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
No comments:
Post a Comment