Tuesday, April 24, 2007
Markets feel strangely nervous today, and it's hard to pinpoint why. Sure, Target admitted that they'll miss their April sales forecasts, and of course, S&P noted that the subprime mess hasn't exactly improved recently. But still, those factors don't really explain the jitters being felt across asset markets today.
Take the FX carry trade (no, really- please take it!) The Aussie dollar in particular has been hit hard overnight on the release of much lower than expected CPI (0.1% q/q instead of the expected 0.6%.) This has obliterated any hopes for a near term rate hike, so investors will need to content themselves with the 6.4% they are currently earning on 3 month cash. Clear, a reason to abandon ship!
There's been some suggestion that the low print in Aussie CPI was all down to bananas, and that stripping out the monkey food would yield a quarterly reading more in line with the consensus. Perhaps...but it does appear that Aussie inflation, both with and without food, has peaked and is heading lower. That the AUD has been smashed on this stands in stark contrast with the NZD's reaction to a lowball print in New Zealand inflation last week. That the dip in AUD has not been gratefully scooped up as the dip in kiwi was last week may indicate that the carry trade is overdue for a dip.
In Spain, meanwhile, the IBEX has been pummelled lower, with property company Astroc leabing the charge lower. The shares of the Valencia-based developer have cratered in recent days with little apparent catalyst. Could it be ECB policy tightening is finally starting to bite? Or is it just that balmy weather in the UK has encouraged sun-loving Brits to abandon Spanish property in favour of the North Atlantic Riviera? Perhaps Charles Butler, proprietor of the excellent IBEX Salad, could shed some light on the issue....
Elsewhere, Macro Man has won a beer from a colleague as Abdullah Gul was announced as the AKP presidential candidate in Turkey. The solid performance of the TRY this morning in light of the news offers some suggesiton that today's jitters are just that- jitters.