2010 10 29

I am feeling nervous.

US GDP was basically in-line with trend : so-so. Not great but not bad enough to warrant a sell-off. I believe the path of least resistance is still up for risk assets based purely on fundamentals.

Next week will be HUGE.

Monday is a flood of manufacturing data for Oct from around the world.

Tues-Wed is Fed meeting where the market is eagerly awaiting on details for QE2.

Curiously Japan moved up its BoJ meeting from Nov14 to Nov 4, presumably to respond to US Fed loosening which can push up yen even higher. I am guessing a massive stimulus package from Japan which could push down Yen and push up Nikkei – in the short term. I would use this opportunity to short Nikkei.


In general though I think we are coming close to end of this rally that began in early Sep. I don’t see any great economic upside surprise coming from anywhere in the world. Central banks would have more or less exhausted their bullets after next week (I think BoE and ECB will loosen too but that would impact mostly currency and bonds and not have a system wide impact like US Fed). AND investor sentiment is already extremely high.

We must tread with extreme caution here.


Japan data continues to get pounded by bad data
• Industrial production for Sep comes in way short of expectation
• On top of very weak retail sales data from yesterday.

Korea – weaker industrial production for Sep

A rare bad news for Germany – retail sales dip in Sep first time since March 2008
• German retail sales posted their biggest monthly drop in 2-1/2 years in September, clashing with recent figures that had painted a rosier picture of consumer demand in Europe's largest economy.
• "This is a very weak result. It dampens the expectations that private consumption is taking off like a rocket," said Ralph Solveen from Commerzbank. "However, one should not forget that retail sales data often fluctuate heavily and are revised frequently."
• A survey by market research group GfK on Tuesday showed consumer morale remains at its highest level since May 2008 going into November on expectations of a continuing recovery, bolstering hopes that improved domestic demand will take up much of the slack if export growth runs out of steam.

US GDP – Not Good, Not Bad, just OK
• The theme continues. It’s not as bad as recession. But pretty poor and future does not look very good.
• 2% is nothing to cheer about as US needs about 2.5%-3% just to maintain the same employment. Although it was better than 1.7% in Q2.
• Consumption growth was solid enough, increasing by 2.6%, up from 2.2% in the second quarter. But households had to dip into their savings to afford even that modest increase.