The major financial news of the day is that UK CPI printed a surprisingly high 3.1% y/y this morning, forcing Mervyn King to write a letter to Gordon Brown explaining himself. This news has not been welcome to Macro Man, as he’s taken alpha portfolio hits on the long short sterling and long cable one touch positions. Beta portfolio gains have not fully compensated for these losses, unfortunately. Numerologists will be pleased to see that cable has broken through “the deuce”, though has yet to breach its pre-Black Wednesday high of 2.0115. Should such a breach ensue, there is fairly clear sailing to the topside, technically.
The Dec short sterling contract, meanwhile, is fully pricing in two more rate hikes. In Macro man’s view, this means it’s too late to sell out the position, though he is not quite brave enough to add. In the letter, King noted that today’s CPI report didn’t materially change the Bank’s view from its February inflation report, and that they are prepared to look through the short term volatility in the data. If the data hasn’t altered the Bank’s view, therefore, it would appear unlikely to alter their behaviour- so Macro Man doesn’t think it realistic that they will hike more than twice for the rest of the year, and that the balance of risk remains tilted towards an economic deceleration and only one further tightening. Thus, he sits tight on short sterling.
Inflation data in the US is unlikely to have a similar impact, barring an equally extreme miss. That being said, the continued failure of core CPI to turn meaningfully lower may continue to provide headaches for the Fed. Perversely, the recent rise in US yields has been largely real-yield driven, as breakevens have edged from 2.48% to 2.45%. Fortunately, TIPS are priced off of headline inflation, which looks as if it is now accelerating on a monthly basis while turning higher on a y/y basis. Macro Man is sorely tempted to add a long breakeven spread to his beta portfolio, though that’s more or less what he will have once exercising the TYM7 put options this Friday
Finally, a rare foray into political commentary- feel free to ignore this section. Macro Man spent a few days in Blacksburg, Virginia a couple of decades ago and really enjoyed it. He was therefore saddened to see news of the deplorable events at Virginia Tech yesterday. While the US certainly has no monopoly on random acts of senseless violence- 33 dead in a shooting is part of the daily menu in Baghdad, while the UK media has reported a steady increase in episodes of gang-related stabbings and killings in Britain- the frequency with which these sorts of episodes occur at American schools is depressing, to say the least.
Particularly galling is the ease with which firearms may be purchased. At Wal-Mart you cannot buy music that uses the F-word too frequently or makes fun of Jesus, but you can buy a gun with virtually no questions asked. This seems perverse. True, the second amendment guarantees the right to bear arms- but then again, the first amendment guarantees freedom of speech. Somehow, the potential consequences of blasphemy are deemed more undesirable than the potential consequences of gunplay. Hmm....where have we heard this before?
The literal text of the (poorly worded) Second Amendment is as follows: “A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed.”
Macro Man reckons he’s hit upon the solution. Require all gun owners and buyers to sign up for the militia, today’s National Guard. If state laws cannot dissuade easy access to firearms, perhaps the prospect of a tour of duty in Iraq can.
The Dec short sterling contract, meanwhile, is fully pricing in two more rate hikes. In Macro man’s view, this means it’s too late to sell out the position, though he is not quite brave enough to add. In the letter, King noted that today’s CPI report didn’t materially change the Bank’s view from its February inflation report, and that they are prepared to look through the short term volatility in the data. If the data hasn’t altered the Bank’s view, therefore, it would appear unlikely to alter their behaviour- so Macro Man doesn’t think it realistic that they will hike more than twice for the rest of the year, and that the balance of risk remains tilted towards an economic deceleration and only one further tightening. Thus, he sits tight on short sterling.Inflation data in the US is unlikely to have a similar impact, barring an equally extreme miss. That being said, the continued failure of core CPI to turn meaningfully lower may continue to provide headaches for the Fed. Perversely, the recent rise in US yields has been largely real-yield driven, as breakevens have edged from 2.48% to 2.45%. Fortunately, TIPS are priced off of headline inflation, which looks as if it is now accelerating on a monthly basis while turning higher on a y/y basis. Macro Man is sorely tempted to add a long breakeven spread to his beta portfolio, though that’s more or less what he will have once exercising the TYM7 put options this Friday
Finally, a rare foray into political commentary- feel free to ignore this section. Macro Man spent a few days in Blacksburg, Virginia a couple of decades ago and really enjoyed it. He was therefore saddened to see news of the deplorable events at Virginia Tech yesterday. While the US certainly has no monopoly on random acts of senseless violence- 33 dead in a shooting is part of the daily menu in Baghdad, while the UK media has reported a steady increase in episodes of gang-related stabbings and killings in Britain- the frequency with which these sorts of episodes occur at American schools is depressing, to say the least.Particularly galling is the ease with which firearms may be purchased. At Wal-Mart you cannot buy music that uses the F-word too frequently or makes fun of Jesus, but you can buy a gun with virtually no questions asked. This seems perverse. True, the second amendment guarantees the right to bear arms- but then again, the first amendment guarantees freedom of speech. Somehow, the potential consequences of blasphemy are deemed more undesirable than the potential consequences of gunplay. Hmm....where have we heard this before?
The literal text of the (poorly worded) Second Amendment is as follows: “A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed.”
Macro Man reckons he’s hit upon the solution. Require all gun owners and buyers to sign up for the militia, today’s National Guard. If state laws cannot dissuade easy access to firearms, perhaps the prospect of a tour of duty in Iraq can.
3 comments
Click here for commentsIt doesn't look like anybody liked that number much this morning. But you've got other stuff to worry about, lad. First, serial attacks on the conspiracy crowd at the Big Pic, and now gun control. You're asking for it.
ReplyGet your kevlar Armani out of the dry cleaner's.
Ha. Well, good thing to see that Europe just marches to the tune set by the US. I thought for a second that my screen said the FTSE was down 48 points and the DAX down 31. Silly me...
ReplyGood thing I live in a country where it's difficult to buy a gun on impulse. You wouldn't believe the rent I can get away with charging on the Armani Kevlar to mates on Wall Street...