Macro Man's pretty tied up today with market vol and admin. In the back of his mind, though, he's thinking about the following:
* The FT reports that the US has performed an about face and now legitimately wants a stronger dollar. If true, this would represent a change from the "word on the strasse" that the US Treasury was telling people after G7 that they wer relaxed about the dollar. More interesting from Macro Man's point of view was the mention that the weak dollar was pushing up energy prices; this jives with one of his hypotheses as to why China et al may have turned EUR/USD sellers.
* What odds that the ECB is more hawkish than expected today? On part perform, pretty darned high. Such an outcome might squeeze out some of the overnight euro sellers.
* USD/Asia is starting to remind Macro Man of recent action at the front end of global yield curves; broad and deep high-conviction positioning is being shaken out in ugly price action. Selling the front end of the USD/CNY NDF curve is now a positive carry trade!
* The downside of the Fed liquidity quid pro quo is starting to materialize. The SEC is going to require greater public disclosure from investment banks moving forwards, particularly vis a vis their liquidity and risk positions. Presumably this means that these calculations will no longer be made on the back of an envelope; now they'll be done on the back of a postcard.
*So much for efficient market theory; last night Macro Man was told about some suggested Senate measures (windfall tax on oil companies, changing futures margin requirements, halting SPR puchases) to deal with high energy prices, and that this announcement had sent stocks lower. This morning, he spoke with a buddy who manages an energy fund, and this chap couldn't find any mention of these stories.
* A story is circulating that Bush would veto the Graham/Dodd bill if it is passed in Congress. Now, Macro Man doesn't know enough about the specifics of the bill to comment on whether this would be a good idea or not. However, given the national mood and the amounts of taxpayer money that are being wasted elsewhere, it would seem to be a spectacular own goal to veto the legislation on the basis taxpayer cost, which Macro Man has seen cited as a couple of billion dollars.
* The FT reports that the US has performed an about face and now legitimately wants a stronger dollar. If true, this would represent a change from the "word on the strasse" that the US Treasury was telling people after G7 that they wer relaxed about the dollar. More interesting from Macro Man's point of view was the mention that the weak dollar was pushing up energy prices; this jives with one of his hypotheses as to why China et al may have turned EUR/USD sellers.
* What odds that the ECB is more hawkish than expected today? On part perform, pretty darned high. Such an outcome might squeeze out some of the overnight euro sellers.
* USD/Asia is starting to remind Macro Man of recent action at the front end of global yield curves; broad and deep high-conviction positioning is being shaken out in ugly price action. Selling the front end of the USD/CNY NDF curve is now a positive carry trade!
* The downside of the Fed liquidity quid pro quo is starting to materialize. The SEC is going to require greater public disclosure from investment banks moving forwards, particularly vis a vis their liquidity and risk positions. Presumably this means that these calculations will no longer be made on the back of an envelope; now they'll be done on the back of a postcard.
*So much for efficient market theory; last night Macro Man was told about some suggested Senate measures (windfall tax on oil companies, changing futures margin requirements, halting SPR puchases) to deal with high energy prices, and that this announcement had sent stocks lower. This morning, he spoke with a buddy who manages an energy fund, and this chap couldn't find any mention of these stories.
* A story is circulating that Bush would veto the Graham/Dodd bill if it is passed in Congress. Now, Macro Man doesn't know enough about the specifics of the bill to comment on whether this would be a good idea or not. However, given the national mood and the amounts of taxpayer money that are being wasted elsewhere, it would seem to be a spectacular own goal to veto the legislation on the basis taxpayer cost, which Macro Man has seen cited as a couple of billion dollars.
8 comments
Click here for commentsBloomberg has a report that PRC officials should watch for a possible large-scale exit of speculative capital, which may impose ``huge downward pressure'' on the yuan. This report cited, Mei Xinyu, researcher at the Research Institute of the Ministry of Commerce. And another quote:
Reply`If the yuan will continue to stay little changed, the hot money may flow out of the country with decreasing expectation of future yuan gains,'' said Yang Shengkun, a currency analyst in Beijing at China Citic Bank Co., a unit of China's biggest state investment company.
OK. Then why have they suddenly widened the spread on switching from HK$ to Renminbi in Hong Kong, in effect a tax on the deal, if Beijing thinks a huge spec outflow might be coming.
The sad reality is that in these days we haven't seen any energy correction due to stronger dollar, crude oil is doing new high in euro terms, so is correlation disappeared??
ReplyI think that all the game is based on expected economy pattern, market is betting on V letter, but around there are a lot of letters: W, L, U..?
So, MM, what's your letter??
For the US economy in 2008, my vote is "lambda"...i.e., an inverted V.
Replymm, sorry i've missed your insight of late. you've enlightened a few things that i haven't had as much time/incentive to follow during golden week. we heard an analyst today citing asian c.bank selling of euros, and some in the market were aghast. i think the meme of pboc euro buying is so ingrained that this will be a bit of a shock.
Replyand you've hit on many key themes. yes, even via the FT the US admitted that the weak dollar is leading to more inflation. of course, that was also supposedly one of the reasons for the G7 change of language (rather than france, the EM-ers on the fringe were rather annoyed at what the USD was doing to CRB and the like). but the fact there is a direct link between dollar/commods were certainly make voldy wake up and reconsider. i was reading a report the other night by a so-so investment outfit that was describing the potential hit to foreign reserves to some asian c.banks to fund purchases of commods given where prices are going. it's not hard to see where the change in sentiment would come from. and in the PBOC's case, why not target those nefarious offshore speculators! yes, they've provided the funds turned into euros. but now the PBOC can eat their lunch, stop CNY appreciation, protect their exporters and call it a day.
suddenly it starts to make sense, and the unnamed analyst may have had a point.
bund action today???
ReplyHey, Mr. McGee- glad to "see" you again. What makes the story really suspenseful is that Voldy has turned euro buyer again. I swear he must read my stuff and try to discredit it me by proving me wrong! ;)
ReplyAnon, crazy, crazy action in Bunds. Only explanation I can give is they've broken a fairly obvious set of resistance levels from 114.40-50. I am long a few, but sadly not enough on a day like today...
Is the reference to hedge funds doing their calculations on a postcard a way of saying they'll all be moving offshore US fairly quickly?
ReplyIf you were running a US domiciled fund what would you do with the carry tax and increased regulatory oversight coming down the pike?
ReplyYou would drink red stripe in the caymans is what you would do!