I am feeling nervous.
US GDP was basically in-line with trend : so-so. Not great but not bad enough to warrant a sell-off. I believe the path of least resistance is still up for risk assets based purely on fundamentals.
Next week will be HUGE.
Monday is a flood of manufacturing data for Oct from around the world.
Tues-Wed is Fed meeting where the market is eagerly awaiting on details for QE2.
Curiously Japan moved up its BoJ meeting from Nov14 to Nov 4, presumably to respond to US Fed loosening which can push up yen even higher. I am guessing a massive stimulus package from Japan which could push down Yen and push up Nikkei – in the short term. I would use this opportunity to short Nikkei.
In general though I think we are coming close to end of this rally that began in early Sep. I don’t see any great economic upside surprise coming from anywhere in the world. Central banks would have more or less exhausted their bullets after next week (I think BoE and ECB will loosen too but that would impact mostly currency and bonds and not have a system wide impact like US Fed). AND investor sentiment is already extremely high.
We must tread with extreme caution here.
Japan data continues to get pounded by bad data
• Industrial production for Sep comes in way short of expectation
• On top of very weak retail sales data from yesterday.
Korea – weaker industrial production for Sep
A rare bad news for Germany – retail sales dip in Sep first time since March 2008
• German retail sales posted their biggest monthly drop in 2-1/2 years in September, clashing with recent figures that had painted a rosier picture of consumer demand in Europe's largest economy.
• "This is a very weak result. It dampens the expectations that private consumption is taking off like a rocket," said Ralph Solveen from Commerzbank. "However, one should not forget that retail sales data often fluctuate heavily and are revised frequently."
• A survey by market research group GfK on Tuesday showed consumer morale remains at its highest level since May 2008 going into November on expectations of a continuing recovery, bolstering hopes that improved domestic demand will take up much of the slack if export growth runs out of steam.
US GDP – Not Good, Not Bad, just OK
• The theme continues. It’s not as bad as recession. But pretty poor and future does not look very good.
• 2% is nothing to cheer about as US needs about 2.5%-3% just to maintain the same employment. Although it was better than 1.7% in Q2.
• Consumption growth was solid enough, increasing by 2.6%, up from 2.2% in the second quarter. But households had to dip into their savings to afford even that modest increase.
Friday, October 29, 2010
Thursday, October 28, 2010
2010 10 28
Quiet day in stocks and commodities (except gold which was up big) while USD weakened quite a bit and bonds rose on swinging macro sentiments.
Japan looks bad in almost every metric, but it seems likely the government would announce an aggressive stimulus maybe on Nov 4 or 5 as BOJ rescheduled its policy meeting (from Nov 15 and 16). BOJ might want to promptly fight off any further yen strength following FOMC announcement.
Europe data continues to impress but most of it is due to Germany.
US data continues to be – just OK. But that’s probably good enough for the markets to continue to run.
Tomorrow is a fairly busy day : Korea/Japan industrial production, Japan CPI, UK banking and credit market reports, Eurozone inflation estimate, EU unemployment rate, Swiss KOF leading indicator
But the two biggest pieces of data are US Q3 GDP and October Chicago PMI. Usually GDP is not a big deal as it is an old news, but in these days of macro uncertainty it seems to have an outsized impact. It would probably come in low-mid 2% range which is not good but good enough for the time being. If Chicago PMI comes in weak that could be grounds for a real concern as manufacturing has been the only source of strength in US. Sentiment is frazzled there after a very weak durable goods orders.
The chances are market is in holding pattern until the Fed QE2 announcement until next week.
I want to re-highlight my email from earlier today on investor sentiment:
So as I said I feel optimistic on the stocks near term. However, after seeing this chart it makes me pause because apparently everyone else is also optimistic.
Below is weekly chart of American Association of Individual Investors Survey on bullish sentiment. The most recent data just came out today.
As you see the current reading is at an extremely high level. More importantly, the last couple times when sentiment reached this high – early Jan and mid April, we saw some big sell offs follow soon after. With lukewarm fundamentals and with investor sentiment this bullish already, it makes me doubt if being long risk is a good trade at this point. I think we need to put in stop limits.
Japanese stock market continues to underperform by a wide margin.
• Bank of Japan Governor Masaaki Shirakawa said Thursday that the central bank may expand its asset purchase from the current level if the economic situation deteriorates.
• “The BOJ will examine effects and side effects of these measures and if we think find the economic situation changing significantly, we may expand the fund,” Shirakawa told reporters in Tokyo.
• BOJ might be emboldened to take even larger intervention if US’s QE announcement next week has a big impact.
German unemployment – not quite as good as expected but still very good
• Unemployment in Germany fell below 3m in October for the first time in 18 years, according to unadjusted figures released by the federal labour office.
Eurozone bank lending survey shows demand loans is robust
• The European Central Bank said net demand for loans in Europe was positive for the first time in more than two years, driven by financing needs for inventory and working capital.
• Borrowing by households also improved as more banks approved loans, signalling increased optimism about the economic situation and housing markets.
• This is in stark contrast versus US where loan demand is still weak because there is just no demand to consume or invest. Despite what all the businesses complain about lack of stimulus and Obama and whatnot the real problem is that there is no demand and there are no productive assets to invest in US.
Eurozone economic sentiment rises yet again
• The European Commission’s monthly economic sentiment indicator rose 0.9 points to 104.1 in October, a 34-month high. Analysts had forecast a smaller increase following several months of rapid growth.
• The eurozone figure concealed wide differences between the so-called “core” economies such as France and Germany, which rose, and the weaker “peripheral” group including Spain and Portugal, struggling with deep fiscal problems.
• “The eurozone growth divergence is certainly not disappearing,” said Peter Vanden Houte, economist at ING, referring to indicators in the past year that have pointed to a divergent recovery in Europe.
• The strong showing was partly down to improved expectations in the labour market, raising policymakers’ hopes that bullishness will now boost domestic demand – the weak link in the economic recovery.
US initial jobless claims – better than it has been but once again LUKEWARM
Japan looks bad in almost every metric, but it seems likely the government would announce an aggressive stimulus maybe on Nov 4 or 5 as BOJ rescheduled its policy meeting (from Nov 15 and 16). BOJ might want to promptly fight off any further yen strength following FOMC announcement.
Europe data continues to impress but most of it is due to Germany.
US data continues to be – just OK. But that’s probably good enough for the markets to continue to run.
Tomorrow is a fairly busy day : Korea/Japan industrial production, Japan CPI, UK banking and credit market reports, Eurozone inflation estimate, EU unemployment rate, Swiss KOF leading indicator
But the two biggest pieces of data are US Q3 GDP and October Chicago PMI. Usually GDP is not a big deal as it is an old news, but in these days of macro uncertainty it seems to have an outsized impact. It would probably come in low-mid 2% range which is not good but good enough for the time being. If Chicago PMI comes in weak that could be grounds for a real concern as manufacturing has been the only source of strength in US. Sentiment is frazzled there after a very weak durable goods orders.
The chances are market is in holding pattern until the Fed QE2 announcement until next week.
I want to re-highlight my email from earlier today on investor sentiment:
So as I said I feel optimistic on the stocks near term. However, after seeing this chart it makes me pause because apparently everyone else is also optimistic.
Below is weekly chart of American Association of Individual Investors Survey on bullish sentiment. The most recent data just came out today.
As you see the current reading is at an extremely high level. More importantly, the last couple times when sentiment reached this high – early Jan and mid April, we saw some big sell offs follow soon after. With lukewarm fundamentals and with investor sentiment this bullish already, it makes me doubt if being long risk is a good trade at this point. I think we need to put in stop limits.
Japanese stock market continues to underperform by a wide margin.
• Bank of Japan Governor Masaaki Shirakawa said Thursday that the central bank may expand its asset purchase from the current level if the economic situation deteriorates.
• “The BOJ will examine effects and side effects of these measures and if we think find the economic situation changing significantly, we may expand the fund,” Shirakawa told reporters in Tokyo.
• BOJ might be emboldened to take even larger intervention if US’s QE announcement next week has a big impact.
German unemployment – not quite as good as expected but still very good
• Unemployment in Germany fell below 3m in October for the first time in 18 years, according to unadjusted figures released by the federal labour office.
Eurozone bank lending survey shows demand loans is robust
• The European Central Bank said net demand for loans in Europe was positive for the first time in more than two years, driven by financing needs for inventory and working capital.
• Borrowing by households also improved as more banks approved loans, signalling increased optimism about the economic situation and housing markets.
• This is in stark contrast versus US where loan demand is still weak because there is just no demand to consume or invest. Despite what all the businesses complain about lack of stimulus and Obama and whatnot the real problem is that there is no demand and there are no productive assets to invest in US.
Eurozone economic sentiment rises yet again
• The European Commission’s monthly economic sentiment indicator rose 0.9 points to 104.1 in October, a 34-month high. Analysts had forecast a smaller increase following several months of rapid growth.
• The eurozone figure concealed wide differences between the so-called “core” economies such as France and Germany, which rose, and the weaker “peripheral” group including Spain and Portugal, struggling with deep fiscal problems.
• “The eurozone growth divergence is certainly not disappearing,” said Peter Vanden Houte, economist at ING, referring to indicators in the past year that have pointed to a divergent recovery in Europe.
• The strong showing was partly down to improved expectations in the labour market, raising policymakers’ hopes that bullishness will now boost domestic demand – the weak link in the economic recovery.
US initial jobless claims – better than it has been but once again LUKEWARM
Wednesday, October 27, 2010
2010 10 27
The markets were looking ugly by lunch time in NYC, but then staged a good sized come back undoing much of the morning action.
Seems like the WSJ report of the Fed going soft into QE2 had scared a lot of the investors initially – and it could very well have impacted the bond market which sold off steadily throughout the day. USD was stronger versus every G10 currency but not by a big margin except in Australia where weak inflation is likely to slow rate hike cycle.
Looking at fundamental data the theme is clear – things are CLEARLY SLOWING DOWN everywhere in the world. But I do not believe in double dip or anything near that for 2010. For the final two months I am still optimistic on equities and like USD. In the bonds space the yields have risen rather sharply in the last two weeks making me doubt if risk/reward is still attractive to short bonds at this point. Fundamentally current yield levels are totally justifiable, and over longer term we would go lower in yields as 2011 unfolds.
Korea GDP slows down drastically
• South Korea's GDP growth slowed in the third quarter to 0.7 percent from 1.4 percent in the previous quarter, as exports fell drastically in the wake of cooling global growth.
• The exports sector gained just 1.9 percent in the third quarter, led mainly by increased exports of petrochemical products, semiconductor and automobiles. This was sharply lower than the 7 percent growth recorded in the previous quarter.
• A marked reduction of exports to China in September to an 11-month low weighed on third-quarter growth figures. China accounts for as much as a quarter of shipments from South Korea. Analysts say a further slowing of Chinese domestic demand resulting from a recent rate hike by the Chinese central bank will further erode confidence in the Korean exports sector.
Australia – benign inflation data means RBA likely to take time on rate hikes
France – consumer spending in Sep surprises to the upside
• Basically offsets fall in Aug. (1.5% rise in Sep after 1.6% fall in Aug) and surely an encouraging sign.
• However, French private sector activity growth slowed in October to its lowest level in more than a year, according to Markit Economics. Purchasing Managers' survey signaled a downshift in growth at the start of the fourth quarter as production and new order growth weakened.
US – durable goods orders were not good if you subtract airplanes
• Orders for durable goods—manufactured items meant to last at least three years, such as copper coil and cars—rose 3.3% in September from August, the Commerce Department said Wednesday. That increase owed entirely to orders for nondefense aircraft and parts, which more than doubled. Indeed, Boeing Co. reported that it received orders for 117 planes in September, up from 10 in August. Stripping out aircraft, orders fell 0.1%.
• Aircrafts are hugely pricey and tend to come in lumps, so economists usually exclude them in durable goods data analysis – similar to why foods and energy are excluded from CPI (price volatility)
• That suggests that the rebound in capital spending that began in the second half of last year—as companies made purchases they had deferred during the downturn—may be coming to an end.
Seems like the WSJ report of the Fed going soft into QE2 had scared a lot of the investors initially – and it could very well have impacted the bond market which sold off steadily throughout the day. USD was stronger versus every G10 currency but not by a big margin except in Australia where weak inflation is likely to slow rate hike cycle.
Looking at fundamental data the theme is clear – things are CLEARLY SLOWING DOWN everywhere in the world. But I do not believe in double dip or anything near that for 2010. For the final two months I am still optimistic on equities and like USD. In the bonds space the yields have risen rather sharply in the last two weeks making me doubt if risk/reward is still attractive to short bonds at this point. Fundamentally current yield levels are totally justifiable, and over longer term we would go lower in yields as 2011 unfolds.
Korea GDP slows down drastically
• South Korea's GDP growth slowed in the third quarter to 0.7 percent from 1.4 percent in the previous quarter, as exports fell drastically in the wake of cooling global growth.
• The exports sector gained just 1.9 percent in the third quarter, led mainly by increased exports of petrochemical products, semiconductor and automobiles. This was sharply lower than the 7 percent growth recorded in the previous quarter.
• A marked reduction of exports to China in September to an 11-month low weighed on third-quarter growth figures. China accounts for as much as a quarter of shipments from South Korea. Analysts say a further slowing of Chinese domestic demand resulting from a recent rate hike by the Chinese central bank will further erode confidence in the Korean exports sector.
Australia – benign inflation data means RBA likely to take time on rate hikes
France – consumer spending in Sep surprises to the upside
• Basically offsets fall in Aug. (1.5% rise in Sep after 1.6% fall in Aug) and surely an encouraging sign.
• However, French private sector activity growth slowed in October to its lowest level in more than a year, according to Markit Economics. Purchasing Managers' survey signaled a downshift in growth at the start of the fourth quarter as production and new order growth weakened.
US – durable goods orders were not good if you subtract airplanes
• Orders for durable goods—manufactured items meant to last at least three years, such as copper coil and cars—rose 3.3% in September from August, the Commerce Department said Wednesday. That increase owed entirely to orders for nondefense aircraft and parts, which more than doubled. Indeed, Boeing Co. reported that it received orders for 117 planes in September, up from 10 in August. Stripping out aircraft, orders fell 0.1%.
• Aircrafts are hugely pricey and tend to come in lumps, so economists usually exclude them in durable goods data analysis – similar to why foods and energy are excluded from CPI (price volatility)
• That suggests that the rebound in capital spending that began in the second half of last year—as companies made purchases they had deferred during the downturn—may be coming to an end.
Tuesday, October 26, 2010
2010 10 26
Basically nothing happened today with commodities and stocks flat.
Bonds fell today. Seems like all of a sudden we are hearing more chatters of inflation fear – especially with the TIPS auction with negative yield. The question is : is this rising fear of inflation just a blip or a turning point? I will have to do some more research here. Frankly I don’t have an opinion yet. Economic data seems weak enough and Fed dovish enough that I think QE would be quite substantial.
USD was broadly strong with exception of GBP where Q3 GDP came in better than expected. But keep in mind this is 1-4 months old data. UK data has been surprisingly good for a while – deterioration has been seen in October and could worsen rapidly as austerity measures get implemented. This rise would probably lose out over the next day or two.
Tomorrow’s big data release is US durable goods order.
Bonds fell today. Seems like all of a sudden we are hearing more chatters of inflation fear – especially with the TIPS auction with negative yield. The question is : is this rising fear of inflation just a blip or a turning point? I will have to do some more research here. Frankly I don’t have an opinion yet. Economic data seems weak enough and Fed dovish enough that I think QE would be quite substantial.
USD was broadly strong with exception of GBP where Q3 GDP came in better than expected. But keep in mind this is 1-4 months old data. UK data has been surprisingly good for a while – deterioration has been seen in October and could worsen rapidly as austerity measures get implemented. This rise would probably lose out over the next day or two.
Tomorrow’s big data release is US durable goods order.
Monday, October 25, 2010
2010 10 25
Slow day in terms of news but a pretty eventful day in markets. Basically the same story this month : dollar down everything else up
Further poor sentiment toward the dollar was probably fueled by further G20 statements over the weekend – basically there seems to be no real agreement or actionable plans being devised.
This week will be the peak of earnings reporting. So far this quarter has not been as good as the previous few, but still it has been VERY GOOD and will provide tailwind for the stock market.
This promises to be a fairly busy week with economic data. In US : GDP, consumer confidence, durable goods orders, Chicago PMI
In Europe : consumer and business confidence, German unemployment and UK GDP
Tomorrow’s big data are UK GDP and US consumer confidence
I think trend will be that US econ data holds up – at a low level but certainly faring better than recession. Europe data I think would stay strong enough with Germany (and everyone looking the other way on peripheral Europe). This presents a favorable backdrop to risky assets – stocks and commodities. Although while I am hesitant to stay long (and probably even add length) with SP500 up more than 10% in last two months it’s hard to see what would reverse the trend in the near term.
I do recommend either getting rid of Eurostoxx short or switching that with Nikkei and TSX combo.
One thing for sure, by middle of next week we will have some MAJOR news come out : the fed would have announced much more details on QE by Nov 2-3 meeting, Q3 earnings being basically over, global PMI data and build up to G20 summit on Nov 20.
Next week can be a very different market than this week. This calm is really somewhat scary, but fundamentally – just looking at economic data I feel bullish. Basically I went from being bullish US and bearish Europe to being bullish both rest of the year. That and EM of course.
Further poor sentiment toward the dollar was probably fueled by further G20 statements over the weekend – basically there seems to be no real agreement or actionable plans being devised.
This week will be the peak of earnings reporting. So far this quarter has not been as good as the previous few, but still it has been VERY GOOD and will provide tailwind for the stock market.
This promises to be a fairly busy week with economic data. In US : GDP, consumer confidence, durable goods orders, Chicago PMI
In Europe : consumer and business confidence, German unemployment and UK GDP
Tomorrow’s big data are UK GDP and US consumer confidence
I think trend will be that US econ data holds up – at a low level but certainly faring better than recession. Europe data I think would stay strong enough with Germany (and everyone looking the other way on peripheral Europe). This presents a favorable backdrop to risky assets – stocks and commodities. Although while I am hesitant to stay long (and probably even add length) with SP500 up more than 10% in last two months it’s hard to see what would reverse the trend in the near term.
I do recommend either getting rid of Eurostoxx short or switching that with Nikkei and TSX combo.
One thing for sure, by middle of next week we will have some MAJOR news come out : the fed would have announced much more details on QE by Nov 2-3 meeting, Q3 earnings being basically over, global PMI data and build up to G20 summit on Nov 20.
Next week can be a very different market than this week. This calm is really somewhat scary, but fundamentally – just looking at economic data I feel bullish. Basically I went from being bullish US and bearish Europe to being bullish both rest of the year. That and EM of course.
Friday, October 22, 2010
2010 10 22
Another quiet day on minimal news.
Next week we should see some more action:
US durable goods orders (Wed) Q3 GDP (Fri)
Europe manufacturing new orders (Mon) inflation (Fri)
UK Nationwide house prices (Mon) Q3 GDP (Tue) consumer confidence (Thu)
Japan Industrial production (Fri)
Really the main driving theme lately has been QE2 – which has dominated over earnings news (very good once again this quarter). On Nov 3 we should hear more specific word on how QE2 would be implemented. So far it has been all speculation on how and when.
On the other hand, economic data continues to be pretty decent in US which is what we expected – that US will NOT fall into recession. However, the continuing strength in Europe – especially Germany – has surprised me. Therefore, I am formally stepping off my view on long US vs short Europe for now. This also means that I would rather not short Eurostoxx. I think we should consider as shorts Nikkei and TSX vs long DAX and Dow Jones. I think Nikkei will continue to suffer on strong Yen, and Canadian economic data has been on weak side as it gets dragged down by US. I still like Dow Jones because these are high quality cash rich international companies.
I also like Hang Seng on both China ties as well as USD peg (HKD is pegged to USD).
I see nothing but bad news on horizon for UK. I think we should increase short on GBP. Maybe ½ against USD and ½ against Euro.
I still hesitate to make a move in bond futures.
Next week we should see some more action:
US durable goods orders (Wed) Q3 GDP (Fri)
Europe manufacturing new orders (Mon) inflation (Fri)
UK Nationwide house prices (Mon) Q3 GDP (Tue) consumer confidence (Thu)
Japan Industrial production (Fri)
Really the main driving theme lately has been QE2 – which has dominated over earnings news (very good once again this quarter). On Nov 3 we should hear more specific word on how QE2 would be implemented. So far it has been all speculation on how and when.
On the other hand, economic data continues to be pretty decent in US which is what we expected – that US will NOT fall into recession. However, the continuing strength in Europe – especially Germany – has surprised me. Therefore, I am formally stepping off my view on long US vs short Europe for now. This also means that I would rather not short Eurostoxx. I think we should consider as shorts Nikkei and TSX vs long DAX and Dow Jones. I think Nikkei will continue to suffer on strong Yen, and Canadian economic data has been on weak side as it gets dragged down by US. I still like Dow Jones because these are high quality cash rich international companies.
I also like Hang Seng on both China ties as well as USD peg (HKD is pegged to USD).
I see nothing but bad news on horizon for UK. I think we should increase short on GBP. Maybe ½ against USD and ½ against Euro.
I still hesitate to make a move in bond futures.
2010 10 21
First of all, China data all came out pretty good. GDP is on a slowing trend (9.6% in Q3 vs 10.3% in Q2) but still at a very healthy level. Inflation remained reasonable (around 3.6%) which surprised some who thought inflation was spiking hence the surprise rate hike.
Europe preliminary PMI for October first came out and it also showed weakening trend except – guess who – Germany! It would probably be another month or two for stronger Euro to take effect, but it is really impressive that Germany is maintaining the strength. Rest of Europe is undoubtedly in a weakening path however. I expect Germany to follow that but at this point I push out the date yet again to January 2011.
Eurozone consumer confidence also came in pretty decent. I am now thinking Europe would remain OK through end of this year but the tipping point to be reached early next year when the austerity measures start rolling out.
In UK, retail sales surprising fell yet again for the second month. This is especially bad news since severe government spending cuts and tax raises have not even begun yet. There are diverging stances from UK government to BoE. Conservative finance minister George Osborne, dismissed fears today that his austerity drive is too harsh, and repeated his government's mantra that monetary policy can take up the strain as deficit cuts bite. On the other hand, One BoE policymaker, Adam Posen, has already called for more stimulus and there are signs others could be edging towards his view. BoE rate-setter David Miles said on Thursday there was still scope to help the economy if needed. I think we should add to short GBP and also initiate short GILTS.
In US, weekly initial jobless was mostly a non-news coming in right around at 450k.
Stocks were flat in US and up in Europe. Nikkei continues to outperform. Wish we shorted Nikkei instead of just getting out earlier in the month but hindsight is always 20/20. I think though it might not be a bad idea to split our stocks shorts 50/50 Nikkei/Eurostoxx.
Commodities were hit pretty hard pretty broadly even though dollar did not strengthen that much. USD, however, was up against all G10 currencies today.
It seems to me like QE is fully priced in FX and bond markets. I think yields are low enough – for the data we are seeing now – and negative sentiment toward USD has become too consensus. Tactically I would advocate to adding some long dollar positions.
Europe preliminary PMI for October first came out and it also showed weakening trend except – guess who – Germany! It would probably be another month or two for stronger Euro to take effect, but it is really impressive that Germany is maintaining the strength. Rest of Europe is undoubtedly in a weakening path however. I expect Germany to follow that but at this point I push out the date yet again to January 2011.
Eurozone consumer confidence also came in pretty decent. I am now thinking Europe would remain OK through end of this year but the tipping point to be reached early next year when the austerity measures start rolling out.
In UK, retail sales surprising fell yet again for the second month. This is especially bad news since severe government spending cuts and tax raises have not even begun yet. There are diverging stances from UK government to BoE. Conservative finance minister George Osborne, dismissed fears today that his austerity drive is too harsh, and repeated his government's mantra that monetary policy can take up the strain as deficit cuts bite. On the other hand, One BoE policymaker, Adam Posen, has already called for more stimulus and there are signs others could be edging towards his view. BoE rate-setter David Miles said on Thursday there was still scope to help the economy if needed. I think we should add to short GBP and also initiate short GILTS.
In US, weekly initial jobless was mostly a non-news coming in right around at 450k.
Stocks were flat in US and up in Europe. Nikkei continues to outperform. Wish we shorted Nikkei instead of just getting out earlier in the month but hindsight is always 20/20. I think though it might not be a bad idea to split our stocks shorts 50/50 Nikkei/Eurostoxx.
Commodities were hit pretty hard pretty broadly even though dollar did not strengthen that much. USD, however, was up against all G10 currencies today.
It seems to me like QE is fully priced in FX and bond markets. I think yields are low enough – for the data we are seeing now – and negative sentiment toward USD has become too consensus. Tactically I would advocate to adding some long dollar positions.
Tuesday, October 19, 2010
2010 10 19
A rather eventful day!
We could expect a weak open last night when Apple announced earnings at 430pm. The earnings were great but they missed on sales for iPads which a lot of analysts believe to be the next big thin for Apple, the result was pretty weak looking after market action for Apple. That combined with lukewarm IBM earnings kind of set the stage for a weak looking open.
Then really a lot of action burst out when I came in office at 7am. China surprised everyone with a 0.25% rate hike. Now this was a major surprise because officials had been fairly open about keeping the interest rate at current level. The fact that it was 0.25% - and not the "normal" 0.27% they normally use (from old tradition. supposedly easier to use this number with abacus) probably made everyone say "huh?" including yours truly. The hike was especially surprising since earlier in the night Australia decided to not hike its rate (where rate hike was widely expected).
This tightening prompted a major reversal to the liquidity rally we have seen lately - stocks and commodities down sharply while US dollar rallied.
China tightening - and there are Europeans rioting on TV.
Last time we saw this it was in mid January when China increased mandatory bank reserves and Greek crisis erupted. SP500 slipped 6% in the final two weeks of that month.
Now, I don't really think this 0.25% rate hike is a HUGE deal. But it has been futile to forecast Chinese government actions and nobody knows what is really going on inside that country. As far as impacting what we do, I don't imagine 0.25% rate hike would have a big impact on commodity imports (higher financing cost would generally be a negative).
But it concerns me economic momentum is slowing everywhere - US, Europe, Japan, UK and Asia. Austerity measures are meeting huge resistance. I always thought they will fail which is why i have bearish long term view on Euro and I think we should look to start shorting some Euro to add to our short GBP position in Porc and IQ UCITS.
Making things much worse in the afternoon were Bloomberg reporting that NY Fed, PIMCO and BlackRock were suing BofA over mortgage problems. This news pushed financials down sharply which impacted most indices.
I need to think things over more, but I am having tough time finding reasons to feel bullish. Earnings this season have been much less upbeat than the past few quarters as well. Seems to me like it has been a while we saw any economic news that was a big surprise to the upside. The rally we saw in Sep and so far this month has been on a fragile ground.
We could expect a weak open last night when Apple announced earnings at 430pm. The earnings were great but they missed on sales for iPads which a lot of analysts believe to be the next big thin for Apple, the result was pretty weak looking after market action for Apple. That combined with lukewarm IBM earnings kind of set the stage for a weak looking open.
Then really a lot of action burst out when I came in office at 7am. China surprised everyone with a 0.25% rate hike. Now this was a major surprise because officials had been fairly open about keeping the interest rate at current level. The fact that it was 0.25% - and not the "normal" 0.27% they normally use (from old tradition. supposedly easier to use this number with abacus) probably made everyone say "huh?" including yours truly. The hike was especially surprising since earlier in the night Australia decided to not hike its rate (where rate hike was widely expected).
This tightening prompted a major reversal to the liquidity rally we have seen lately - stocks and commodities down sharply while US dollar rallied.
China tightening - and there are Europeans rioting on TV.
Last time we saw this it was in mid January when China increased mandatory bank reserves and Greek crisis erupted. SP500 slipped 6% in the final two weeks of that month.
Now, I don't really think this 0.25% rate hike is a HUGE deal. But it has been futile to forecast Chinese government actions and nobody knows what is really going on inside that country. As far as impacting what we do, I don't imagine 0.25% rate hike would have a big impact on commodity imports (higher financing cost would generally be a negative).
But it concerns me economic momentum is slowing everywhere - US, Europe, Japan, UK and Asia. Austerity measures are meeting huge resistance. I always thought they will fail which is why i have bearish long term view on Euro and I think we should look to start shorting some Euro to add to our short GBP position in Porc and IQ UCITS.
Making things much worse in the afternoon were Bloomberg reporting that NY Fed, PIMCO and BlackRock were suing BofA over mortgage problems. This news pushed financials down sharply which impacted most indices.
I need to think things over more, but I am having tough time finding reasons to feel bullish. Earnings this season have been much less upbeat than the past few quarters as well. Seems to me like it has been a while we saw any economic news that was a big surprise to the upside. The rally we saw in Sep and so far this month has been on a fragile ground.
Monday, October 18, 2010
2010 10 18
The day started off with a selloff but ended in a generally positive note despite a disappointing September industrial production data from US today. Can’t say I can explain this market move. But I generally think it’s a time to start taking some chips off table when economic data trends south while asset markets trend north.
Stocks would probably be driven more by earnings than macro especially now the earnings season is on in earnest. This season isn’t off to a blistering start like we saw in the past few. We will see how things shape up. I do believe the earnings will be good enough to provide some tailwind for US stocks another week or two.
Switching into DAX from Nikkei has served well as DAX has outperformed lately.
Tomorrow is German ZEW economic expectations for October as well as US housing starts. Would be interesting to see if strengthening Euro is having any impact on business outlook.
This week Thursday shaping up to be particularly big with major China data (GDP, inflation, retail sales, industrial production), European October flash PMI and US initial jobless claims.
I feel particularly uneasy at how quiet the market has been lately.
Stocks would probably be driven more by earnings than macro especially now the earnings season is on in earnest. This season isn’t off to a blistering start like we saw in the past few. We will see how things shape up. I do believe the earnings will be good enough to provide some tailwind for US stocks another week or two.
Switching into DAX from Nikkei has served well as DAX has outperformed lately.
Tomorrow is German ZEW economic expectations for October as well as US housing starts. Would be interesting to see if strengthening Euro is having any impact on business outlook.
This week Thursday shaping up to be particularly big with major China data (GDP, inflation, retail sales, industrial production), European October flash PMI and US initial jobless claims.
I feel particularly uneasy at how quiet the market has been lately.
Thursday, October 14, 2010
2010 10 14
Another pretty quiet day in asset markets. Gold and silver continues to march upward. Flatish day in stocks and commodities with a little bit of selling in US treasuries. US dollar continues to grind lower.
Wanted to visit fixed income. We have been debating whether the QE has been fully reflected in pricing yet. We have seen some rather poor economic data the past couple days combined with very weak PPI today and yield is heading up. I am thinking maybe now the time is right to establish some tactical shorts.
I actually like shorting gilts the most – they’re backtracking on austerity and this could serve as a catalyst to push yield up in the near term.
Treasuries sell off after a lukewarm 30 year bond auction today
• We are going to continue to see yield curve steepen 10-30yr. It is widely expected that the Fed when they do QE they would not buy much bonds further out than 10 year because that is where most commercial and retail loans use as benchmarks.
Singapore Q3 GDP grows 10.3% from the previous year – but that’s actually a drastic slowdown
• Q2 GDP was +19.6% year over year. Economists had expected +10.8% for Q3 so this is a slight disappointment.
• Manufacturing saw a notable year over year decline. Manufacturing, which accounts for about a quarter of Singapore’s economy, climbed 12.1 percent from a year earlier in the three months through September, after surging a revised 46.1 percent in the second quarter.
• But keep in mind the base effect from 2009 when things were still looking dismal in Q2.
• Singapore is typically a bellwether for the region’s export outlook and it is the first to show cracks as global growth slows.
• Singapore decision to let its currency strengthen was a big surprise and stands as a major contrast versus its asian peers who are fighting tooth and nail to keep their currencies weak. Korea for example decided to not hike interest rate despite rapidly rising inflation.
US PPI surprises to the upside but it’s still very modest
• September PPI printed +0.4% and core +0.1% which translates to +4.0% overall and +1.6% core on an annual basis.
• Food prices jumped BIG. Food prices rose 1.2% overall as butter (at +17.2%, its biggest gain since November 2009), meats, chicken, and vegetables jumped.
• I can tell you : in the past couple weeks my local thai restaurants raised prices about 5-10% across the menu and today I just found the Indian takeout place near work added $1 across every item on menu. That’s 10-20% increase!
• However, US government plays the game where they disregard food and energy in calculation of inflation.
• Plus, in this environment of weak consumers the chances are merchants would just eat the price increase initially – but that cannot go on forever.
• At any rate, current inflation data is not enough for the US Fed to think inflation is a concern.
US trade deficit grows larger in Aug – especially with China
• The Commmerce Department said the trade gap expanded to $46.3 billion in August, up 8.7% from July and 49% from a year ago.
• The trade deficit with China totaled $28 billion, up from July's $25.9 billion.
• Exports stopped sliding but it only grew 0.1% from July. Imports grew 2.1%.
• At any rate, growing trade deficit is a bad news for GDP as net exports is one of the components of GDP calculation. So if imports are greater than exports then that subtracts from overall GDP.
US crude data shows slight fall in inventory – but still at the upper limit of range for this time of year
• oil refinery inputs averaged 13.9 million barrels per day during the week, which were 231,000 barrels per day below the previous week's average. Refiners are reacting to still extremely high inventory for heating oil and gasoline.
• Meantime, U.S. crude oil imports during the week averaged 8.1 million barrels per day last week, down by 798,000 barrels per day from the previous week, official data revealed. Over the last four weeks imports have averaged 8.8 million barrels per day, which were 444,000 barrels per day below the same four-week period last year.
• Combined – these data points show extremely weak oil demand (EIA computed “implied” oil demand by looking at production + import – export + inventory change), which contributed to some selling in energy today.
Jobless claims ticked up slightly but within range
• I don’t think anyone is expecting clear trend of falling jobless claims. At least I am not. I think we would see 445k-470k at least through November. I think this number was within everyone’s expected range.
Wanted to visit fixed income. We have been debating whether the QE has been fully reflected in pricing yet. We have seen some rather poor economic data the past couple days combined with very weak PPI today and yield is heading up. I am thinking maybe now the time is right to establish some tactical shorts.
I actually like shorting gilts the most – they’re backtracking on austerity and this could serve as a catalyst to push yield up in the near term.
Treasuries sell off after a lukewarm 30 year bond auction today
• We are going to continue to see yield curve steepen 10-30yr. It is widely expected that the Fed when they do QE they would not buy much bonds further out than 10 year because that is where most commercial and retail loans use as benchmarks.
Singapore Q3 GDP grows 10.3% from the previous year – but that’s actually a drastic slowdown
• Q2 GDP was +19.6% year over year. Economists had expected +10.8% for Q3 so this is a slight disappointment.
• Manufacturing saw a notable year over year decline. Manufacturing, which accounts for about a quarter of Singapore’s economy, climbed 12.1 percent from a year earlier in the three months through September, after surging a revised 46.1 percent in the second quarter.
• But keep in mind the base effect from 2009 when things were still looking dismal in Q2.
• Singapore is typically a bellwether for the region’s export outlook and it is the first to show cracks as global growth slows.
• Singapore decision to let its currency strengthen was a big surprise and stands as a major contrast versus its asian peers who are fighting tooth and nail to keep their currencies weak. Korea for example decided to not hike interest rate despite rapidly rising inflation.
US PPI surprises to the upside but it’s still very modest
• September PPI printed +0.4% and core +0.1% which translates to +4.0% overall and +1.6% core on an annual basis.
• Food prices jumped BIG. Food prices rose 1.2% overall as butter (at +17.2%, its biggest gain since November 2009), meats, chicken, and vegetables jumped.
• I can tell you : in the past couple weeks my local thai restaurants raised prices about 5-10% across the menu and today I just found the Indian takeout place near work added $1 across every item on menu. That’s 10-20% increase!
• However, US government plays the game where they disregard food and energy in calculation of inflation.
• Plus, in this environment of weak consumers the chances are merchants would just eat the price increase initially – but that cannot go on forever.
• At any rate, current inflation data is not enough for the US Fed to think inflation is a concern.
US trade deficit grows larger in Aug – especially with China
• The Commmerce Department said the trade gap expanded to $46.3 billion in August, up 8.7% from July and 49% from a year ago.
• The trade deficit with China totaled $28 billion, up from July's $25.9 billion.
• Exports stopped sliding but it only grew 0.1% from July. Imports grew 2.1%.
• At any rate, growing trade deficit is a bad news for GDP as net exports is one of the components of GDP calculation. So if imports are greater than exports then that subtracts from overall GDP.
US crude data shows slight fall in inventory – but still at the upper limit of range for this time of year
• oil refinery inputs averaged 13.9 million barrels per day during the week, which were 231,000 barrels per day below the previous week's average. Refiners are reacting to still extremely high inventory for heating oil and gasoline.
• Meantime, U.S. crude oil imports during the week averaged 8.1 million barrels per day last week, down by 798,000 barrels per day from the previous week, official data revealed. Over the last four weeks imports have averaged 8.8 million barrels per day, which were 444,000 barrels per day below the same four-week period last year.
• Combined – these data points show extremely weak oil demand (EIA computed “implied” oil demand by looking at production + import – export + inventory change), which contributed to some selling in energy today.
Jobless claims ticked up slightly but within range
• I don’t think anyone is expecting clear trend of falling jobless claims. At least I am not. I think we would see 445k-470k at least through November. I think this number was within everyone’s expected range.
Wednesday, October 13, 2010
2010 10 13
Equity markets rallying hard today on…
Well, it seems nowadays the market just wants to run. As we debated the macro picture in today’s investment meeting, I reckon the theme is just not go against the trend.
For stocks we had JPM and Intel both with solid numbers. European markets are doing especially well after Eurozone industrial production surprised to the upside – it’s a good thing we switched out of Nikkei into DAX this has gotten us a lot of positive performance in the past few days.
Energy having a solid day after it was known that Chinese September oil import was very strong. But the rally could be due to dollar weakness or just momentum. Copper is also up a decent amount.
Gold right at $1370 today.
Bit of weakness for bonds with corn and wheat taking a break from the recent rally.
We seem to be in an environment where if economic news is good markets rally, and if the news is bad then the markets rally on expectation of additional stimulus and monetary loosening.
The key question now is : how much of the QE is priced in? There is really no precise mathematical way to measure it. Global equity market has gained well over a trillion dollars in market cap since the announcement of QE2. Is that enough?
I think for the remainder of the week we ride out the trend and consider becoming more defensive next week after re-examining the data and market conditions.
Japan machinery orders unexpectedly increase in Aug for third month in a row
• Core machinery orders, a closely-watched indicator of future business investment, rose 10.1% in August. The result was far better than the 4% drop economists had predicted.
• Much of this support came from domestic demand which is holding up well BUT overseas demand, an indicator of prospects for Japanese exports, fell 3.7% in its first decline for four months.
Australian consumer sentiment bounces back in Oct
• Consumer confidence in Australia rebounded in October following the Reserve Bank of Australia's surprise decision to keep rates unchanged for a fifth straight month.
• Strong jobs growth, the delay in the tightening cycle, and the rally in both equities and the AUD all suggest confidence will remain robust this month - despite the ongoing softening in house prices.
UK employment picture looks mixed
• Unemployment rate fell but initial jobless claims rose for the second straight month in Sep.
• The rise in the more timely claimant-count measure doesn't bode well for the economy, particularly as it comes a week ahead of the coalition government's comprehensive spending review.
Eurozone industrial production up 1% in Aug
• Industrial output in the 16 countries that use the euro rose by a monthly 1 percent in August, official figures showed Wednesday, easing concerns that the sector's recovery was grinding to a halt.
• The rise reported from Eurostat, the EU's statistics office, is likely to ease fears that the eurozone economy is facing a sharp slowdown in the wake of the faltering recovery in the United States. Much of the eurozone's economic growth in the second quarter of the year was based on a bounceback in the industrial sector, particularly in Germany.
• Make no mistake however that the data points to significant slowdown – just not as bad as feared. If you look at details though you see peripheral Europe- Spain, Greece, Portugal all seeing big declines.
China trade surplus just keeps growing and growing
• China’s Sep surplus came in at $17B which made Q3 the biggest surplus quarter since 2008.
• Exports grew 25.1% from a year earlier and imports climbed at 24.1%.
• This will further flame US’s stance that China is a currency manipulator and must revalue Yuan. Chinese really wouldn’t care whatever US has to say. While this build up in political tension is definitely a key issue it wouldn’t impact the asset markets at least not in short term.
Tomorrow we will see US PPI and initial jobless claims. I do not expect either to be a major market mover.
Well, it seems nowadays the market just wants to run. As we debated the macro picture in today’s investment meeting, I reckon the theme is just not go against the trend.
For stocks we had JPM and Intel both with solid numbers. European markets are doing especially well after Eurozone industrial production surprised to the upside – it’s a good thing we switched out of Nikkei into DAX this has gotten us a lot of positive performance in the past few days.
Energy having a solid day after it was known that Chinese September oil import was very strong. But the rally could be due to dollar weakness or just momentum. Copper is also up a decent amount.
Gold right at $1370 today.
Bit of weakness for bonds with corn and wheat taking a break from the recent rally.
We seem to be in an environment where if economic news is good markets rally, and if the news is bad then the markets rally on expectation of additional stimulus and monetary loosening.
The key question now is : how much of the QE is priced in? There is really no precise mathematical way to measure it. Global equity market has gained well over a trillion dollars in market cap since the announcement of QE2. Is that enough?
I think for the remainder of the week we ride out the trend and consider becoming more defensive next week after re-examining the data and market conditions.
Japan machinery orders unexpectedly increase in Aug for third month in a row
• Core machinery orders, a closely-watched indicator of future business investment, rose 10.1% in August. The result was far better than the 4% drop economists had predicted.
• Much of this support came from domestic demand which is holding up well BUT overseas demand, an indicator of prospects for Japanese exports, fell 3.7% in its first decline for four months.
Australian consumer sentiment bounces back in Oct
• Consumer confidence in Australia rebounded in October following the Reserve Bank of Australia's surprise decision to keep rates unchanged for a fifth straight month.
• Strong jobs growth, the delay in the tightening cycle, and the rally in both equities and the AUD all suggest confidence will remain robust this month - despite the ongoing softening in house prices.
UK employment picture looks mixed
• Unemployment rate fell but initial jobless claims rose for the second straight month in Sep.
• The rise in the more timely claimant-count measure doesn't bode well for the economy, particularly as it comes a week ahead of the coalition government's comprehensive spending review.
Eurozone industrial production up 1% in Aug
• Industrial output in the 16 countries that use the euro rose by a monthly 1 percent in August, official figures showed Wednesday, easing concerns that the sector's recovery was grinding to a halt.
• The rise reported from Eurostat, the EU's statistics office, is likely to ease fears that the eurozone economy is facing a sharp slowdown in the wake of the faltering recovery in the United States. Much of the eurozone's economic growth in the second quarter of the year was based on a bounceback in the industrial sector, particularly in Germany.
• Make no mistake however that the data points to significant slowdown – just not as bad as feared. If you look at details though you see peripheral Europe- Spain, Greece, Portugal all seeing big declines.
China trade surplus just keeps growing and growing
• China’s Sep surplus came in at $17B which made Q3 the biggest surplus quarter since 2008.
• Exports grew 25.1% from a year earlier and imports climbed at 24.1%.
• This will further flame US’s stance that China is a currency manipulator and must revalue Yuan. Chinese really wouldn’t care whatever US has to say. While this build up in political tension is definitely a key issue it wouldn’t impact the asset markets at least not in short term.
Tomorrow we will see US PPI and initial jobless claims. I do not expect either to be a major market mover.
Tuesday, October 12, 2010
2010 10 12
A very quiet day until the Fed meeting note got released at 2pm. Stocks rose slightly and bonds fell – although there was really nothing new in the notes. The notes basically shows that the FOMC members were disappointed with economic progress. No further insight on what actions they might take.
A weak 3yr treasury auction might be to blame for a lackluster day for bonds.
More or less flat day for stocks.
Energy was down very slightly while ags remained strong with corn up another 4%.
GBP fell on lackluster economic data especially on housing which showed home prices fell across England in September. UK inflation remained stubbornly high. Inflation exceeded the government’s 3% limit for a seventh month in September as higher clothing and food costs kept up price pressures in the economy.
Intel reported after market close and beat both earnings and revenue (but not by a big margin). CSX, a major railroad operator, also narrowly beat out earnings and revenue expectation. JPM is the big one reporting tomorrow after market close. So far this earnings season seems to be off to another great start.
With QEII now baked into asset pricing, I expect earnings reports to drive the stock market. Looks like it’s shaping up to be another good quarter with exception of perhaps financials.
Very good thing we switched out of Nikkei – it has been getting crushed the past few days on relentless strengthening of yen. I think it’d be a good idea to short some more Nikkei from here.
Tomorrow:
• Japan Aug machinery orders for Aug
• UK unemployment data for Aug
• Euroland industrial production for Aug
• China trade balance for Sep
A weak 3yr treasury auction might be to blame for a lackluster day for bonds.
More or less flat day for stocks.
Energy was down very slightly while ags remained strong with corn up another 4%.
GBP fell on lackluster economic data especially on housing which showed home prices fell across England in September. UK inflation remained stubbornly high. Inflation exceeded the government’s 3% limit for a seventh month in September as higher clothing and food costs kept up price pressures in the economy.
Intel reported after market close and beat both earnings and revenue (but not by a big margin). CSX, a major railroad operator, also narrowly beat out earnings and revenue expectation. JPM is the big one reporting tomorrow after market close. So far this earnings season seems to be off to another great start.
With QEII now baked into asset pricing, I expect earnings reports to drive the stock market. Looks like it’s shaping up to be another good quarter with exception of perhaps financials.
Very good thing we switched out of Nikkei – it has been getting crushed the past few days on relentless strengthening of yen. I think it’d be a good idea to short some more Nikkei from here.
Tomorrow:
• Japan Aug machinery orders for Aug
• UK unemployment data for Aug
• Euroland industrial production for Aug
• China trade balance for Sep
Monday, October 11, 2010
2010 10 11
A quiet day all around with US bond market closed due to Columbus day.
The ag market continued Friday’s gain but in a more subdued manner.
Right now the main question is how much of QEII is priced into the market. My guess is that the markets are pretty fully valued in QEII terms – meaning that I believe further bad economic news would be a negative impact on stock and commodities. Lately, bad news was seen as boosting likelihood of strong QE -> assets rise. I think this effect is wearing off.
US FOMC meeting note will be released tomorrow and it will shed light on what the Fed is thinking and is likely to be a big market mover.
In UK we will see the inflation data for Sep. My guess is that we will see a drop due to falling home price and decelerating economy. I think it’d exert a downward pressure on GBP
The ag market continued Friday’s gain but in a more subdued manner.
Right now the main question is how much of QEII is priced into the market. My guess is that the markets are pretty fully valued in QEII terms – meaning that I believe further bad economic news would be a negative impact on stock and commodities. Lately, bad news was seen as boosting likelihood of strong QE -> assets rise. I think this effect is wearing off.
US FOMC meeting note will be released tomorrow and it will shed light on what the Fed is thinking and is likely to be a big market mover.
In UK we will see the inflation data for Sep. My guess is that we will see a drop due to falling home price and decelerating economy. I think it’d exert a downward pressure on GBP
2010 10 08
Friday's payroll data came in - well - in my opinion fairly poor. The net result is further job less of about 95,000 in September much of it due to loss of temporary US census workers.
Private payroll (non-government jobs) did increase by 64,000 but that's losing momentum from 100,000+ in july and 93,000 increase in Aug. Also, more than half the job gains in Sep were in bar and restaurants industry - not exactly a place a lot of people are excited to work in.
But this data solidified one thing - that the US FED would certainly engage in a vigorous QE to try to stimulate economy.
Still, no huge actions in stocks, currencies or bonds. Generally stocks were up dollar was down and bonds were up - but all fairly slightly.
Commodities had a good day with just about everything up. I wonder if commodities complex was driven more generally on ags news - US WASDE report cut domestic crop harvest expectation second month in a row. The result was corn, soybean and wheat all being up by exchange limits. Sugar also rallied hugely on crop concerns. Gains in energy and metals were much more muted but we would take any up day.
Looking ahead the most important single piece of data is probably the FOMC meeting minutes to be released on Tuesday. Once again it seems all assets are being driven by politicians and central bankers.
Private payroll (non-government jobs) did increase by 64,000 but that's losing momentum from 100,000+ in july and 93,000 increase in Aug. Also, more than half the job gains in Sep were in bar and restaurants industry - not exactly a place a lot of people are excited to work in.
But this data solidified one thing - that the US FED would certainly engage in a vigorous QE to try to stimulate economy.
Still, no huge actions in stocks, currencies or bonds. Generally stocks were up dollar was down and bonds were up - but all fairly slightly.
Commodities had a good day with just about everything up. I wonder if commodities complex was driven more generally on ags news - US WASDE report cut domestic crop harvest expectation second month in a row. The result was corn, soybean and wheat all being up by exchange limits. Sugar also rallied hugely on crop concerns. Gains in energy and metals were much more muted but we would take any up day.
Looking ahead the most important single piece of data is probably the FOMC meeting minutes to be released on Tuesday. Once again it seems all assets are being driven by politicians and central bankers.
2010 10 07
BoE signaled loosening stance in its meeting while ECB said a lot that didn’t mean much of anything (how FX volatility is a bad thing – who doesn’t know that?).
Now, ECB remains the only major central bank not actively pursuing further loosening. That will change before 2010 is over.
Basically a flat day in stocks , bonds and currencies. Macro commodities (energy, base+precious metals) took a bit of whacking. Ags are having a better day with corn up and sugar having a monster day.
Tomorrow is of course the US payroll data which would rule everything. General consensus is unemployment rate to tick up from 9.6% to 9.7% BUT that there will be a gain in private payroll. The ADP data suggests that this might not materialize. If private payroll disappoints we would probably see falling USD, rallying treasuries and gold. We will hold our breath until 830AM NYC time tomorrow.
UK industry production – Surprisingly good in August
• Manufacturing output grew 0.3% in August for 4th consecutive rise about this size which makes for about 6% annual growth rate which is the highest rate since Dec 1994.
• Still, this is not enough to prop up UK economy if consumers and government sector retrench amidst uncertain economic outlook and coming austerity budget cuts.
Germany industry production – NOT losing steam
• Germany continues to defy gravity. While manufacturing has seen some slowdown since April it is still holding up at a very high level? When would the impact of currency be felt? We will see.
• As I said yesterday I am now changing my mind to say that German outperformance is likely to last longer than I thought. Say until November or December. But it certainly seems non-core Europe is decelerating sharply. And with domestic consumption looking very weak German economy cannot crank along forever. Even then – I think Germany is better situated than US.
Now, ECB remains the only major central bank not actively pursuing further loosening. That will change before 2010 is over.
Basically a flat day in stocks , bonds and currencies. Macro commodities (energy, base+precious metals) took a bit of whacking. Ags are having a better day with corn up and sugar having a monster day.
Tomorrow is of course the US payroll data which would rule everything. General consensus is unemployment rate to tick up from 9.6% to 9.7% BUT that there will be a gain in private payroll. The ADP data suggests that this might not materialize. If private payroll disappoints we would probably see falling USD, rallying treasuries and gold. We will hold our breath until 830AM NYC time tomorrow.
UK industry production – Surprisingly good in August
• Manufacturing output grew 0.3% in August for 4th consecutive rise about this size which makes for about 6% annual growth rate which is the highest rate since Dec 1994.
• Still, this is not enough to prop up UK economy if consumers and government sector retrench amidst uncertain economic outlook and coming austerity budget cuts.
Germany industry production – NOT losing steam
• Germany continues to defy gravity. While manufacturing has seen some slowdown since April it is still holding up at a very high level? When would the impact of currency be felt? We will see.
• As I said yesterday I am now changing my mind to say that German outperformance is likely to last longer than I thought. Say until November or December. But it certainly seems non-core Europe is decelerating sharply. And with domestic consumption looking very weak German economy cannot crank along forever. Even then – I think Germany is better situated than US.
Wednesday, October 6, 2010
2010 10 06
Another fairly light day in economic news. No huge move in any one market although treasuries and bunds had a good day as did gold.
Nikkei continues to perform well. Up about +0.8% today (CME futures) offsetting. Dow turned in a modestly positive day. Gold is knocking on $1350. Gold miner ETF up another +1.5% today.
Euro gained another 0.7% against USD nearing 1.40 level.
Another positive news out of Germany : a jump in manufacturing orders in August which sharply exceeded expectations. Although this indicator is very volatile so it’s hard to rely on any one indicator, I am now thinking German outperformance would continue to longer than I thought BUT that wouldn’t hold the rest of Europe from a substantial slowdown to come. We might want to revisit DAX vs Europe later.
Energy saw a decent rally after DOE report showed draws in refined products – continuing the constructive trend from last week – but it sort of fizzled later in the day. Energy and industrial metals continued to perform well today but who knows – maybe it’s all due to dollar weakness and not much more.
Tomorrow is a busier day. Official leading indicator for Japan, UK industrial production for Aug, German industrial production for July, ECB meeting (but no big news expected as usual), and the BIG ONE : weekly US initial jobless claims.
In terms of positions, after further look at data I do like lightening up on gold. I do like smooth trend but vertical line upward is scary. There is a huge investor pile-on into gold and whenever consensus becomes this drastic there is usually a sharp reversal to follow. Of course the question is when and how much.
You all know I am not a big fan of short term trading. But given our good history of tactical trading, I think it’s a decent risk/reward to get more aggressive than say just locking in profit or going to benchmark weight.
Actually, Euro is basically in the same spot as gold – near vertical rise with a clear consensus among investors. The major difference is that the long term fundamentals are behind gold (which is why I am even more reluctant to trade around) while Euro is every bit if not more flawed than USD.
Nikkei continues to perform well. Up about +0.8% today (CME futures) offsetting. Dow turned in a modestly positive day. Gold is knocking on $1350. Gold miner ETF up another +1.5% today.
Euro gained another 0.7% against USD nearing 1.40 level.
Another positive news out of Germany : a jump in manufacturing orders in August which sharply exceeded expectations. Although this indicator is very volatile so it’s hard to rely on any one indicator, I am now thinking German outperformance would continue to longer than I thought BUT that wouldn’t hold the rest of Europe from a substantial slowdown to come. We might want to revisit DAX vs Europe later.
Energy saw a decent rally after DOE report showed draws in refined products – continuing the constructive trend from last week – but it sort of fizzled later in the day. Energy and industrial metals continued to perform well today but who knows – maybe it’s all due to dollar weakness and not much more.
Tomorrow is a busier day. Official leading indicator for Japan, UK industrial production for Aug, German industrial production for July, ECB meeting (but no big news expected as usual), and the BIG ONE : weekly US initial jobless claims.
In terms of positions, after further look at data I do like lightening up on gold. I do like smooth trend but vertical line upward is scary. There is a huge investor pile-on into gold and whenever consensus becomes this drastic there is usually a sharp reversal to follow. Of course the question is when and how much.
You all know I am not a big fan of short term trading. But given our good history of tactical trading, I think it’s a decent risk/reward to get more aggressive than say just locking in profit or going to benchmark weight.
Actually, Euro is basically in the same spot as gold – near vertical rise with a clear consensus among investors. The major difference is that the long term fundamentals are behind gold (which is why I am even more reluctant to trade around) while Euro is every bit if not more flawed than USD.
Tuesday, October 5, 2010
2010 10 05
The biggest news by far was BoJ’s additional easing. This was one of the bet going into September and why Nikkei was added long positions. Nikkei (CME futures) popped 3% today versus +2% for Eurostoxx and +1.5% for Dow. Remains to see whether Nikkei can outperform for the month. Is stimulus juice baked in? Yen actually got stronger today. Stocks and commodities gained.
A welcome relief in ag complex with a big gain for corn.
Another notable winner was gold which rose nearly 2% with futures touching $1340. Gold miner ETF rose 3%.
The bond market was pretty quiet with minimal moves in bunds and treasuries.
The big loser was – who else – the US dollar which is a great news for US. In the currency war the dollar (and yuan) has been the undisputed winner. AUD underperformed on RBA pause on rate hike.
On economic data front – both UK and US services PMI (ISM for US) came in better than expected. Both surveys are consistent with a very weak expansion. Nothing to cheer about but does not seem like dip into recession. Eurozone retail sales dipped slightly in August – tells me domestic consumption remains anemic there as well so strong Euro will hurt.
Fairly quiet tomorrow with exception of Australia employment which would impact AUD (but we have no exposure). Thursday again is weekly initial jobless claims.
A welcome relief in ag complex with a big gain for corn.
Another notable winner was gold which rose nearly 2% with futures touching $1340. Gold miner ETF rose 3%.
The bond market was pretty quiet with minimal moves in bunds and treasuries.
The big loser was – who else – the US dollar which is a great news for US. In the currency war the dollar (and yuan) has been the undisputed winner. AUD underperformed on RBA pause on rate hike.
On economic data front – both UK and US services PMI (ISM for US) came in better than expected. Both surveys are consistent with a very weak expansion. Nothing to cheer about but does not seem like dip into recession. Eurozone retail sales dipped slightly in August – tells me domestic consumption remains anemic there as well so strong Euro will hurt.
Fairly quiet tomorrow with exception of Australia employment which would impact AUD (but we have no exposure). Thursday again is weekly initial jobless claims.
2010 10 04
A light day in terms of economic data or news – BUT that didn’t prevent the markets from moving.
For whatever reason the stock market slid while bonds rallied. Currency and commodity markets were fairly quiet.
Since there is any notable news today to discuss, I will just lay down some general thoughts and observations.
Really the two biggest moves of late have been in USD and treasuries – no doubt both moves fueled by QE.
FX move has been most notable in EURUSD now near 1.37. AUD also has been very strong on good economic data and renewed hope of interest rate hike.
The rally in EUR has come despite continuing concerns over PIIGS as well as slowing economic momentum. Is QE really THAT big of deal to currency? What would happen when ECB needs to step in? Because that will come at some point.
Last Friday was busy with manufacturing data (ISM in US and PMI elsewhere) that comes out first business day each month. China PMI did come in better than expected, providing a bit of a boost to risk sentiment. All indications are that China reached a trough in July and now seems to be on a bit of rebound helped further by loosening financial condition. US ISM report was not bad – only slightly missed expectation – but new orders were weak which signals further slowing. PMIs basically slowed down everywhere especially in major European countries.
A very nice rally in crude as of late – thanks to decent econ data out of US and China and a welcome draw in DOE inventory report.
This coming week most important data are:
Nonfarm payroll and unemployment rate data for US comes out on Friday. If this comes in ugly watch out treasuries and USD because more QE is surely coming.
There are also some major central bank meetings – ECB, RBA, BoE, BoJ. ECB and BoE probably non-events with no new announcement. There is expectation that RBA would hike 25bps and that can give further boost to AUD. It would be interesting to see if BoJ attempts to loosen further to spark economy.
For Europe, we get the August industrial production data which would provide a pretty accurate picture of the manufacturing sector. Most likely it would show further slowing from July. If data doesn’t soften much then we’d likely have to wait longer to see US vs Europe view pan out. Sentiment toward US is definitely more negative than Europe, but so far the hard data supports that view. If this pattern holds up then USD can weaken further providing some tailwind for commodities.
For whatever reason the stock market slid while bonds rallied. Currency and commodity markets were fairly quiet.
Since there is any notable news today to discuss, I will just lay down some general thoughts and observations.
Really the two biggest moves of late have been in USD and treasuries – no doubt both moves fueled by QE.
FX move has been most notable in EURUSD now near 1.37. AUD also has been very strong on good economic data and renewed hope of interest rate hike.
The rally in EUR has come despite continuing concerns over PIIGS as well as slowing economic momentum. Is QE really THAT big of deal to currency? What would happen when ECB needs to step in? Because that will come at some point.
Last Friday was busy with manufacturing data (ISM in US and PMI elsewhere) that comes out first business day each month. China PMI did come in better than expected, providing a bit of a boost to risk sentiment. All indications are that China reached a trough in July and now seems to be on a bit of rebound helped further by loosening financial condition. US ISM report was not bad – only slightly missed expectation – but new orders were weak which signals further slowing. PMIs basically slowed down everywhere especially in major European countries.
A very nice rally in crude as of late – thanks to decent econ data out of US and China and a welcome draw in DOE inventory report.
This coming week most important data are:
Nonfarm payroll and unemployment rate data for US comes out on Friday. If this comes in ugly watch out treasuries and USD because more QE is surely coming.
There are also some major central bank meetings – ECB, RBA, BoE, BoJ. ECB and BoE probably non-events with no new announcement. There is expectation that RBA would hike 25bps and that can give further boost to AUD. It would be interesting to see if BoJ attempts to loosen further to spark economy.
For Europe, we get the August industrial production data which would provide a pretty accurate picture of the manufacturing sector. Most likely it would show further slowing from July. If data doesn’t soften much then we’d likely have to wait longer to see US vs Europe view pan out. Sentiment toward US is definitely more negative than Europe, but so far the hard data supports that view. If this pattern holds up then USD can weaken further providing some tailwind for commodities.
2010 10 01
US stock market post a modest gain while Europe generally struggles. We will see if this pattern upholds – we certainly hope so.
USD keeps getting clobbered. There is no real news to warrant this. Perhaps momentum at work.
The world basically looks like this:
China – was looking weak for a while but looks like they’re fine and making a bit of comeback Asian EM – still going strong with no real sign of slowdown Europe – Slowdown is notable especially outside of Germany and France. And perhaps just a little glimmer of weakening Germany is starting to show… Japan – an outright mess. There is no good data here. But expectation is at rock bottom UK – slowdown slowdown slowdown US – Nothing to cheer about data shows that US is still on a recovery - just not a strong one
Macro commodities – energy and industrial metals – are enjoying a good day as are gold and silver. Ags didnt fare as well.
South Korean inflation surprises to upside
• September CPI surged to 3.6% due to robust domestic economy powered by exports. Weak KRW probably contributed to inflation. This would probably result in a rate hike and some appreciation in KRW.
• Inflation remains extremely weak in developed world but we are definitely seeing it creep up in EM especially Asia.
Japan – still in deflation Nationwide August CPI is at -1% yeat over year. But very slightly better than it was in July.
• Meanwhile unemployment edged slightly lower but this is likely due to discouraged folks dropping out of job market.
• Two words to describe Japan : BAD ECONOMY
• Translated to : MORE STIMULUS TO COME
China manufacturing in September – on solid footing and rebounding
• China's September PMI rose to 53.8 from 51.7 in August
• China's upbeat PMI reading indicates that the negative impact of government measures to control the property market is probably waning, ING's Mr. Condon said. This means China's slowdown will probably be less abrupt than expected, especially in the fourth quarter
• As I said China has been stabilizing and rebounding from a notable slowdown since early in the year. Industrial production, fixed asset investments, retail sales all showed stabilization in August and this makes second straight month PMI did well. I like industrial metals as it seems to me China managed a soft landing. Even if the property market cools infrastructure buildout will continue.
A rare bad news for Germany – august retail sales drop
• Retail sales in Germany fell unexpectedly in August, casting doubt on a strong recovery of the country's weak private consumption.
• Perhaps the positive business environment isn’t stoking consumer enthusiasm? Understandable given coming austerity.
• I wont take this news seriously on its own as any one piece of econ data is volatile but I think we will continue to see disappointing data pile up from germany and Europe throughout this month although it probably wouldn’t be a huge pile for another month or so.
Euroland manufacturing – very much inline with earlier flash data
• No new data here. Manufacturing slowed everywhere except France.
UK manufacturing slips to 10 month low
• Activity in Britain's manufacturing sector grew at its slowest pace in 10 months in September
• The figures are likely to reinforce concerns that Britain's recovery is losing steam after strong growth in the Q2, and could lend weight to Bank of England policymaker Adam Posen's view the BoE should inject more stimulus.
• In particular the PMI report showed plummeting demand for export –perhaps due to strong pound. Would BoE also engage in currency devaluation? I think so.
US manufacturing – not great but certain better than many feared.
• US manufacturing activity grew more weakly than predicted in September and the slowdown is expected to continue in the fourth quarter, a key survey showed Friday.
• ISM is now at 10 month low. Particularly concerning is slowdown in New Orders – widely considered to be the best leading indicator of manufacturing.
US personal income – better than expected.
• Spending picked up in August with non-durable goods purchases leading the way. August is a big month for back to school shopping and the gains here are consistent with the August retail sales report. Even in hard times, consumers make sure the kids have what they need for school.
• But overall, the reported figures were all right in the expected range. No big surprise here.
USD keeps getting clobbered. There is no real news to warrant this. Perhaps momentum at work.
The world basically looks like this:
China – was looking weak for a while but looks like they’re fine and making a bit of comeback Asian EM – still going strong with no real sign of slowdown Europe – Slowdown is notable especially outside of Germany and France. And perhaps just a little glimmer of weakening Germany is starting to show… Japan – an outright mess. There is no good data here. But expectation is at rock bottom UK – slowdown slowdown slowdown US – Nothing to cheer about data shows that US is still on a recovery - just not a strong one
Macro commodities – energy and industrial metals – are enjoying a good day as are gold and silver. Ags didnt fare as well.
South Korean inflation surprises to upside
• September CPI surged to 3.6% due to robust domestic economy powered by exports. Weak KRW probably contributed to inflation. This would probably result in a rate hike and some appreciation in KRW.
• Inflation remains extremely weak in developed world but we are definitely seeing it creep up in EM especially Asia.
Japan – still in deflation Nationwide August CPI is at -1% yeat over year. But very slightly better than it was in July.
• Meanwhile unemployment edged slightly lower but this is likely due to discouraged folks dropping out of job market.
• Two words to describe Japan : BAD ECONOMY
• Translated to : MORE STIMULUS TO COME
China manufacturing in September – on solid footing and rebounding
• China's September PMI rose to 53.8 from 51.7 in August
• China's upbeat PMI reading indicates that the negative impact of government measures to control the property market is probably waning, ING's Mr. Condon said. This means China's slowdown will probably be less abrupt than expected, especially in the fourth quarter
• As I said China has been stabilizing and rebounding from a notable slowdown since early in the year. Industrial production, fixed asset investments, retail sales all showed stabilization in August and this makes second straight month PMI did well. I like industrial metals as it seems to me China managed a soft landing. Even if the property market cools infrastructure buildout will continue.
A rare bad news for Germany – august retail sales drop
• Retail sales in Germany fell unexpectedly in August, casting doubt on a strong recovery of the country's weak private consumption.
• Perhaps the positive business environment isn’t stoking consumer enthusiasm? Understandable given coming austerity.
• I wont take this news seriously on its own as any one piece of econ data is volatile but I think we will continue to see disappointing data pile up from germany and Europe throughout this month although it probably wouldn’t be a huge pile for another month or so.
Euroland manufacturing – very much inline with earlier flash data
• No new data here. Manufacturing slowed everywhere except France.
UK manufacturing slips to 10 month low
• Activity in Britain's manufacturing sector grew at its slowest pace in 10 months in September
• The figures are likely to reinforce concerns that Britain's recovery is losing steam after strong growth in the Q2, and could lend weight to Bank of England policymaker Adam Posen's view the BoE should inject more stimulus.
• In particular the PMI report showed plummeting demand for export –perhaps due to strong pound. Would BoE also engage in currency devaluation? I think so.
US manufacturing – not great but certain better than many feared.
• US manufacturing activity grew more weakly than predicted in September and the slowdown is expected to continue in the fourth quarter, a key survey showed Friday.
• ISM is now at 10 month low. Particularly concerning is slowdown in New Orders – widely considered to be the best leading indicator of manufacturing.
US personal income – better than expected.
• Spending picked up in August with non-durable goods purchases leading the way. August is a big month for back to school shopping and the gains here are consistent with the August retail sales report. Even in hard times, consumers make sure the kids have what they need for school.
• But overall, the reported figures were all right in the expected range. No big surprise here.
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