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.
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