GBP would be much weaker versus USD.
I need to look into the effects of US Fed QE on the asset market. I think more QE is inevitable later this year.
It is hard for me to see what would push the market higher. We have been in a relentlessly falling market since May with a brief respite in July from surprisingly good earnings season. Macro backdrop has been poor all along. The market staged a comeback toward the end but this gives me no comfort.
On the bright side, Chinese commodity import remained extremely strong in July. Industrial metals were especially strong – refined lead import jumped 80% from June while zinc and nicked surged over 50% each MoM (MoM = month over month) Refined copper imports grew to 2,24,700 tons supported by tight scrap market and favorable domestic/LME price spread
Among precious metals, palladium imports jumped back up towards levels seen in the first quarter and even if vehicle sales slow, palladium demand should find support from the implementation of tighter emission legislation, it added.
Agricultural imports were EXTREMELY STRONG (I will do a quick write up on it and send out to sales tomorrow)
In case of agriculture, corn and sugar imports surged, with corn imports rising to a record high and net imports three times that of June levels.
Sugar imports reached all-time high having expanded by 130 per cent year-on-year. However, soybean imports eased to 4.95 Mt from previous months' record 6.2 Mt. Cotton imports too were lower for the third consecutive month yet imports year to date of 1.7 Mt are still double the 2009 levels.
Japan exports remain strong but is easing off
• Exports down 1.4% MoM and imports down 3.5% MoM.
• Would be curious to see when the impact of strong Yen would be reflected in trade figures.
• Not surprising given worldwide GDO growth being adjusted.
Germany seems to be the only source positive economic surprise - German Ifo index posts surprise August increase
• The index, produced from surveys conducted by the Munich-based Ifo Institute, rose to 106.7 in August, up from a reading of 106.2 in July. Economists had forecast the index to slip to 106.0.
• Economists have cautioned that the pace of German growth, which was driven in large part by exports as world trade activity rebounded sharply on strong demand from China and other emerging markets, would likely moderate in coming months as world growth slows.
• Still, Germany appears to be the only place in the world where growth is still in acceleration phase.
US manufacturing momentum has now officially collapsed
• Headline number increased by a meager 0.3% MoM but much of that was due to a massive surge in aircraft orders for Boeing following a successful air show. However, these orders will take a number of years to deliver if they don’t get canceled in the mean time.
• Manufacturing was basically the only bright spot in US economy and now it seems to have gone lights out.
US housing market in a total landslide
• The fact that US new home sales fell by 12.4% MoM to a new record low in July is arguably even graver news than the 27% MoM decline in existing sales reported yesterday.
• But it’s hard for me to understand how anyone would expect a rebound in housing when jobless claims are creeping back up. The fact is there are simply way too many homes for sale and consumer confidence remains at a rock bottom level.
Tomorrow:
Australia private Capex
Singapore industrial production
Spain Q2 final GDP
***USA initial jobless claims ***
US Kansas City Fed survey
DAX is down 4% MTD versus -7.25% for Nikkei.
Despite poor economic data USD has strengthened against every currency except JPY and CHF this month.
I believe the next wave of poor news will be from Europe. I think by sometime late next year Euro and GBP would be much weaker versus USD.
I need to look into the effects of US Fed QE on the asset market. I think more QE is inevitable later this year.
It is hard for me to see what would push the market higher. We have been in a relentlessly falling market since May with a brief respite in July from surprisingly good earnings season. Macro backdrop has been poor all along. The market staged a comeback toward the end but this gives me no comfort.
On the bright side, Chinese commodity import remained extremely strong in July. Industrial metals were especially strong – refined lead import jumped 80% from June while zinc and nicked surged over 50% each MoM (MoM = month over month) Refined copper imports grew to 2,24,700 tons supported by tight scrap market and favorable domestic/LME price spread
Among precious metals, palladium imports jumped back up towards levels seen in the first quarter and even if vehicle sales slow, palladium demand should find support from the implementation of tighter emission legislation, it added.
Agricultural imports were EXTREMELY STRONG (I will do a quick write up on it and send out to sales tomorrow)
In case of agriculture, corn and sugar imports surged, with corn imports rising to a record high and net imports three times that of June levels.
Sugar imports reached all-time high having expanded by 130 per cent year-on-year. However, soybean imports eased to 4.95 Mt from previous months' record 6.2 Mt. Cotton imports too were lower for the third consecutive month yet imports year to date of 1.7 Mt are still double the 2009 levels.
Japan exports remain strong but is easing off
• Exports down 1.4% MoM and imports down 3.5% MoM.
• Would be curious to see when the impact of strong Yen would be reflected in trade figures.
• Not surprising given worldwide GDO growth being adjusted.
Germany seems to be the only source positive economic surprise - German Ifo index posts surprise August increase
• The index, produced from surveys conducted by the Munich-based Ifo Institute, rose to 106.7 in August, up from a reading of 106.2 in July. Economists had forecast the index to slip to 106.0.
• Economists have cautioned that the pace of German growth, which was driven in large part by exports as world trade activity rebounded sharply on strong demand from China and other emerging markets, would likely moderate in coming months as world growth slows.
• Still, Germany appears to be the only place in the world where growth is still in acceleration phase.
US manufacturing momentum has now officially collapsed
• Headline number increased by a meager 0.3% MoM but much of that was due to a massive surge in aircraft orders for Boeing following a successful air show. However, these orders will take a number of years to deliver if they don’t get canceled in the mean time.
• Manufacturing was basically the only bright spot in US economy and now it seems to have gone lights out.
US housing market in a total landslide
• The fact that US new home sales fell by 12.4% MoM to a new record low in July is arguably even graver news than the 27% MoM decline in existing sales reported yesterday.
• But it’s hard for me to understand how anyone would expect a rebound in housing when jobless claims are creeping back up. The fact is there are simply way too many homes for sale and consumer confidence remains at a rock bottom level.
Tomorrow:
Australia private Capex
Singapore industrial production
Spain Q2 final GDP
***USA initial jobless claims ***
US Kansas City Fed survey
Tuesday, August 24, 2010
2010 08 24
Today is a horrible day for risk assets which are basically : stocks, commodities, any currency other than USD/JPY/CHF
Gold and bonds are rallying hard today
I don’t see anything in economic data to justify this. But there is a lot of headlines out there stirring up fears. There are signs austerity measures are already failing. New taxes enacted in Greece to shore up balance sheet is bringing in less than quarter of expected revenue. Spain is already starting to backtrack on austerity promises, and in the UK confidence is plummeting.
Thought leaders Stiglietz and Stephen Roach are both out in media talking up about growing possibility of double dip recessions.
GS and DB came out announcing substantial cut in GDP projected growth is needed.
Basically huge turns of sentiments in the backdrop of poor to mediocre economic data and signs of resurgent trouble in Europe.
I think what we would see is continuing weakness in US and European economy which would be negative for stocks and commodities and positive for bonds. Impact on currency is less obvious – not sure if US weakness would result in USD selloff or further buying on flight to safety.
German Q2 GDP growth strong
• Final Q2 GDP report for Germany paints even stronger picture than previously believed.
• Surging exports and a return to growth in consumer spending powered the German economy to record expansion in the second quarter, producing a broad-based recovery that put Europe's largest economy ahead of its peers.
• The 2.2 percent increase in gross domestic product (GDP) was the fastest quarterly growth rate seen in reunified Germany, the Federal Statistics Office said on Tuesday. Consumer spending grew over the quarter for the first time in a year.
Canadian June retail sales disappoint – but it’s not that bad as most of the drop was due to falling gasoline price
• Canadian retail sales rose less than expected in June, as sales increases in appliance and electronics stores were offset by lower receipts at gasoline stations.
• The report supports the Bank of Canada prediction that the economy slowed in the second quarter after growing at a 6.1 percent pace in the first quarter, the fastest in a decade. The central bank lowered its projection for second-quarter growth last month to a 3 percent pace from its April forecast of 3.8 percent, and said there is a risk Canadian consumers will reduce purchases to boost savings.
US existing home sales plunge
• Existing US home sales plunged a whopping 27.2 percent in July to levels unseen in more than a decade, an industry group said Tuesday, casting further doubt on the viability of the economic recovery.
• The sharp decline was payback for the May expiry of a government homebuyers' tax credit incentive introduced to boost economic recovery from a brutal recession in December 2007.
Tomorrow will have some big numbers:
German IFO business Survey – Aug
US durable goods orders – July
US – new home sales – July
Gold and bonds are rallying hard today
I don’t see anything in economic data to justify this. But there is a lot of headlines out there stirring up fears. There are signs austerity measures are already failing. New taxes enacted in Greece to shore up balance sheet is bringing in less than quarter of expected revenue. Spain is already starting to backtrack on austerity promises, and in the UK confidence is plummeting.
Thought leaders Stiglietz and Stephen Roach are both out in media talking up about growing possibility of double dip recessions.
GS and DB came out announcing substantial cut in GDP projected growth is needed.
Basically huge turns of sentiments in the backdrop of poor to mediocre economic data and signs of resurgent trouble in Europe.
I think what we would see is continuing weakness in US and European economy which would be negative for stocks and commodities and positive for bonds. Impact on currency is less obvious – not sure if US weakness would result in USD selloff or further buying on flight to safety.
German Q2 GDP growth strong
• Final Q2 GDP report for Germany paints even stronger picture than previously believed.
• Surging exports and a return to growth in consumer spending powered the German economy to record expansion in the second quarter, producing a broad-based recovery that put Europe's largest economy ahead of its peers.
• The 2.2 percent increase in gross domestic product (GDP) was the fastest quarterly growth rate seen in reunified Germany, the Federal Statistics Office said on Tuesday. Consumer spending grew over the quarter for the first time in a year.
Canadian June retail sales disappoint – but it’s not that bad as most of the drop was due to falling gasoline price
• Canadian retail sales rose less than expected in June, as sales increases in appliance and electronics stores were offset by lower receipts at gasoline stations.
• The report supports the Bank of Canada prediction that the economy slowed in the second quarter after growing at a 6.1 percent pace in the first quarter, the fastest in a decade. The central bank lowered its projection for second-quarter growth last month to a 3 percent pace from its April forecast of 3.8 percent, and said there is a risk Canadian consumers will reduce purchases to boost savings.
US existing home sales plunge
• Existing US home sales plunged a whopping 27.2 percent in July to levels unseen in more than a decade, an industry group said Tuesday, casting further doubt on the viability of the economic recovery.
• The sharp decline was payback for the May expiry of a government homebuyers' tax credit incentive introduced to boost economic recovery from a brutal recession in December 2007.
Tomorrow will have some big numbers:
German IFO business Survey – Aug
US durable goods orders – July
US – new home sales – July
Monday, August 23, 2010
2010 08 23
Pretty slow day in terms of economic data. Eurozone PMI shows that manufacturing remains pretty strong but detailed analysis reveals the gap between Germany/France and rest of eurozone is growing. Any weakness by these two countries can precipitate a massive selloff.
Looking ahead I think the two most important piece of economic data are US initial jobless claims on Thu and final Q2 US GDP number on Friday. The expectation for the revised Q2 GDP is significant downgrade – from 2.4% initially to a meager 1.4%. I am thinking this would be another tough week for stocks and commodities.
Copper continues to outperform oil on falling global inventory and the metal’s higher leverage to EM. Oil continues to trade with macro sentiment with a near 1 correlation to the stock market. Last week’s DOE report was bearish as well.
I am going through looking at Chinese commodity trade data for July. Will post on that tomorrow.
Eurozone august flash PMI dips but remains healthy
• The Eurozone Flash Composite Purchasing Managers' Index (PMI), which gauges activity in thousands of services and manufacturing companies, fell in August to 56.1 from 56.7 in July, a slightly bigger fall than expected. But it remained well above the 50 mark that divides growth from contraction
• Divergence in economic strength among different nations is becoming more obvious. Germany and France show continuing strength while everyone else is limping along. Any sign of German weakness could cause Euro (currency) and european stock market to plummet.
Tomorrow will be another fairly slow day:
Richmond fed survey
Canada June retail sales
US existing home sales for July
Looking ahead I think the two most important piece of economic data are US initial jobless claims on Thu and final Q2 US GDP number on Friday. The expectation for the revised Q2 GDP is significant downgrade – from 2.4% initially to a meager 1.4%. I am thinking this would be another tough week for stocks and commodities.
Copper continues to outperform oil on falling global inventory and the metal’s higher leverage to EM. Oil continues to trade with macro sentiment with a near 1 correlation to the stock market. Last week’s DOE report was bearish as well.
I am going through looking at Chinese commodity trade data for July. Will post on that tomorrow.
Eurozone august flash PMI dips but remains healthy
• The Eurozone Flash Composite Purchasing Managers' Index (PMI), which gauges activity in thousands of services and manufacturing companies, fell in August to 56.1 from 56.7 in July, a slightly bigger fall than expected. But it remained well above the 50 mark that divides growth from contraction
• Divergence in economic strength among different nations is becoming more obvious. Germany and France show continuing strength while everyone else is limping along. Any sign of German weakness could cause Euro (currency) and european stock market to plummet.
Tomorrow will be another fairly slow day:
Richmond fed survey
Canada June retail sales
US existing home sales for July
Thursday, August 19, 2010
2010 08 19
Switzerland and UK (specifically CHF and GBP) are interesting to me as they seem to have their own fundamentals going and are rather uncorrelated to global risk appetite.
Otherwise, the general scenario I have been outlining is continuing with poor numbers out of US. The Philly Fed data is actually pretty frightening to me. I think there is actually pretty good chance ISM falls below 50 for August and this could hit the markets very hard. So far economy has been running on one leg – manufacturing – and if this sputters then we’re in a big trouble. We should look to cut all long risk at any pop we see.
Oil and copper still down on economic outlook. We can look at microfundamentals in these commodities all day but it all comes down to investor sentiment.
Switzerland posts record trade surplus in July
• This is a curious development given the strength in CHF – exports continue to do well while imports sputter.
• Despite concerns a strong franc could hurt exports, confidence in Switzerland's economic outlook is improving and the ZEW investor sentiment index jumped to 9.1 points in August, from 2.2 percent in July.
• The Swiss franc, which investors regard as a safe haven, rallied more than 10 percent against the euro in the first six months of the year. That raised fears it would hurt exports, but so far there has been little evidence to support this.
• The euro zone is Switzerland's biggest trading partner.
• The customs office said the rise in exports was chiefly due to growth in demand outside Europe. Watches posted a nominal 19.9 percent increase, followed by metals and precision instruments.
UK Retail Sales rise in July – third
• UK volume of retail sales in July rose 1.1% from a year ago month. Food stores sales decreased 1.0%. The largest increase was in sales at non-specialised stores of 9.7%. Although food sales were weak, sales overall were boosted by spending related to the World Cup soccer tournament and sales of sports equipment, games, watches and jewelry.
• Some of this spending was probably “pulled up” by world cup, but nonetheless a pretty positive news.
UK factory orders at 2 year high on exports
• An index of British factory orders rose to its highest level in two years in August after overseas demand rebounded from a dip in July, the CBI's monthly industrial trends survey showed on Thursday.
• The export order book balance rebounded to -1 from July's -12, a sharp dip from the -2 recorded in June.
US economic data continues to disappoint
• Awful is the only way I can think of describing it.
• Initial jobless claims hit 2010 high last week. This number could be distorted upward by extension of unemployment benefits but even then this is clearly a bad number.
• Philly Fed number absolutely collapsed this month to -7.7 from +5.1. Sub-indices were no better with both new orders and employment plummeting.
• This together with earlier disappointing report on Empire State (drop in new orders) tells that US manufacturing is slowing sharply.
Just way too much oil out there
• Combined stocks of crude oil and refined products in commercial storage around the United States surged 5.3 million barrels last week to top 1.130 billion barrels, the highest level since weekly records began in 1990.
• Massive builds in refined products (up 6.2 million barrels) -- especially other oils (up 2.3 million barrels), propane/propylene (up 2.4 million) and distillates (up 1.1 million) -- dwarfed a small drawdown in crude (down 800,000 barrels) and gasoline (down 39,000 barrels).
• HOWEVER, in the what matters more is the direction of inventory not so much the level. If inventory keeps growing then that would obviously drag price down. Falling inventory would bode well. So I wouldn’t necessarily use this info to trade oil.
• Rather, I would use the level of oil inventory more as another gauge of economic activities – which seems pretty slow.
Nat gas build less than expected but inventory is still WAY TOO HIGH
• U.S. Energy Information Administration reported that natural gas inventories grew by 27 billion cubic feet, which fell short of consensus estimates for a build of 31 billion cubic feet.
• However, analysts noted hot weather that led to the small build will fade as autumn approaches and, without an immediate storm threat to supplies, prices will have difficulty moving higher.
• "The report didn't change the perception that we have ample supplies," says Gene McGillian an analyst with Tradition Energy said.
• Natural gas in U.S. storage remains at high levels. Natural gas in U.S. storage for the week ended Aug. 13 stood at 3.012 trillion cubic feet, 7% above the five-year average. But the storage build, which fell short of the average build for the week of 50 bcf, did cut slightly into the supply surplus when compared to the five-year average. Market participants pay close attention to these reports because they provide an indicator of the balance between gas supplies and demand.
Chinese July corn imports surge
• China's corn imports in July surged 201 percent from June to 193,896 tonnes while rice imports stood at 20,216 tonnes, down from June's 28,032 tonnes, official Customs figures showed on Thursday.
• Beijing has encouraged corn imports amid high domestic prices and tight supply after last year's drought, but official figures have not shown any sign of sharp rice imports despite floods hitting the country's early rice in the south.
Wheat rises sharply on further supply concerns
• U.S. wheat futures rose on Thursday, continuing their rebound from string of losses, as markets braced for Ukraine to confirm plans to limit exports, following the footsteps of Russia, due to a severe drought.
Tomorrow :
Fairly slow. Canada CPI would drive CAD and Canadian bond futures.
Otherwise, the general scenario I have been outlining is continuing with poor numbers out of US. The Philly Fed data is actually pretty frightening to me. I think there is actually pretty good chance ISM falls below 50 for August and this could hit the markets very hard. So far economy has been running on one leg – manufacturing – and if this sputters then we’re in a big trouble. We should look to cut all long risk at any pop we see.
Oil and copper still down on economic outlook. We can look at microfundamentals in these commodities all day but it all comes down to investor sentiment.
Switzerland posts record trade surplus in July
• This is a curious development given the strength in CHF – exports continue to do well while imports sputter.
• Despite concerns a strong franc could hurt exports, confidence in Switzerland's economic outlook is improving and the ZEW investor sentiment index jumped to 9.1 points in August, from 2.2 percent in July.
• The Swiss franc, which investors regard as a safe haven, rallied more than 10 percent against the euro in the first six months of the year. That raised fears it would hurt exports, but so far there has been little evidence to support this.
• The euro zone is Switzerland's biggest trading partner.
• The customs office said the rise in exports was chiefly due to growth in demand outside Europe. Watches posted a nominal 19.9 percent increase, followed by metals and precision instruments.
UK Retail Sales rise in July – third
• UK volume of retail sales in July rose 1.1% from a year ago month. Food stores sales decreased 1.0%. The largest increase was in sales at non-specialised stores of 9.7%. Although food sales were weak, sales overall were boosted by spending related to the World Cup soccer tournament and sales of sports equipment, games, watches and jewelry.
• Some of this spending was probably “pulled up” by world cup, but nonetheless a pretty positive news.
UK factory orders at 2 year high on exports
• An index of British factory orders rose to its highest level in two years in August after overseas demand rebounded from a dip in July, the CBI's monthly industrial trends survey showed on Thursday.
• The export order book balance rebounded to -1 from July's -12, a sharp dip from the -2 recorded in June.
US economic data continues to disappoint
• Awful is the only way I can think of describing it.
• Initial jobless claims hit 2010 high last week. This number could be distorted upward by extension of unemployment benefits but even then this is clearly a bad number.
• Philly Fed number absolutely collapsed this month to -7.7 from +5.1. Sub-indices were no better with both new orders and employment plummeting.
• This together with earlier disappointing report on Empire State (drop in new orders) tells that US manufacturing is slowing sharply.
Just way too much oil out there
• Combined stocks of crude oil and refined products in commercial storage around the United States surged 5.3 million barrels last week to top 1.130 billion barrels, the highest level since weekly records began in 1990.
• Massive builds in refined products (up 6.2 million barrels) -- especially other oils (up 2.3 million barrels), propane/propylene (up 2.4 million) and distillates (up 1.1 million) -- dwarfed a small drawdown in crude (down 800,000 barrels) and gasoline (down 39,000 barrels).
• HOWEVER, in the what matters more is the direction of inventory not so much the level. If inventory keeps growing then that would obviously drag price down. Falling inventory would bode well. So I wouldn’t necessarily use this info to trade oil.
• Rather, I would use the level of oil inventory more as another gauge of economic activities – which seems pretty slow.
Nat gas build less than expected but inventory is still WAY TOO HIGH
• U.S. Energy Information Administration reported that natural gas inventories grew by 27 billion cubic feet, which fell short of consensus estimates for a build of 31 billion cubic feet.
• However, analysts noted hot weather that led to the small build will fade as autumn approaches and, without an immediate storm threat to supplies, prices will have difficulty moving higher.
• "The report didn't change the perception that we have ample supplies," says Gene McGillian an analyst with Tradition Energy said.
• Natural gas in U.S. storage remains at high levels. Natural gas in U.S. storage for the week ended Aug. 13 stood at 3.012 trillion cubic feet, 7% above the five-year average. But the storage build, which fell short of the average build for the week of 50 bcf, did cut slightly into the supply surplus when compared to the five-year average. Market participants pay close attention to these reports because they provide an indicator of the balance between gas supplies and demand.
Chinese July corn imports surge
• China's corn imports in July surged 201 percent from June to 193,896 tonnes while rice imports stood at 20,216 tonnes, down from June's 28,032 tonnes, official Customs figures showed on Thursday.
• Beijing has encouraged corn imports amid high domestic prices and tight supply after last year's drought, but official figures have not shown any sign of sharp rice imports despite floods hitting the country's early rice in the south.
Wheat rises sharply on further supply concerns
• U.S. wheat futures rose on Thursday, continuing their rebound from string of losses, as markets braced for Ukraine to confirm plans to limit exports, following the footsteps of Russia, due to a severe drought.
Tomorrow :
Fairly slow. Canada CPI would drive CAD and Canadian bond futures.
Wednesday, August 18, 2010
2010 08 18
Little in the way of news today. Tomorrow is another story. UK july retail sales and US initial jobless claims. US weekly jobless claims numbers have been more or less driving the market lately. Expectation is 478k which tells me the market has definitely lowered outlook on the job market.
Yield curve
• In US, Europe and UK the theme among central bankers is clear – if we have to pick a fight then we would rather fight inflation than deflation.
• Inflation is a villain that central banks have experience fighting and beating. Deflation is an unknown and Japan has been stuck in it for 20 years. If I had to choose I would pick inflation too.
• So what we are seeing is that central bankers are doing whatever it takes to avoid deflation – by keeping rates at zero as far as I can see. These guys aren’t looking to just walk the batter. They’re throwing the ball some 20 feet away from the batter just to make sure no chance of hit ever comes up.
• If anything I believe there is greater risk of additional QE in both US and Europe and this can push long term yields down in short to medium term.
• I am not even going to pretend to have a clue what might happen more than 6 months down the road. But I believe at the moment we have not seen the lowest points for yield curve yet. If I have to make a bet I would go long bonds even from here.
• I think this monetary loosening eventually would have little impact on fighting deflation because consumer credit growth remains weak and balance sheets are broken everywhere. Lowering interest rate on people who already are broke wouldn’t do much good. But central banks would keep the spigot running because this is what they can do to fight deflation – this is why I think in the medium term rates go lower. Further down the road I think something really bad would happen but I don’t know what that would look like.
Credit
• Fundamentally speaking corporate credit is the sweet spot with tons of cash and little drive to spend it.
• However, the run up has been great both due to falling discount rate, flight to safety (relative to stocks) and yield chase. Buying LQD or HYG doesn’t seem all that attractive from here although I would still advocate switching out of long equity positions into credit even at this point.
• I think there are some good trades to be made in selling CDS on corporate names but this isn’t our capacity at this point.
Oil
• Today’s DOE announcement was more or less inline with expectation.
• Crude and refined products inventories – at least the onshore – remains stubbornly high and has been rising this year.
• IEA reports suggest that inventory level is extremely high for the OECD in general.
• Supposedly there has been a massive fall in floating storage but hard for me to confirm. I am even less sure how that affects the market.
• I will try to look into RBOB and heating oil see if I can see something interesting there.
Currencies
• GBP and CAD are intrigue me the most. But need to do more digging.
Yield curve
• In US, Europe and UK the theme among central bankers is clear – if we have to pick a fight then we would rather fight inflation than deflation.
• Inflation is a villain that central banks have experience fighting and beating. Deflation is an unknown and Japan has been stuck in it for 20 years. If I had to choose I would pick inflation too.
• So what we are seeing is that central bankers are doing whatever it takes to avoid deflation – by keeping rates at zero as far as I can see. These guys aren’t looking to just walk the batter. They’re throwing the ball some 20 feet away from the batter just to make sure no chance of hit ever comes up.
• If anything I believe there is greater risk of additional QE in both US and Europe and this can push long term yields down in short to medium term.
• I am not even going to pretend to have a clue what might happen more than 6 months down the road. But I believe at the moment we have not seen the lowest points for yield curve yet. If I have to make a bet I would go long bonds even from here.
• I think this monetary loosening eventually would have little impact on fighting deflation because consumer credit growth remains weak and balance sheets are broken everywhere. Lowering interest rate on people who already are broke wouldn’t do much good. But central banks would keep the spigot running because this is what they can do to fight deflation – this is why I think in the medium term rates go lower. Further down the road I think something really bad would happen but I don’t know what that would look like.
Credit
• Fundamentally speaking corporate credit is the sweet spot with tons of cash and little drive to spend it.
• However, the run up has been great both due to falling discount rate, flight to safety (relative to stocks) and yield chase. Buying LQD or HYG doesn’t seem all that attractive from here although I would still advocate switching out of long equity positions into credit even at this point.
• I think there are some good trades to be made in selling CDS on corporate names but this isn’t our capacity at this point.
Oil
• Today’s DOE announcement was more or less inline with expectation.
• Crude and refined products inventories – at least the onshore – remains stubbornly high and has been rising this year.
• IEA reports suggest that inventory level is extremely high for the OECD in general.
• Supposedly there has been a massive fall in floating storage but hard for me to confirm. I am even less sure how that affects the market.
• I will try to look into RBOB and heating oil see if I can see something interesting there.
Currencies
• GBP and CAD are intrigue me the most. But need to do more digging.
Tuesday, August 17, 2010
2010 08 17
Fairly light day in terms of economic data with a broad rally in stocks and commodities and pullback in bonds.
I think theme to unfold in coming months is US outperformance of Europe driven by disappointing data out of Eurozone. I would rather own commodities over stocks. The two are locked in near 1 correlation and I expect that relationship to remain as they both trade on investor sentiment. But I would rather own commodities over stocks if I had to since the stock market still is overrun with permabulls. Plus, there are signs of tightening underlying fundamentals for commodity supply/demand which may or may not matter in terms of asset pricing but in macro it’s all about triangulating.
CAD has been badly lagging other G10 currencies and frankly I don’t know exactly what’s causing it. Will look deeper into it - possibly a trading opportunity there.
GBP seems like it ran too hard to me. But hard to figure exactly what currency to short against.
I was never all that concerned about deflation and less so after seeing the US PPI today. Double dip also unlikely. But that doesn’t mean things wouldn’t feel like recession for most people.
Copper is looking interesting to me with inventory continuing to slide and some solid canceled warrants. Even more interesting since summer tends to be a slow season for copper. As I mentioned yesterday I prefer base metals over energy.
RBA minutes show imminent rate hikes not likely
• Minutes from the latest RBA meeting seems to indicate that further rate hikes are not likely in the short term.
• The board noted that inflation fell below 3% in Q2 – first time in about 3 years that has happened – and that housing prices seem to be easing thanks to recent increases in lending rates.
• Carry currencies (AUD, NZD, NOK) have underperformed so far and I do not see any reason for any of them to rise notably versus the USD as I believe the rate hike cycle has already come to an end.
UK inflation falls for the third month in a row but remains way above 2% target
• Mervyn King explains that stubbornly high inflation due to increase in VAT as well as rising commodity prices coupled with weaker pound.
• King states that he expects inflation to remain above target for some time but as economy experiences slowdown on budget cuts and tax hikes inflation will fall below 2% by 2012.
US housing starts remains WEAK
• Seems like a lot of people still obsess over housing market data but I see no point. Americans are broke and buying a new home is the last thing on their mind. I do not see any recovery in this possibly in my lifetime. More importantly, unless there is a huge surprise one way or another the asset markets seem to not care a whole lot about housing news.
• Yet another data point on weakness of US consumers.
US industrial production surprises on the upside on a genuinely good news
• July industrial production showed that US manufacturing activity remains healthy and is not anywhere near a double dip territory which I reckon some have been fearing.
German ZEW sentiment indicator looks bad
• ZEW index is a popular gauge for german business sentiment.
• The decline in August was unexpected especially given a string of good news lately. Perhaps this is indicating slowing export market? Can’t say this is all that surprising since economy everywhere is moderating – Germany can’t be an exception.
Pretty light day tomorrow in terms of econ data
I think theme to unfold in coming months is US outperformance of Europe driven by disappointing data out of Eurozone. I would rather own commodities over stocks. The two are locked in near 1 correlation and I expect that relationship to remain as they both trade on investor sentiment. But I would rather own commodities over stocks if I had to since the stock market still is overrun with permabulls. Plus, there are signs of tightening underlying fundamentals for commodity supply/demand which may or may not matter in terms of asset pricing but in macro it’s all about triangulating.
CAD has been badly lagging other G10 currencies and frankly I don’t know exactly what’s causing it. Will look deeper into it - possibly a trading opportunity there.
GBP seems like it ran too hard to me. But hard to figure exactly what currency to short against.
I was never all that concerned about deflation and less so after seeing the US PPI today. Double dip also unlikely. But that doesn’t mean things wouldn’t feel like recession for most people.
Copper is looking interesting to me with inventory continuing to slide and some solid canceled warrants. Even more interesting since summer tends to be a slow season for copper. As I mentioned yesterday I prefer base metals over energy.
RBA minutes show imminent rate hikes not likely
• Minutes from the latest RBA meeting seems to indicate that further rate hikes are not likely in the short term.
• The board noted that inflation fell below 3% in Q2 – first time in about 3 years that has happened – and that housing prices seem to be easing thanks to recent increases in lending rates.
• Carry currencies (AUD, NZD, NOK) have underperformed so far and I do not see any reason for any of them to rise notably versus the USD as I believe the rate hike cycle has already come to an end.
UK inflation falls for the third month in a row but remains way above 2% target
• Mervyn King explains that stubbornly high inflation due to increase in VAT as well as rising commodity prices coupled with weaker pound.
• King states that he expects inflation to remain above target for some time but as economy experiences slowdown on budget cuts and tax hikes inflation will fall below 2% by 2012.
US housing starts remains WEAK
• Seems like a lot of people still obsess over housing market data but I see no point. Americans are broke and buying a new home is the last thing on their mind. I do not see any recovery in this possibly in my lifetime. More importantly, unless there is a huge surprise one way or another the asset markets seem to not care a whole lot about housing news.
• Yet another data point on weakness of US consumers.
US industrial production surprises on the upside on a genuinely good news
• July industrial production showed that US manufacturing activity remains healthy and is not anywhere near a double dip territory which I reckon some have been fearing.
German ZEW sentiment indicator looks bad
• ZEW index is a popular gauge for german business sentiment.
• The decline in August was unexpected especially given a string of good news lately. Perhaps this is indicating slowing export market? Can’t say this is all that surprising since economy everywhere is moderating – Germany can’t be an exception.
Pretty light day tomorrow in terms of econ data
Monday, August 16, 2010
2010 08 16
It is becoming increasingly clear that April was the peak in economic activities more or less on a global basis.
Manufacturing continues to come off from the very high levels, but I expect it to remain in expansionary territory.
The effect of strong yen has been palpable on the Japanese economy. And the currency has only been stronger since. I expect this to cause further drag on the economy. I have liked long Dax vs short Nikkei or Topix for couple months now and this remains to be my favorite idea.
On the commodities side, I am more bearish oil than copper for two reasons:
Staggeringly high oil and refined products inventory in US
Relatively more robust economic picture in China vs rest of the world (this probably should be investigated more thoroughly to confirm) whose economy has more impact on copper than oil.
Japan’s Q2 disappoints hugely
• Particularly concerning is weakening exports no doubt fueled by strong yen.
• Consumption remains stagnant. As I have been saying we are seeing slowing consumption everywhere in the world.
• The economy could face a critical test in coming months, analysts said, as existing shopping incentives and other stimulus programs expire, removing what has been a crucial crutch. Meanwhile, the strong yen could put further pressure on Japan's key exporters, which are less competitive in other markets when the currency rises.
US empire state manufacturing index comes in lukewarm
• The top-line index rose slightly, to 7.1 in August from 5.1 in July, but that's still down considerably from June's 19.6 reading and a cyclical high of 31.9 recorded in April. Above zero indicates growth (think of the 50 level for PMI).
• Particularly troubling is the new orders component (generally regarded as a good leading indicator) fell below zero (contraction territory) for the first time in more than a year. It plunged 13 points all the way down to -2.7.
Russian industrial production sluggish in July
• Russian industrial production grew at its slowest rate in 8-months amid weeks of record-high temperatures, data from the Federal Statistics Service showed Monday.
• Output rose 5.9% year-on-year last month, its slowest expansion since November and sharply down from a 9.7% increase in June.
• The biggest slowdowns were seen in manufacturing, which fell 0.4% on-month as some factories in central Russia shut down or announced reduced work weeks due to the extreme heat.
Russia to consider the fate of grain export ban
• Russia plans to discuss after Oct. 1 whether to extend a grain export ban into next year, First Deputy Prime Minister Viktor Zubkov told Reuters, after a severe drought ruined vast tracts of the country's grain crop.
• The ban comes into force on Sunday and is due to last until Dec. 31, a move designed to restrain domestic food prices because of the worst drought in more than a century -- which has also caused forest fires and left Moscow blanketed in smoke.
Notable events tomorrow:
• Aug RBA board minutes
• UK CPI and RPI
• US PPI
• US July Industrial production
• US July capacity utilization
Manufacturing continues to come off from the very high levels, but I expect it to remain in expansionary territory.
The effect of strong yen has been palpable on the Japanese economy. And the currency has only been stronger since. I expect this to cause further drag on the economy. I have liked long Dax vs short Nikkei or Topix for couple months now and this remains to be my favorite idea.
On the commodities side, I am more bearish oil than copper for two reasons:
Staggeringly high oil and refined products inventory in US
Relatively more robust economic picture in China vs rest of the world (this probably should be investigated more thoroughly to confirm) whose economy has more impact on copper than oil.
Japan’s Q2 disappoints hugely
• Particularly concerning is weakening exports no doubt fueled by strong yen.
• Consumption remains stagnant. As I have been saying we are seeing slowing consumption everywhere in the world.
• The economy could face a critical test in coming months, analysts said, as existing shopping incentives and other stimulus programs expire, removing what has been a crucial crutch. Meanwhile, the strong yen could put further pressure on Japan's key exporters, which are less competitive in other markets when the currency rises.
US empire state manufacturing index comes in lukewarm
• The top-line index rose slightly, to 7.1 in August from 5.1 in July, but that's still down considerably from June's 19.6 reading and a cyclical high of 31.9 recorded in April. Above zero indicates growth (think of the 50 level for PMI).
• Particularly troubling is the new orders component (generally regarded as a good leading indicator) fell below zero (contraction territory) for the first time in more than a year. It plunged 13 points all the way down to -2.7.
Russian industrial production sluggish in July
• Russian industrial production grew at its slowest rate in 8-months amid weeks of record-high temperatures, data from the Federal Statistics Service showed Monday.
• Output rose 5.9% year-on-year last month, its slowest expansion since November and sharply down from a 9.7% increase in June.
• The biggest slowdowns were seen in manufacturing, which fell 0.4% on-month as some factories in central Russia shut down or announced reduced work weeks due to the extreme heat.
Russia to consider the fate of grain export ban
• Russia plans to discuss after Oct. 1 whether to extend a grain export ban into next year, First Deputy Prime Minister Viktor Zubkov told Reuters, after a severe drought ruined vast tracts of the country's grain crop.
• The ban comes into force on Sunday and is due to last until Dec. 31, a move designed to restrain domestic food prices because of the worst drought in more than a century -- which has also caused forest fires and left Moscow blanketed in smoke.
Notable events tomorrow:
• Aug RBA board minutes
• UK CPI and RPI
• US PPI
• US July Industrial production
• US July capacity utilization
2010 08 13
I don’t understand why people are so enthusiastic on Germany. Their GDP print comes in at 2.2% and everyone cheers. One headline actually read “superman economy.” On the other hand, US economy, supposedly on a verge of depression, comes in at 2.4%.
It is obvious outside France and Germany things are only getting worse in the Eurozone. France’s economy is actually being supported by fairly robust domestic consumption while Germany powers on exports and manufacturing. France and Germany both likely to slow down as austerity kicks in (keep in mind gov’t plays much bigger role in economy there in Euroland compared to US).
Slowdown in economy is clear. Consumers remain weak while manufacturing slows - everywhere in the world even in China. Hard to feel bullish on anything but I still believe that US will outperform Europe going forward as the overshoot in sentiments normalize in the coming months.
Japan manufacturing mood is high on govt stimulus but strong yen is becoming a problem
• Japanese manufacturers' confidence rose to the highest in nearly three years in August due to government stimulus, but companies forecast for the first time in three years that their sentiment will deteriorate as the strong yen threatens exporters' earnings, a Reuters poll showed.
• he monthly poll, which has a 95 percent correlation with the Bank of Japan's tankan survey, showed on Friday that manufacturers' sentiment index rose 10 points from the previous month to plus 22, the highest since November 2007, when the index stood at 23.
• Sentiment improved as auto makers expected consumers to frontload purchases of cars before government subsidies expire in September.
• Japan policy makers fired off a volley of comments on Thursday to curb yen strength and central bank officials stepped up efforts to prevent the currency from harming a fragile economic recovery. However, in my view this is just window dressing. There is nothing policy makers can do to drive currency market in big economies.
• The manufacturers' sentiment index is expected to worsen to plus 15 over the three months to November, marking the first time in three years that the mood is expected to worsen, as a strong yen and uncertainty over the U.S. economic recovery weigh on corporate sentiment.
Spain GDP disappoints after Greece disappoints yesterday
• Spain’s GDP rose less than forecast, while a report yesterday showed the Greek economy shrank for a seventh quarter.
• Spanish bonds fell and the extra yield investors demand for holding Greek debt instead of German bunds rose to the most since May on concern flagging growth in nations on Europe’s periphery will crimp the region’s recovery.
German Q2 GDP “surges” – but only at 2.2% that’s weaker than US’s 2.4%
• German second- quarter gross domestic product rose 2.2 percent from the first quarter, the fastest pace since records for a reunified Germany began in 1991. Economists predicted the economy would expand 1.3 percent.
• The yield on the 10-year German bund rose one basis point to 2.44 percent as of 8:50 a.m. in London.
• Germany has had very strong export and manufacturing numbers so upside surprise in GDP doesnt surprise.
France also posts decent GDP for Q2
• After slowing to 0.2% in 1Q (revised up from +0.1%), GDP growth picked up again to 0.6%. Five quarters of recovery since the recession trough left activity 1.7% higher on the year, but still more than 2% below the pre-crisis peak.
• French economic growth rebounded more than generally expected in 2Q, as a recovery in private consumption and investment and a big boost from inventory changes offset a drag from foreign trade, the national statistics institute Insee said Friday.
US retail sales – car sales were strong but weak otherwise
• Retail sales rose 0.4 percent from June to 362.7 billion dollars on the back of strong auto sales, the Commerce Department said.
• The July figure was slightly lower than the 0.5 percent rise expected by most economists but it was the first rise in three months after declines of 0.3 percent and 1.0 percent in June and May respectively.
• Sales rose strongly at auto dealers and gas stations while declines were more widespread, but generally modest outside of department stores, the government data showed.
• Economists were little impressed by the latest retail data as excluding transactions in auto dealerships and gas stations, "core" sales fell 0.1 percent -- reflecting the lackluster state of the world's largest economy.
US inflation remains subdued in july – I do not see ANY inflation risk on the horizon
• Inflation metrics in the United States continue to point to slow price rises. The consumer price index climbed 1.2% year-over-year in July, exactly what economists were expecting and slightly higher than the 1.1% y/y rise in June. Excluding the volatile food and energy components, the CPI rose 0.9% y/y, in line with forecasts and the same as in June. With this low level of inflation the story will continue to be fear about deflation, rather than rising prices.
Some rebound in US consumer confidence but still stuck in DISMAL level
• Consumer confidence (U of M survey) inches up from 67.8 in july to 69.6. does that mean anything I don’t think so. This index remains at a dismal level and is still well below the level of around 73 earlier in the year. And it is likely the good stock market performance in second half of july and first week of aug.
It is obvious outside France and Germany things are only getting worse in the Eurozone. France’s economy is actually being supported by fairly robust domestic consumption while Germany powers on exports and manufacturing. France and Germany both likely to slow down as austerity kicks in (keep in mind gov’t plays much bigger role in economy there in Euroland compared to US).
Slowdown in economy is clear. Consumers remain weak while manufacturing slows - everywhere in the world even in China. Hard to feel bullish on anything but I still believe that US will outperform Europe going forward as the overshoot in sentiments normalize in the coming months.
Japan manufacturing mood is high on govt stimulus but strong yen is becoming a problem
• Japanese manufacturers' confidence rose to the highest in nearly three years in August due to government stimulus, but companies forecast for the first time in three years that their sentiment will deteriorate as the strong yen threatens exporters' earnings, a Reuters poll showed.
• he monthly poll, which has a 95 percent correlation with the Bank of Japan's tankan survey, showed on Friday that manufacturers' sentiment index rose 10 points from the previous month to plus 22, the highest since November 2007, when the index stood at 23.
• Sentiment improved as auto makers expected consumers to frontload purchases of cars before government subsidies expire in September.
• Japan policy makers fired off a volley of comments on Thursday to curb yen strength and central bank officials stepped up efforts to prevent the currency from harming a fragile economic recovery. However, in my view this is just window dressing. There is nothing policy makers can do to drive currency market in big economies.
• The manufacturers' sentiment index is expected to worsen to plus 15 over the three months to November, marking the first time in three years that the mood is expected to worsen, as a strong yen and uncertainty over the U.S. economic recovery weigh on corporate sentiment.
Spain GDP disappoints after Greece disappoints yesterday
• Spain’s GDP rose less than forecast, while a report yesterday showed the Greek economy shrank for a seventh quarter.
• Spanish bonds fell and the extra yield investors demand for holding Greek debt instead of German bunds rose to the most since May on concern flagging growth in nations on Europe’s periphery will crimp the region’s recovery.
German Q2 GDP “surges” – but only at 2.2% that’s weaker than US’s 2.4%
• German second- quarter gross domestic product rose 2.2 percent from the first quarter, the fastest pace since records for a reunified Germany began in 1991. Economists predicted the economy would expand 1.3 percent.
• The yield on the 10-year German bund rose one basis point to 2.44 percent as of 8:50 a.m. in London.
• Germany has had very strong export and manufacturing numbers so upside surprise in GDP doesnt surprise.
France also posts decent GDP for Q2
• After slowing to 0.2% in 1Q (revised up from +0.1%), GDP growth picked up again to 0.6%. Five quarters of recovery since the recession trough left activity 1.7% higher on the year, but still more than 2% below the pre-crisis peak.
• French economic growth rebounded more than generally expected in 2Q, as a recovery in private consumption and investment and a big boost from inventory changes offset a drag from foreign trade, the national statistics institute Insee said Friday.
US retail sales – car sales were strong but weak otherwise
• Retail sales rose 0.4 percent from June to 362.7 billion dollars on the back of strong auto sales, the Commerce Department said.
• The July figure was slightly lower than the 0.5 percent rise expected by most economists but it was the first rise in three months after declines of 0.3 percent and 1.0 percent in June and May respectively.
• Sales rose strongly at auto dealers and gas stations while declines were more widespread, but generally modest outside of department stores, the government data showed.
• Economists were little impressed by the latest retail data as excluding transactions in auto dealerships and gas stations, "core" sales fell 0.1 percent -- reflecting the lackluster state of the world's largest economy.
US inflation remains subdued in july – I do not see ANY inflation risk on the horizon
• Inflation metrics in the United States continue to point to slow price rises. The consumer price index climbed 1.2% year-over-year in July, exactly what economists were expecting and slightly higher than the 1.1% y/y rise in June. Excluding the volatile food and energy components, the CPI rose 0.9% y/y, in line with forecasts and the same as in June. With this low level of inflation the story will continue to be fear about deflation, rather than rising prices.
Some rebound in US consumer confidence but still stuck in DISMAL level
• Consumer confidence (U of M survey) inches up from 67.8 in july to 69.6. does that mean anything I don’t think so. This index remains at a dismal level and is still well below the level of around 73 earlier in the year. And it is likely the good stock market performance in second half of july and first week of aug.
2010 08 12
A light day in terms of economic data but nothing to cheer about.
1. Manufacturing is slowing everywhere from US to Europe to China. It is still in an expansionary stage but cannot be counted upon to fuel a huge growth.
2. Japan officials commented on the strength of Yen which might have led to a bit of selloff. But the simple fact is that there is nothing BoJ or anyone can do about the currency. Yen will go where the market pushes it. As long as economic data disappoints Yen will remain strong.
3. I think there is way too much oil investory in US. I am thinking we should short oil even at this level. Contango would work in our favor.
4. Natgas inventory is sky high as well. With slowing industrial activities I expect nat gas to perform even more poorly going forward especially with no decline in production.
Tomorrow has some big data coming out on US consumers – July retail sales and U of Michgan consumer sentiment. I expect both to be weak on steadily poor job market picture.
Japan consumer sentiment weakens in July
• Japanese consumer sentiment dropped unexpectedly in July as consumers were less optimistic about future economic situation, a closely watched survey revealed on Thursday. Consumer confidence eased for the first time in seven months.
US jobless claims remains stubbornly high
• U.S. unemployment claims hit their highest level in nearly six months last week, evidence that the job market is not recovering as fast as economists had hoped.
• Thursday's report from the Labor Department showed the number of people signing up for unemployment assistance rose 2,000 to hit a total of 484,000 across the country.
• Economists say the slow and uneven recovery of the job market hurts the consumer spending that drives most U.S. economic activity. Weak consumer spending is slowing overall economic recovery and growth.
Manufacturing slows in India too
• Growth in India's industrial production slipped to a 13-month low in June as the effects of government stimulus waned and expansion returned to more normal levels.
• The slowdown to year-on-year growth of 7.1 percent in June comes after eight months of double-digit expansion -- a pace that was unsustainable.
• The moderation is in large part attributable to the high levels of industrial production at the same last year when growth was rebounding from the global recession, economists say.
Eurozone industrial output falls in June from May
• Industrial production in the 16-nation eurozone unexpectedly fell 0.1 percent in June from the previous month, raising fears that regional economic growth may not be as high as anticipated. The results sharply contrast with the 1.1 percent gain recorded in May and disappointed market expectations for a 0.6 percent rise.
• THE REASON: Production dropped 0.5 percent in Germany, the EU's economic powerhouse, and 1.6 percent decline in France, the eurozone's second-largest economy.
• WHY IT MATTERS: With consumption levels remaining subdued amid high unemployment and muted wage growth, overall growth in the eurozone is increasingly reliant on the industrial sector.
US winter natgas inventories seen near record highs
• U.S. natural gas inventories will begin the winter at their second-highest level ever, as weekly stock builds pick up later this year after the intense heat of summer fades, according to a Reuters survey of industry traders and analysts.
• Total gas storage started the April-through-October injection season at a very comfortable 1.65 trillion cubic feet, according to data from the U.S. Energy
• Information Administration, prompting estimates that stocks could start winter above last year's record high of 3.837 tcf,
US corn export sales surge amid Russian drought
• Global grain buyers have accelerated purchases of U.S. corn to fill a feed grain void left by suppliers in the drought-scorched Black Sea region.
• The drought has also prompted a series of wheat tenders by several importing nations that would typically rely on supplies from the Black Sea region, opening a window of opportunity for the United States, the EU and other major wheat exporters.
1. Manufacturing is slowing everywhere from US to Europe to China. It is still in an expansionary stage but cannot be counted upon to fuel a huge growth.
2. Japan officials commented on the strength of Yen which might have led to a bit of selloff. But the simple fact is that there is nothing BoJ or anyone can do about the currency. Yen will go where the market pushes it. As long as economic data disappoints Yen will remain strong.
3. I think there is way too much oil investory in US. I am thinking we should short oil even at this level. Contango would work in our favor.
4. Natgas inventory is sky high as well. With slowing industrial activities I expect nat gas to perform even more poorly going forward especially with no decline in production.
Tomorrow has some big data coming out on US consumers – July retail sales and U of Michgan consumer sentiment. I expect both to be weak on steadily poor job market picture.
Japan consumer sentiment weakens in July
• Japanese consumer sentiment dropped unexpectedly in July as consumers were less optimistic about future economic situation, a closely watched survey revealed on Thursday. Consumer confidence eased for the first time in seven months.
US jobless claims remains stubbornly high
• U.S. unemployment claims hit their highest level in nearly six months last week, evidence that the job market is not recovering as fast as economists had hoped.
• Thursday's report from the Labor Department showed the number of people signing up for unemployment assistance rose 2,000 to hit a total of 484,000 across the country.
• Economists say the slow and uneven recovery of the job market hurts the consumer spending that drives most U.S. economic activity. Weak consumer spending is slowing overall economic recovery and growth.
Manufacturing slows in India too
• Growth in India's industrial production slipped to a 13-month low in June as the effects of government stimulus waned and expansion returned to more normal levels.
• The slowdown to year-on-year growth of 7.1 percent in June comes after eight months of double-digit expansion -- a pace that was unsustainable.
• The moderation is in large part attributable to the high levels of industrial production at the same last year when growth was rebounding from the global recession, economists say.
Eurozone industrial output falls in June from May
• Industrial production in the 16-nation eurozone unexpectedly fell 0.1 percent in June from the previous month, raising fears that regional economic growth may not be as high as anticipated. The results sharply contrast with the 1.1 percent gain recorded in May and disappointed market expectations for a 0.6 percent rise.
• THE REASON: Production dropped 0.5 percent in Germany, the EU's economic powerhouse, and 1.6 percent decline in France, the eurozone's second-largest economy.
• WHY IT MATTERS: With consumption levels remaining subdued amid high unemployment and muted wage growth, overall growth in the eurozone is increasingly reliant on the industrial sector.
US winter natgas inventories seen near record highs
• U.S. natural gas inventories will begin the winter at their second-highest level ever, as weekly stock builds pick up later this year after the intense heat of summer fades, according to a Reuters survey of industry traders and analysts.
• Total gas storage started the April-through-October injection season at a very comfortable 1.65 trillion cubic feet, according to data from the U.S. Energy
• Information Administration, prompting estimates that stocks could start winter above last year's record high of 3.837 tcf,
US corn export sales surge amid Russian drought
• Global grain buyers have accelerated purchases of U.S. corn to fill a feed grain void left by suppliers in the drought-scorched Black Sea region.
• The drought has also prompted a series of wheat tenders by several importing nations that would typically rely on supplies from the Black Sea region, opening a window of opportunity for the United States, the EU and other major wheat exporters.
2010 08 11
China comes out with less than cheerful numbers in manufacturing and consumption while US shows more weakness. With economists cutting growth forecasts everywhere it is leading to a large selloff all across.
US 10yr bond auction today showed very strong demand. In sovereign bond market really the only thing that matters is economic and inflation (very closely linked) outlook.
Chinese government has actively tried to slow down economy and it’s working out just as planned. It’s a good thing. But in the short term the market just want more and more growth at whatever the long term consequence.
I think economic data will continue to disappoint. So far UK and Europe manage to sidestep this for couple months but it won’t be long before investors wake up to the fact that Europe is an utter mess.
I am really not positive on anything except gold for remainder of the year. And I think US 10yr yield goes to 2.5%. Strength in bund will continue as well.
I think we should look to go long USD - probably versus Euro and GBP. US economy has been overly criticized.
US trade deficit widens – US cannot rely on exports to grow its economy
• The U.S. trade deficit widened to near a two-year high in June, as imports from its largest trading partners ballooned.
• Price of oil played little role in skewing the deficit
• "This is spectacularly terrible," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. He expected the inflated deficit to shave up to half a percentage point off growth.
• U.S. exports contracted 1.3% to $150.45 billion, from $152.44 billion in May. Imports increased at a faster rate, expanding 3.1% to $200.35 billion from $194.42 billion.
China slowdown becoming more obvious – industrial production and retail sales both drop in July
• China’s drop in Industrial production in June was not one-off. We saw another drop in July : China's industrial production expanded 13.4% in July from a year earlier, slowing from June's 13.7% increase, government data showed Wednesday.
• Retail sales also dropped in July : Retail sales in July rose 17.9% from a year earlier, slowing from June's 18.3% increase.
• Meanwhile, inflation rose albeit not to a dangerous level and most of that rise was driven by food price.
UK unemployment rate falls but new jobless claims rise
• The employment rate (this is the % of people with jobs) in the UK rose 0.3% or 184,000 between the first and second quarters of this year, the largest quarterly increase since 1989.
• However, the number of new jobless claims is remaining higher than expected. Like US the initial jobless claims number is much more timely and is the better indicator of the direction of job market than employment rate.
• With huge cuts in public sector coming due to austerity this is not a positive sign.
China oil demand expected to grow strongly
• China's apparent crude oil demand will increase 11 percent this year, state media reported on Wednesday, citing a forecast from the China Petroleum and Chemical Industry Federation.
• Apparent demand for refined fuels would grow 6.7 percent while demand for natural gas would rise 11.4 percent from last year, the China Securities Journal reported.
China July copper output down on scrap, power shortages
• copper production by the world's top consumer China saw a monthly fall of 5.7 percent in July on scrap shortages and reduced power flows in the summer as smelters eye solid demand prospects for the rest of the year.
• Refined copper output is up 19 percent in the first seven months of the year, but if scrap shortages persist, the country is likely to see output level off further in the coming months with imports taking up slack.
US 10yr bond auction today showed very strong demand. In sovereign bond market really the only thing that matters is economic and inflation (very closely linked) outlook.
Chinese government has actively tried to slow down economy and it’s working out just as planned. It’s a good thing. But in the short term the market just want more and more growth at whatever the long term consequence.
I think economic data will continue to disappoint. So far UK and Europe manage to sidestep this for couple months but it won’t be long before investors wake up to the fact that Europe is an utter mess.
I am really not positive on anything except gold for remainder of the year. And I think US 10yr yield goes to 2.5%. Strength in bund will continue as well.
I think we should look to go long USD - probably versus Euro and GBP. US economy has been overly criticized.
US trade deficit widens – US cannot rely on exports to grow its economy
• The U.S. trade deficit widened to near a two-year high in June, as imports from its largest trading partners ballooned.
• Price of oil played little role in skewing the deficit
• "This is spectacularly terrible," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. He expected the inflated deficit to shave up to half a percentage point off growth.
• U.S. exports contracted 1.3% to $150.45 billion, from $152.44 billion in May. Imports increased at a faster rate, expanding 3.1% to $200.35 billion from $194.42 billion.
China slowdown becoming more obvious – industrial production and retail sales both drop in July
• China’s drop in Industrial production in June was not one-off. We saw another drop in July : China's industrial production expanded 13.4% in July from a year earlier, slowing from June's 13.7% increase, government data showed Wednesday.
• Retail sales also dropped in July : Retail sales in July rose 17.9% from a year earlier, slowing from June's 18.3% increase.
• Meanwhile, inflation rose albeit not to a dangerous level and most of that rise was driven by food price.
UK unemployment rate falls but new jobless claims rise
• The employment rate (this is the % of people with jobs) in the UK rose 0.3% or 184,000 between the first and second quarters of this year, the largest quarterly increase since 1989.
• However, the number of new jobless claims is remaining higher than expected. Like US the initial jobless claims number is much more timely and is the better indicator of the direction of job market than employment rate.
• With huge cuts in public sector coming due to austerity this is not a positive sign.
China oil demand expected to grow strongly
• China's apparent crude oil demand will increase 11 percent this year, state media reported on Wednesday, citing a forecast from the China Petroleum and Chemical Industry Federation.
• Apparent demand for refined fuels would grow 6.7 percent while demand for natural gas would rise 11.4 percent from last year, the China Securities Journal reported.
China July copper output down on scrap, power shortages
• copper production by the world's top consumer China saw a monthly fall of 5.7 percent in July on scrap shortages and reduced power flows in the summer as smelters eye solid demand prospects for the rest of the year.
• Refined copper output is up 19 percent in the first seven months of the year, but if scrap shortages persist, the country is likely to see output level off further in the coming months with imports taking up slack.
2010 08 10
Two major news today:
1. Weak Chinese imports signaling that government measures to slow down economy might be curbing demand.
2. US Fed announcement to keep loose monetary policy and continue with QE.
Additional news of QE was not bullish for the market with stocks and commodities selling off (despite USD weakening) and yields falling even further.
My thoughts:
1. Manufacturing which has been the engine of economic recovery everywhere in the world is losing momentum and will continue to weaken.
2. Economy is pretty weak in US, Europe, UK and Japan. The signs of weakness will become more obvious in the coming month or two. When that happens US will rally relative to the others especially in currency
3. I think US job market is not as bad as people think. But hiring will take time as businesses wait to see what policy changes will be implemented.
4. China is a big unknown. My view is that we will see another month or two of data that would show slowdown, and at that point the government might show some easing in their policy. However, I cannot yet guess what that would to global asset markets. I assume particularly positive for commodities and also equities.
5. I think US 10yr yield will stay below 3% for the remainder of the year.
6. I think gold is the best bet for the remainder of the year.
US Fed embarks on quantitative easing
• The Fed expressed slightly more cautious outlook on US economy and basically no change in their intention to keep rates extraordinarily low for extended time.
• The fed announced greater injection of money into economy. They’ll do so by : back in 2009 they bought tons of mortgage backed securities to support the credit market. As these debts come to mature the Fed would simply take the proceeds and go buy some other debts. This is what they mean by maintaining balance sheet.
UK Retail Sales slowed markedly in July. Housing price data also disappoints
• UK BRC Retail Sales monitor printed at 0.5% in July versus 1.2% in June. The rate of growth in retail sales was less than half of the month prior. Sales of food and clothing increased, but sales of durable goods such as furniture declined sharply.
• Today's data suggests that the UK consumer remains cautious and unwilling to make large discretionary purchases for the household. The news also dovetails with today's poor RICS house price balance data which came in at -8% versus 5% expected. As demand for UK housing begins to decline again the drop off in durable goods purchases is likely to continue for the rest of the year depressing retail sales and GDP growth.
• given the austerity measures facing the UK economy in the second half of the year, growth will be much more challenging than the market believes, making any rally in GBP highly suspect.
French manufacturing drops
• France’s economic recovery appears to be flagging after industrial production plunged in June, in stark contrast to a resurgent Germany.
• Industrial output fell by 1.7 per cent, according to figures published on Tuesday by Insee, the national statistical agency. The decline was much larger than analysts expected, and wipes out most of May’s strong increase, which was revised up to 1.9 per cent.
• The fall in French auto industry output, down 7.4 per cent in June, was the main contributing factor. “The phasing out of the car scrappage scheme is clearly taking its toll,” said Gilles Moec, economist at Deutsche Bank.
US productivity falls – good news for unemployment bad for corporate profits
• The 0.9% quarterly annualised decline in second-quarter US non-farm productivity suggests that firms are finding it harder to squeeze any additional efficiency gains out of their existing workforces.
• This a positive for job market looking ahead and probably also serves as a deflation fighter. BUT this is a big negative for corporate earnings which has been boosted by cost cutting (layoffs).
China trade surplus goes even higher but that’s due to slowing imports which isn’t necessarily a great sign
• China’s trade surplus surged again in July to its highest level in 18 months
• The data reflected a continued strong increase in exports, which rose 38.1 per cent year on year. At the same time, the pace of growth in imports slowed sharply from a 34.1 per cent year-on-year increase in June to a 22.7 per cent increase in July. This represented a seasonally adjusted drop of 5.6 per cent from the previous month, according to BarCap, as slowing domestic investment cooled Chinese demand for imports.
• Basically, it does seem like the effort to cool down economy is having a noticeable impact on domestic demand.
1. Weak Chinese imports signaling that government measures to slow down economy might be curbing demand.
2. US Fed announcement to keep loose monetary policy and continue with QE.
Additional news of QE was not bullish for the market with stocks and commodities selling off (despite USD weakening) and yields falling even further.
My thoughts:
1. Manufacturing which has been the engine of economic recovery everywhere in the world is losing momentum and will continue to weaken.
2. Economy is pretty weak in US, Europe, UK and Japan. The signs of weakness will become more obvious in the coming month or two. When that happens US will rally relative to the others especially in currency
3. I think US job market is not as bad as people think. But hiring will take time as businesses wait to see what policy changes will be implemented.
4. China is a big unknown. My view is that we will see another month or two of data that would show slowdown, and at that point the government might show some easing in their policy. However, I cannot yet guess what that would to global asset markets. I assume particularly positive for commodities and also equities.
5. I think US 10yr yield will stay below 3% for the remainder of the year.
6. I think gold is the best bet for the remainder of the year.
US Fed embarks on quantitative easing
• The Fed expressed slightly more cautious outlook on US economy and basically no change in their intention to keep rates extraordinarily low for extended time.
• The fed announced greater injection of money into economy. They’ll do so by : back in 2009 they bought tons of mortgage backed securities to support the credit market. As these debts come to mature the Fed would simply take the proceeds and go buy some other debts. This is what they mean by maintaining balance sheet.
UK Retail Sales slowed markedly in July. Housing price data also disappoints
• UK BRC Retail Sales monitor printed at 0.5% in July versus 1.2% in June. The rate of growth in retail sales was less than half of the month prior. Sales of food and clothing increased, but sales of durable goods such as furniture declined sharply.
• Today's data suggests that the UK consumer remains cautious and unwilling to make large discretionary purchases for the household. The news also dovetails with today's poor RICS house price balance data which came in at -8% versus 5% expected. As demand for UK housing begins to decline again the drop off in durable goods purchases is likely to continue for the rest of the year depressing retail sales and GDP growth.
• given the austerity measures facing the UK economy in the second half of the year, growth will be much more challenging than the market believes, making any rally in GBP highly suspect.
French manufacturing drops
• France’s economic recovery appears to be flagging after industrial production plunged in June, in stark contrast to a resurgent Germany.
• Industrial output fell by 1.7 per cent, according to figures published on Tuesday by Insee, the national statistical agency. The decline was much larger than analysts expected, and wipes out most of May’s strong increase, which was revised up to 1.9 per cent.
• The fall in French auto industry output, down 7.4 per cent in June, was the main contributing factor. “The phasing out of the car scrappage scheme is clearly taking its toll,” said Gilles Moec, economist at Deutsche Bank.
US productivity falls – good news for unemployment bad for corporate profits
• The 0.9% quarterly annualised decline in second-quarter US non-farm productivity suggests that firms are finding it harder to squeeze any additional efficiency gains out of their existing workforces.
• This a positive for job market looking ahead and probably also serves as a deflation fighter. BUT this is a big negative for corporate earnings which has been boosted by cost cutting (layoffs).
China trade surplus goes even higher but that’s due to slowing imports which isn’t necessarily a great sign
• China’s trade surplus surged again in July to its highest level in 18 months
• The data reflected a continued strong increase in exports, which rose 38.1 per cent year on year. At the same time, the pace of growth in imports slowed sharply from a 34.1 per cent year-on-year increase in June to a 22.7 per cent increase in July. This represented a seasonally adjusted drop of 5.6 per cent from the previous month, according to BarCap, as slowing domestic investment cooled Chinese demand for imports.
• Basically, it does seem like the effort to cool down economy is having a noticeable impact on domestic demand.
2010 08 09
Pretty light today in terms of economic data. The earnings season for Q2 is basically over.
EM continues to show very strong economic activities while developed world seems to be slowing down although definitely not in contraction territory – still don’t see anything that could cause a double dip.
Is now time to short some wheat?
Turkey looking strong – solid industrial activities along with low interest rate
• Industrial production in Turkey increased 10.2% in June compared with the same month of the previous year, the Turkish Statistical Institute said on Monday.
• This follows a 15.5% increase in the previous month. Industrial production has recorded positive year-on-year growth for the past seven months. Economists had forecast a 10.5% rise.
• Turkey has seen strong economic growth after it averted an economic collapse in 2002 by agreeing a strict recovery program with the International Monetary Fund. Since then, inflation has fallen rapidly, although unemployment and foreign debt remain major problems.
• The Turkish economy expanded 11.7% annually between January and March, the strongest pace of growth in nearly six years. But the central bank has kept interest rates at low levels, citing uncertainty in the global economy and high unemployment
• Arrash - what do you think about Turkey in the EM fund?
Taiwan export accelerates
• Taiwan's export growth accelerated in July with sharp increases in electronic and mineral product shipments, data released by the Ministry of Finance showed on Monday.
• Shipments to mainland China, which is the biggest export market of Taiwan, recorded an annual rise of 38.8% in July. Exports to the U.S. and Europe advanced 47% and 33.8%, respectively.
• Taiwan's economy relies heavily on the export sector. Official figures have shown that during the first quarter, the economy registered double-digit growth on the back of strong exports. The gross domestic product increased 13.3% year-over-year in the March quarter, faster than 9.1% expansion in the prior quarter, bolstered by a 42.2% jump in exports during the period.
France industrial confidence indicator stagnant while services confidence indicator drops
• French industrial sentiment indicator stabilized for the second month in July, while services confidence indicator dropped, survey data released by the Bank of France showed Monday.
• France has been one of the big bright spots in Europe along with Germany. Is France finally showing some slowdown?
Wheat panic ebbs, ample stocks blunt shortage fear – should we short wheat now???
• Panic buying of wheat subsided on global markets on Friday, sending prices tumbling as officials reassured markets that ample global supplies would prevent a repeat of the 2008 crisis that triggered food riots around the globe. Wheat fell some more on Monday.
• Russia's worst drought in 130 years -- and an export ban announced Thursday -- has sent world wheat soaring with U.S. wheat prices nearly doubling in the past month. Many traders said the market has now factored in most of the damage as mounting supply problems prompted speculators to pour money into the market.
EM continues to show very strong economic activities while developed world seems to be slowing down although definitely not in contraction territory – still don’t see anything that could cause a double dip.
Is now time to short some wheat?
Turkey looking strong – solid industrial activities along with low interest rate
• Industrial production in Turkey increased 10.2% in June compared with the same month of the previous year, the Turkish Statistical Institute said on Monday.
• This follows a 15.5% increase in the previous month. Industrial production has recorded positive year-on-year growth for the past seven months. Economists had forecast a 10.5% rise.
• Turkey has seen strong economic growth after it averted an economic collapse in 2002 by agreeing a strict recovery program with the International Monetary Fund. Since then, inflation has fallen rapidly, although unemployment and foreign debt remain major problems.
• The Turkish economy expanded 11.7% annually between January and March, the strongest pace of growth in nearly six years. But the central bank has kept interest rates at low levels, citing uncertainty in the global economy and high unemployment
• Arrash - what do you think about Turkey in the EM fund?
Taiwan export accelerates
• Taiwan's export growth accelerated in July with sharp increases in electronic and mineral product shipments, data released by the Ministry of Finance showed on Monday.
• Shipments to mainland China, which is the biggest export market of Taiwan, recorded an annual rise of 38.8% in July. Exports to the U.S. and Europe advanced 47% and 33.8%, respectively.
• Taiwan's economy relies heavily on the export sector. Official figures have shown that during the first quarter, the economy registered double-digit growth on the back of strong exports. The gross domestic product increased 13.3% year-over-year in the March quarter, faster than 9.1% expansion in the prior quarter, bolstered by a 42.2% jump in exports during the period.
France industrial confidence indicator stagnant while services confidence indicator drops
• French industrial sentiment indicator stabilized for the second month in July, while services confidence indicator dropped, survey data released by the Bank of France showed Monday.
• France has been one of the big bright spots in Europe along with Germany. Is France finally showing some slowdown?
Wheat panic ebbs, ample stocks blunt shortage fear – should we short wheat now???
• Panic buying of wheat subsided on global markets on Friday, sending prices tumbling as officials reassured markets that ample global supplies would prevent a repeat of the 2008 crisis that triggered food riots around the globe. Wheat fell some more on Monday.
• Russia's worst drought in 130 years -- and an export ban announced Thursday -- has sent world wheat soaring with U.S. wheat prices nearly doubling in the past month. Many traders said the market has now factored in most of the damage as mounting supply problems prompted speculators to pour money into the market.
2010 08 06
US job market still dismal
• Another poor employment number after yesterday’s horrible initial jobless claims
• There was a reduction of 131,000 jobs in July the US, according to the Bureau of Labor Statistics. Many of the layoffs were the result of part-time census workers who had completed their work. But, the private sector failed to kick in with much in the way of new hiring – adding 71,000 new positions.
• “The implications of this report is that we are moving forward, we are not in a double dip situation,” says Joel Naroff of Naroff Economic Advisors in Holland, Pa. “But this modest job recovery is indicative of the fact the upturn is nothing great.”
• Looking forward though I think we might see upside surprise. Employment indices have been ok in both ISM manufacturing and services survey. And average hours worked keeps going up -> employers are reluctant to hire so they’re making existing workers work more. As long as work hours are there income can go up and in the end it probably matters more how much income is there to be spent rather than how many people have jobs. While job numbers won’t be good I am starting to think we might be overshooting pessimism on jobs and consumers now. Watch out for a possible trade on sentiment overshoot.
RBA statement gives more confidence to its currency
• RBA’s latest quarterly statement reiterated its view that inflation remains low while economic growth robust. Largely unchanged from previous statement.
Swiss unemployment unexpectedly falls
• The State Secretariat for Economic Affairs released the jobless report today with an downward revision.
• The Unemployment Rate decreased by 0.1%. The previous reading standing at 3.9% which was expected to remain unchanged by markets came down today to 3.8%
• Swiss economy actually has been doing very well and its currency continues to get higher. Might be worth looking at equities and currency to see if there could be a trade down the line.
OECD leading indicators signal recovery peaked in most countries
• I don’t pay much attention to these third party indicators – if they worked why would anyone publish it for sale. But when everyone agrees on an economic outlook that’s something to look at. GS and other leading indicators I have seen basically agrees with this - the peak growth was in Q2 and it’s going to slow down from here.
• Recovery by leading world economies may be peaking, particularly in the United States, a leading indicator published by the OECD showed on Friday.
• But Germany seems set for continuing "relatively robust" performance.
• The Organisation for Economic Co-operation and Development said its monthly index of pointers to the direction of expansion in leading economies, known as the composite leading indicators (CLI), "decreased by 0.1 point in June."
• It said that the CLI indicators of the outlook in "France, Italy, China and India all point to below trend growth in coming months, whilst the CLI for the United Kingdom points to a peak in the pace of expansion."
• It said: "Stronger signs of a peak in expansion have also emerged in Brazil and Canada, and in the United States the CLI has turned negative for the first time since February 2009."
• The indicators for Japan and Russia pointed to coming slowdowns in the pace of expansion.
• But for Germany "the CLI remains relatively robust."
UK manufacturing (industrial production) grew again in June
• Generally industrial production data not that useful because of long delay. PMI is usually what people look at as a gauge into manufacturing since it comes out with practically no delay. But IP data provides far more detail.
• U.K. manufacturing increased for a second month in June in the best calendar quarter for factory production in more than a decade as the economic recovery strengthened.
• Output climbed 0.3 percent from the previous month, when it rose by the same amount, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was for an increase of 0.4 percent. Overall industrial production unexpectedly fell due to earlier- than-usual maintenance of oil and gas fields.
German industrial production fell unexpectedly in June
• German industrial production fell 0.6% in June from the previous month on unexpected declines in the construction and manufacturing sectors, government data showed Friday.
• Economists surveyed by Dow Jones Newswires had expected a 0.7% increase from May.
• "One has to put things in perspective: this contraction came on the back of a whopping 2.9% month-on-month expansion in May," Peter Vanden Houte, an economist for ING Bank, said in a research note. "While today's figures came in weaker than expected, the German growth locomotive is definitely not slowing down."
• Friday's data were in contrast to manufacturing orders figures released Thursday, which showed German orders increasing 3.2% in June from May.
Canadian unemployment rises unexpectedly – CAD lower today as a result
• My guess is this is just a blip
• Canada's strong economic recovery lost steam in July as the country dropped 139,000 full-time jobs and the unemployment rate edged up to 8 percent.
• Canada has made up nearly all the jobs lost during the recession over the last year, but July is the first month this year the country has failed to create jobs.
• The unemployment rate edged up one-tenth of a point to 8 percent, the first time the rate has risen in almost a year.
• Canada withstood the global economic crisis better than most developed countries. There was no mortgage meltdown or subprime lending crisis in Canada where the financial sector is dominated by five large banks.
Australia June wheat exports fall 19 pct from May
• Australia, the world's fourth-largest wheat exporter, shipped 19 percent less wheat to overseas markets in June than in May, the Australian Bureau of Statistics said on Friday.
• The bureau said Australia exported 1.165 million tonnes in June, down from 1.442 million tonnes in May and 1.641 million tonnes in June last year.
• Another poor employment number after yesterday’s horrible initial jobless claims
• There was a reduction of 131,000 jobs in July the US, according to the Bureau of Labor Statistics. Many of the layoffs were the result of part-time census workers who had completed their work. But, the private sector failed to kick in with much in the way of new hiring – adding 71,000 new positions.
• “The implications of this report is that we are moving forward, we are not in a double dip situation,” says Joel Naroff of Naroff Economic Advisors in Holland, Pa. “But this modest job recovery is indicative of the fact the upturn is nothing great.”
• Looking forward though I think we might see upside surprise. Employment indices have been ok in both ISM manufacturing and services survey. And average hours worked keeps going up -> employers are reluctant to hire so they’re making existing workers work more. As long as work hours are there income can go up and in the end it probably matters more how much income is there to be spent rather than how many people have jobs. While job numbers won’t be good I am starting to think we might be overshooting pessimism on jobs and consumers now. Watch out for a possible trade on sentiment overshoot.
RBA statement gives more confidence to its currency
• RBA’s latest quarterly statement reiterated its view that inflation remains low while economic growth robust. Largely unchanged from previous statement.
Swiss unemployment unexpectedly falls
• The State Secretariat for Economic Affairs released the jobless report today with an downward revision.
• The Unemployment Rate decreased by 0.1%. The previous reading standing at 3.9% which was expected to remain unchanged by markets came down today to 3.8%
• Swiss economy actually has been doing very well and its currency continues to get higher. Might be worth looking at equities and currency to see if there could be a trade down the line.
OECD leading indicators signal recovery peaked in most countries
• I don’t pay much attention to these third party indicators – if they worked why would anyone publish it for sale. But when everyone agrees on an economic outlook that’s something to look at. GS and other leading indicators I have seen basically agrees with this - the peak growth was in Q2 and it’s going to slow down from here.
• Recovery by leading world economies may be peaking, particularly in the United States, a leading indicator published by the OECD showed on Friday.
• But Germany seems set for continuing "relatively robust" performance.
• The Organisation for Economic Co-operation and Development said its monthly index of pointers to the direction of expansion in leading economies, known as the composite leading indicators (CLI), "decreased by 0.1 point in June."
• It said that the CLI indicators of the outlook in "France, Italy, China and India all point to below trend growth in coming months, whilst the CLI for the United Kingdom points to a peak in the pace of expansion."
• It said: "Stronger signs of a peak in expansion have also emerged in Brazil and Canada, and in the United States the CLI has turned negative for the first time since February 2009."
• The indicators for Japan and Russia pointed to coming slowdowns in the pace of expansion.
• But for Germany "the CLI remains relatively robust."
UK manufacturing (industrial production) grew again in June
• Generally industrial production data not that useful because of long delay. PMI is usually what people look at as a gauge into manufacturing since it comes out with practically no delay. But IP data provides far more detail.
• U.K. manufacturing increased for a second month in June in the best calendar quarter for factory production in more than a decade as the economic recovery strengthened.
• Output climbed 0.3 percent from the previous month, when it rose by the same amount, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was for an increase of 0.4 percent. Overall industrial production unexpectedly fell due to earlier- than-usual maintenance of oil and gas fields.
German industrial production fell unexpectedly in June
• German industrial production fell 0.6% in June from the previous month on unexpected declines in the construction and manufacturing sectors, government data showed Friday.
• Economists surveyed by Dow Jones Newswires had expected a 0.7% increase from May.
• "One has to put things in perspective: this contraction came on the back of a whopping 2.9% month-on-month expansion in May," Peter Vanden Houte, an economist for ING Bank, said in a research note. "While today's figures came in weaker than expected, the German growth locomotive is definitely not slowing down."
• Friday's data were in contrast to manufacturing orders figures released Thursday, which showed German orders increasing 3.2% in June from May.
Canadian unemployment rises unexpectedly – CAD lower today as a result
• My guess is this is just a blip
• Canada's strong economic recovery lost steam in July as the country dropped 139,000 full-time jobs and the unemployment rate edged up to 8 percent.
• Canada has made up nearly all the jobs lost during the recession over the last year, but July is the first month this year the country has failed to create jobs.
• The unemployment rate edged up one-tenth of a point to 8 percent, the first time the rate has risen in almost a year.
• Canada withstood the global economic crisis better than most developed countries. There was no mortgage meltdown or subprime lending crisis in Canada where the financial sector is dominated by five large banks.
Australia June wheat exports fall 19 pct from May
• Australia, the world's fourth-largest wheat exporter, shipped 19 percent less wheat to overseas markets in June than in May, the Australian Bureau of Statistics said on Friday.
• The bureau said Australia exported 1.165 million tonnes in June, down from 1.442 million tonnes in May and 1.641 million tonnes in June last year.
2010 08 05
I have been trying hard to find some small niches that we could put trades on that are not so tightly linked to risk on/off. New Zealand and Nordic areas are sort of off the beaten path where their fundamentals could trump global sentiment at times. But given how thinly stretched we are pretty tough to do detailed analysis on niche places like that.
German economy seems to be doing well but I think people are getting too optimistic. Actual numbers are not that good and worse than US in many regards. Strict austerity measures are around the corner. I think Europe is a short – entry point is the main issue.
US consumers are in a bad shape. In addition to dismal job numbers I hear that retail numbers are trickling in very poorly. I think we should bet against US consumers. Perhaps long dow versus short consumer staples ETF in both Porc and IQ.
Oil market fundamentals look pretty bad to me. Build in refined products have been just massive and total inventory at a staggering level.
New Zealand continues to come out with weaker than expected economic data
• Statistics New Zealand said in its Household Labor Force Survey Thursday the seasonally-adjusted unemployment rate rose to 6.8% in the second quarter from 6.0% in the first quarter. The outcome was worse than the median 6.4% rate forecast in a Dow Jones Newswires poll of eight economists.
• NZD has been selling off sharply in the past few weeks and is by far the worst performing G10 currency in the past couple weeks. NZD sold off because lukewarm economic data is likely lead to halt in interest rate hikes.
• AUD and NZD are generally the carry currencies that speculators like to go long on.
• In this environment I think it is increasingly important to look at some of these “fringe” trades that are not so closely tied to risk on/risk off. I am thinking some of the non-G3 currencies and spreads/margins in commodities.
Philippines inflation comes in lower than expected at 3.9% yoy
• EM inflation had been a big concern leading many to wonder if central banks would hike aggressively. We are seeing some slowdown in inflation data lately from EM. Remains to be seen what effect recent rally in ags would have. But generally central banks look at CPI with foods excluded.
Scandinavian economy still pretty good
• The Nordic countries have managed to avert the crisis quite well. Stockholm index is up 13% this year – easily the best performing among the developed markets.
• Sweden unemployment level fell to 8.1% in June on a seasonally adjusted basis – Swedish unemployment spikes in summer because students on summer vacation register themselves unemployed if they don’t have summer jobs.
German manufacturing orders rise in June
• Not a big surprise given strong PMI numbers. Much of the boost once again is coming from foreign demand. There are some weaknesses showing in domestic orders. Might have to ask – what would happen now that Euro has regained strength (and would it continue to be strong)?
• No doubted aided by the euro reaching a four-year low in June, foreign orders jumped 5.7% on the month, while May's figure was revised up to show a modest increase from a previously reported decline. Domestic orders also improved, rising 0.3% since May.
Indonesia absolutely kicking you know what
• Q2 GDP at 2 year high. Thanks to healthy rise in consumer spending, business investments and exports.
• Year-on-year gross domestic product reached 6.2 per cent in the three-month period and was up a seasonally-adjusted 1.6 per cent from the previous quarter.
• Inflation has been at historic lows in recent years but a spike in food prices last month lifted it above 6 per cent. The key Bank Indonesia interest rate was nonetheless left unchanged on Wednesday at 6.5 per cent. But expect a hike at the next meeting.
• Private consumption, which drives about two-thirds of Indonesia’s economy and has carried it through much of the recent financial turbulence, increased 5 per cent in the second quarter, while investments jumped 8 per cent.
US job market – still DISMAL
• Initial jobless claims climbed by 19,000 to 479,000, labour department figures showed on Thursday. That exceeded the forecasts of Wall Street analysts and left the less volatile four-week average for claims at an elevated 458,500.
US crude and product stocks at the highest level since 1990
• Commercial crude stocks fell almost 2.8 million barrels last week, according to the Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy.
• But stocks of refined products surged by almost 8.9 million barrels, including an extra 729,000 barrels of gasoline, 2.2 million barrels of distillate fuels, 2.1 million barrels of propane/ propylene and a massive 3.6 million barrels of "other oils".
• Combined inventories of crude and products in commercial storage now total 1.125 billion barrels. They exceed even the level last summer, when the oil market
• was still flooded in the aftermath of the worst recession since World War Two. Not since September 1990 has the market been carrying this much inventory.
Wheat races ahead on black seas and Canadian crop concerns
• U.S. wheat futures climbed to a new 22-month peak, building on the strong gains seen in the previous session as renewed concerns over drought in the Black Sea region boosted the market.
• "We are seeing a remarkable run in prices, it's a market that continues to fire on concerns over wheat production out of the Black Sea region and also weather issues in Canada," said Garry Booth, a trader with MF Global Australia.
Corn to possibly benefit from wheat problems?
• Soaring wheat prices due to a severe drought in the Black Sea region should bolster U.S. corn exports as global buyers of livestock feed seek cheaper alternatives to wheat, traders and analysts said.
• U.S. corn exports in the 2010/11 marketing year, which begins on Sept. 1, could rise by 50-200 million bushels from the latest U.S. Agriculture Department forecast for 1.95 billion bushels, they said.
German economy seems to be doing well but I think people are getting too optimistic. Actual numbers are not that good and worse than US in many regards. Strict austerity measures are around the corner. I think Europe is a short – entry point is the main issue.
US consumers are in a bad shape. In addition to dismal job numbers I hear that retail numbers are trickling in very poorly. I think we should bet against US consumers. Perhaps long dow versus short consumer staples ETF in both Porc and IQ.
Oil market fundamentals look pretty bad to me. Build in refined products have been just massive and total inventory at a staggering level.
New Zealand continues to come out with weaker than expected economic data
• Statistics New Zealand said in its Household Labor Force Survey Thursday the seasonally-adjusted unemployment rate rose to 6.8% in the second quarter from 6.0% in the first quarter. The outcome was worse than the median 6.4% rate forecast in a Dow Jones Newswires poll of eight economists.
• NZD has been selling off sharply in the past few weeks and is by far the worst performing G10 currency in the past couple weeks. NZD sold off because lukewarm economic data is likely lead to halt in interest rate hikes.
• AUD and NZD are generally the carry currencies that speculators like to go long on.
• In this environment I think it is increasingly important to look at some of these “fringe” trades that are not so closely tied to risk on/risk off. I am thinking some of the non-G3 currencies and spreads/margins in commodities.
Philippines inflation comes in lower than expected at 3.9% yoy
• EM inflation had been a big concern leading many to wonder if central banks would hike aggressively. We are seeing some slowdown in inflation data lately from EM. Remains to be seen what effect recent rally in ags would have. But generally central banks look at CPI with foods excluded.
Scandinavian economy still pretty good
• The Nordic countries have managed to avert the crisis quite well. Stockholm index is up 13% this year – easily the best performing among the developed markets.
• Sweden unemployment level fell to 8.1% in June on a seasonally adjusted basis – Swedish unemployment spikes in summer because students on summer vacation register themselves unemployed if they don’t have summer jobs.
German manufacturing orders rise in June
• Not a big surprise given strong PMI numbers. Much of the boost once again is coming from foreign demand. There are some weaknesses showing in domestic orders. Might have to ask – what would happen now that Euro has regained strength (and would it continue to be strong)?
• No doubted aided by the euro reaching a four-year low in June, foreign orders jumped 5.7% on the month, while May's figure was revised up to show a modest increase from a previously reported decline. Domestic orders also improved, rising 0.3% since May.
Indonesia absolutely kicking you know what
• Q2 GDP at 2 year high. Thanks to healthy rise in consumer spending, business investments and exports.
• Year-on-year gross domestic product reached 6.2 per cent in the three-month period and was up a seasonally-adjusted 1.6 per cent from the previous quarter.
• Inflation has been at historic lows in recent years but a spike in food prices last month lifted it above 6 per cent. The key Bank Indonesia interest rate was nonetheless left unchanged on Wednesday at 6.5 per cent. But expect a hike at the next meeting.
• Private consumption, which drives about two-thirds of Indonesia’s economy and has carried it through much of the recent financial turbulence, increased 5 per cent in the second quarter, while investments jumped 8 per cent.
US job market – still DISMAL
• Initial jobless claims climbed by 19,000 to 479,000, labour department figures showed on Thursday. That exceeded the forecasts of Wall Street analysts and left the less volatile four-week average for claims at an elevated 458,500.
US crude and product stocks at the highest level since 1990
• Commercial crude stocks fell almost 2.8 million barrels last week, according to the Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy.
• But stocks of refined products surged by almost 8.9 million barrels, including an extra 729,000 barrels of gasoline, 2.2 million barrels of distillate fuels, 2.1 million barrels of propane/ propylene and a massive 3.6 million barrels of "other oils".
• Combined inventories of crude and products in commercial storage now total 1.125 billion barrels. They exceed even the level last summer, when the oil market
• was still flooded in the aftermath of the worst recession since World War Two. Not since September 1990 has the market been carrying this much inventory.
Wheat races ahead on black seas and Canadian crop concerns
• U.S. wheat futures climbed to a new 22-month peak, building on the strong gains seen in the previous session as renewed concerns over drought in the Black Sea region boosted the market.
• "We are seeing a remarkable run in prices, it's a market that continues to fire on concerns over wheat production out of the Black Sea region and also weather issues in Canada," said Garry Booth, a trader with MF Global Australia.
Corn to possibly benefit from wheat problems?
• Soaring wheat prices due to a severe drought in the Black Sea region should bolster U.S. corn exports as global buyers of livestock feed seek cheaper alternatives to wheat, traders and analysts said.
• U.S. corn exports in the 2010/11 marketing year, which begins on Sept. 1, could rise by 50-200 million bushels from the latest U.S. Agriculture Department forecast for 1.95 billion bushels, they said.
2010 08 04
Stocks are up on generally good earnings and USD is up and treasuries are down on modestly positive US econ data.
Australian export surges on commodities
• Australia smashed forecasts to post a record monthly trade surplus of 3.54 billion dollars (3.12 billion US) in June, data showed Wednesday, as the resource-rich country enjoys a return to boom conditions.
• The Australian Bureau of Statistics said a 23 percent spike in the value of iron and copper ore exports and a 15 percent rise for coal, mainly due to volume increases, were behind the unprecedented performance, which was double forecasts.
UK services sector growth slows
• We are definitely seeing decline in service sector strength. Services were a big contributor to Q2 GDP so we can certainly expect weaker Q3 GDP.
• Particularly unnerving is a big part of the weakness came from government cutbacks which haven’t even begun in earnest yet. This could be a foreshadow of the European austerity movement.
Eurozone retail sales in stagnation
• In Europe much like in US the rebound in manufacturing has failed to spread to consumers. Sales fell sharply in Germany and France – two strongest economies in Europe.
• With consumer confidence rising and unemployment situation looking better perhaps sales would pick up but any of that effect can be overwhelmed by austerity.
US services industry notching up a modest gain – continuing the pattern of recovery.
• Data points to a very sluggish recovery but at least with momentum intact.
US ADP survey suggests improving job market (but a WEAK improvement)
• Private payroll gained 42,000 versus 13,000 month before. Not strong but certainly not getting worse.
Xstrata – one of the biggest miners in the world – sees copper market tightening
• The copper division CEO stated china demand likely to slow down but overall global demand is looking to grow in a balanced economy.
China’s effort to bring electricity to rural areas – positive for copper
• China's plan to bring electricity to rural areas would increase demand by one million tonnes of copper in the next two and a half years, Chile's state miner Codelco said in a statement on Tuesday, citing a seminar it organized in Shanghai.
• China is the world's top consumer of the metal used in everything from electricity lines to water pipes.
Wheat continues to rise on Black Sea crop worries
• U.S. wheat futures up about 5% as concerns over production in the drought-ravaged Black Sea region returned to the market following a dip in the previous session.
• "Fires are devastating the area and temperatures are going to be high and there is no guarantee that it's going to stop," said Peter McGuire, managing director of CWA Global Markets in Sydney.
Indonesia cocoa export up 50%
• Cocoa bean exports from Indonesia's main growing island of Sulawesi rose 50 percent to 44,552.08 tonnes in July, from 29,724.61 tonnes a year ago, trade data showed on Wednesday, due to higher purchase and stocks.
• July exports also surged 71 percent from 25,990.4 tonnes shipped out in June.
Australian export surges on commodities
• Australia smashed forecasts to post a record monthly trade surplus of 3.54 billion dollars (3.12 billion US) in June, data showed Wednesday, as the resource-rich country enjoys a return to boom conditions.
• The Australian Bureau of Statistics said a 23 percent spike in the value of iron and copper ore exports and a 15 percent rise for coal, mainly due to volume increases, were behind the unprecedented performance, which was double forecasts.
UK services sector growth slows
• We are definitely seeing decline in service sector strength. Services were a big contributor to Q2 GDP so we can certainly expect weaker Q3 GDP.
• Particularly unnerving is a big part of the weakness came from government cutbacks which haven’t even begun in earnest yet. This could be a foreshadow of the European austerity movement.
Eurozone retail sales in stagnation
• In Europe much like in US the rebound in manufacturing has failed to spread to consumers. Sales fell sharply in Germany and France – two strongest economies in Europe.
• With consumer confidence rising and unemployment situation looking better perhaps sales would pick up but any of that effect can be overwhelmed by austerity.
US services industry notching up a modest gain – continuing the pattern of recovery.
• Data points to a very sluggish recovery but at least with momentum intact.
US ADP survey suggests improving job market (but a WEAK improvement)
• Private payroll gained 42,000 versus 13,000 month before. Not strong but certainly not getting worse.
Xstrata – one of the biggest miners in the world – sees copper market tightening
• The copper division CEO stated china demand likely to slow down but overall global demand is looking to grow in a balanced economy.
China’s effort to bring electricity to rural areas – positive for copper
• China's plan to bring electricity to rural areas would increase demand by one million tonnes of copper in the next two and a half years, Chile's state miner Codelco said in a statement on Tuesday, citing a seminar it organized in Shanghai.
• China is the world's top consumer of the metal used in everything from electricity lines to water pipes.
Wheat continues to rise on Black Sea crop worries
• U.S. wheat futures up about 5% as concerns over production in the drought-ravaged Black Sea region returned to the market following a dip in the previous session.
• "Fires are devastating the area and temperatures are going to be high and there is no guarantee that it's going to stop," said Peter McGuire, managing director of CWA Global Markets in Sydney.
Indonesia cocoa export up 50%
• Cocoa bean exports from Indonesia's main growing island of Sulawesi rose 50 percent to 44,552.08 tonnes in July, from 29,724.61 tonnes a year ago, trade data showed on Wednesday, due to higher purchase and stocks.
• July exports also surged 71 percent from 25,990.4 tonnes shipped out in June.
2010 08 03
Lukewarm economic data doesn’t seem to be impacting the US stock market but FX and bond markets are reacting sharply with treasuries, bund and gilt all up and dollar weakening. I do not see any positive economic surprise on the horizon in US other than maybe in weekly initial jobless claims, but I think it would be a while until we see a print below 400k.
• Australia – softer than expected inflation and retail sales (but not weak) helps RBA hold off on further rate hikes
o July retail trade grew at 0.2% which is low but the level remains high and a large $20B welfare handouts had ended lately. It is likely retailers discounted goods fairly heavily and sales volume remains robust.
o RBA decided to keep its cash target rate on hold at 4.5% for the third straight month. This decision was made easier by weaker than expected inflation data last week.
• Switzerland – CPI shows no immediate inflation concern
o CPI data reveals inflation is very weak in both headline and core. This puts a contrasting picture versus extremely strong manufacturing data and encouraging signals from the labor market. SNB can go either way but likely would wait-and-see. They’re in no big rush to raise rates especially when CHF is so strong.
• US – consumers remain weak but looking up. manufacturing data confirms some slowdown
o Consumer spending and income stagnated in June. Savings rate inched up as consumers hunkered down (As indicated by low consumer confidence) and decided to save rather than spend. This could set up a backdrop for increased spending in the medium term IF economic recovery does not hit a road bump.
o US factory orders were surprisingly weak in June even looking at the numbers excluding transportation. But this probably shouldn’t come as a surprise as PMI has been dropping steadily since April. While numbers were weak we are by no means in a contraction terriotory.
• Wheat – recent rally on back of Black Sea drought
o Wheat price holding steady after a 2 year high on concerns over drought in black sea region
o To exacerbate the matter it seems that there is intentional delay in black sea wheat shipments to Asia as suppliers try to take advantage of rising prices.
• Sugar – looks like India inventory recovering sharply as well as supply situation in other regions
o India's sugar inventory on July 1 was up 15.6 percent at 8.9 million tonnes from a year earlier, industry sources said on Tuesday. July stocks, which do not include imported sugar, are sufficient to meet about four months of domestic consumption.
o Thailand said on Tuesday it has no plans to buy back more sugar as domestic supply conditions have improved, likely taking some pressure off near-record premiums.
• Cheapeake Energy – will shift resources to more profitable oil away from nat gas
o Chesapeake Energy Corp on Monday raised its production outlook for the year and said it would shift $400 million in spending originally targeted for natural gas to more profitable oil exploration.
o Because of the current disparity between oil and natural gas prices, a number of U.S. exploration companies, including Chesapeake, have accelerated oil exploration in a bid to fatten profits.
• Australia – softer than expected inflation and retail sales (but not weak) helps RBA hold off on further rate hikes
o July retail trade grew at 0.2% which is low but the level remains high and a large $20B welfare handouts had ended lately. It is likely retailers discounted goods fairly heavily and sales volume remains robust.
o RBA decided to keep its cash target rate on hold at 4.5% for the third straight month. This decision was made easier by weaker than expected inflation data last week.
• Switzerland – CPI shows no immediate inflation concern
o CPI data reveals inflation is very weak in both headline and core. This puts a contrasting picture versus extremely strong manufacturing data and encouraging signals from the labor market. SNB can go either way but likely would wait-and-see. They’re in no big rush to raise rates especially when CHF is so strong.
• US – consumers remain weak but looking up. manufacturing data confirms some slowdown
o Consumer spending and income stagnated in June. Savings rate inched up as consumers hunkered down (As indicated by low consumer confidence) and decided to save rather than spend. This could set up a backdrop for increased spending in the medium term IF economic recovery does not hit a road bump.
o US factory orders were surprisingly weak in June even looking at the numbers excluding transportation. But this probably shouldn’t come as a surprise as PMI has been dropping steadily since April. While numbers were weak we are by no means in a contraction terriotory.
• Wheat – recent rally on back of Black Sea drought
o Wheat price holding steady after a 2 year high on concerns over drought in black sea region
o To exacerbate the matter it seems that there is intentional delay in black sea wheat shipments to Asia as suppliers try to take advantage of rising prices.
• Sugar – looks like India inventory recovering sharply as well as supply situation in other regions
o India's sugar inventory on July 1 was up 15.6 percent at 8.9 million tonnes from a year earlier, industry sources said on Tuesday. July stocks, which do not include imported sugar, are sufficient to meet about four months of domestic consumption.
o Thailand said on Tuesday it has no plans to buy back more sugar as domestic supply conditions have improved, likely taking some pressure off near-record premiums.
• Cheapeake Energy – will shift resources to more profitable oil away from nat gas
o Chesapeake Energy Corp on Monday raised its production outlook for the year and said it would shift $400 million in spending originally targeted for natural gas to more profitable oil exploration.
o Because of the current disparity between oil and natural gas prices, a number of U.S. exploration companies, including Chesapeake, have accelerated oil exploration in a bid to fatten profits.
2010 08 02
First day of month is usually busy with monthly manufacturing data (PMI) from all around the world
• Sweden/Norway – upside surprises in the Nordic world and continuation of expansion
• Switzerland – 66.9 is the highest july PMI since records began in 1995
• Russia – 52.7 in July from 52.6 in June. Industrial recovery remains on track.
• UK – 57.3 is slightly better than expected and a strong number
• China – while July is usually a slow month 51.2 reading is unusually bad. But keep in mind that China PMI has a weak record as a leading indicator. At any rate, some slowdown in Chinese economy appears to be unfolding.
• Eurozone – Germany is exceptionally strong and still on an improvement path while the rest shows slowdown. Overall the biggest improvement is in employment – strong likelihood than unemployment has peaked.
• US – ISM fell but by smaller margin than expected and remains at a very high level. Slowdown is consistent with natural easing in a recovering economy rather than a troubling new development. Export orders rose suggesting consumption weakness is domestic. Employment index continues to improvement – perhaps US employment situation isn’t as bad as people fear.
Overall manufacturing remains strong all over the world. Germany remains exceptionally strong probably powered by weak euro and strong exports while US shows that second recession is very unlikely unless consumers collapse (I don’t think a sudden collapse is likely – it would just remain depressed for a long time leading to a sluggish economic picture). China’s slowdown will lead to additional stimulus measures.
On corporate earnings side, HSBC and BNP Paribas both banking giants came out with big positive surprises pushing up financials and the stock markets overall.
• Sweden/Norway – upside surprises in the Nordic world and continuation of expansion
• Switzerland – 66.9 is the highest july PMI since records began in 1995
• Russia – 52.7 in July from 52.6 in June. Industrial recovery remains on track.
• UK – 57.3 is slightly better than expected and a strong number
• China – while July is usually a slow month 51.2 reading is unusually bad. But keep in mind that China PMI has a weak record as a leading indicator. At any rate, some slowdown in Chinese economy appears to be unfolding.
• Eurozone – Germany is exceptionally strong and still on an improvement path while the rest shows slowdown. Overall the biggest improvement is in employment – strong likelihood than unemployment has peaked.
• US – ISM fell but by smaller margin than expected and remains at a very high level. Slowdown is consistent with natural easing in a recovering economy rather than a troubling new development. Export orders rose suggesting consumption weakness is domestic. Employment index continues to improvement – perhaps US employment situation isn’t as bad as people fear.
Overall manufacturing remains strong all over the world. Germany remains exceptionally strong probably powered by weak euro and strong exports while US shows that second recession is very unlikely unless consumers collapse (I don’t think a sudden collapse is likely – it would just remain depressed for a long time leading to a sluggish economic picture). China’s slowdown will lead to additional stimulus measures.
On corporate earnings side, HSBC and BNP Paribas both banking giants came out with big positive surprises pushing up financials and the stock markets overall.
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