Monday, July 28, 2008

And the winner is.....

Why is it that the office air conditioning only goes out on the hottest day of the year? Such is the case today; while Macro Man is usually loathe to criticize UK weather for being too warm, he has to concede that being trapped in a trendy building with no open-able windows and no aircon is not the most pleasant environment in which to confront a new week's trading.

First things first, however. Macro Man is proud to announce the winner of the first annual Banking Dead Pool. It was a close vote, and at least one reader suggested privately that he had followed Al Capone's maxim to "vote early and vote often", which casts some doubt on the validity of the result. But the contest auditors
have verified the poll results, and the winner is.....Lehman Brothers (pictured above, left.) Macro Man extends hearty congratulations to LEH and is pleased to present them with the coveted Golden Coffin Trophy, pictured left. Better luck next time to Bradford and Bingley, which missed out on victory by the narrowest of margins (2 votes out of 477 cast.)

The market has a clearly summery feel to it, and you can easily see a few days of back-and-fill price action before US Q2 GDP on Thursday and Unenjoyment Day on Friday.

In the meantime, there are a few developments in the EM space that Macro Man is tracking:

1) Mexico becomes embroiled in the currency/inflation conundrum. Until a few months ago, the market consensus had Banxico on hold and USD/MXN was going nowhere fast. Since then, Banxico has hiked rates 0.50% and looks primed to do more, thanks to rising headline and core inflation (chart below.) Unsurprisingly, this has lent a bid to the peso, which has strengthened 4% against the dollar since the end of April. It was 5 percent, as USD/MXN spent the middle part of last week just above 10.00, and looked a dead cert to hit "El Nueve" imminently. On Friday afternoon, however, Banxico announced that they were halting their dollar selling program, which spurred a rather nasty short squeeze in USD/MXN. In the fullness of time, will Mexico choose to fight inflation or go fort growth? Inquiring minds want to know.

2) China switches tack. One country that does appear to have made the decision to go for growth is China, where the Politburo made a weekend policy announcement suggesting that China is moderating its inflation concern to support growth. This has led to a bit of short-covering in USD/RMB. Usually, it would mean a bid for something like AUD/USD, but the news of losses at ANZ have taken the lustre off of the Ozzie for the time being.

3) Big decision in Turkey. Will they or won't they? We'll hopefully get a decision this week on whether the ruling AKP party will be banned or not. Turkey is a darling of the carry crowd but has ground to a halt recently in the build-up to the decision (though the equity and bond markets have been pummeled over the last few months.) There should be quite a tasty move in either direction once the decision is announced.


Anonymous said...

Is this the source of "inquiring minds want to know"?

English minds wish to know as some of the nuances of US cultural references are lost on us.
PE ratios still toppish, think its going to be an interesting August.
Cheers, JL

Macro Man said...

JL, it is indeed. That tagline was a staple of daytime TV when I was a kid.

Gregor said...

The two stories that interest me the most right now are:

1. China's shift on the Yuan (which surprised me b/c I felt they wanted to continue to let the appreciation go onward as I felt it has helped to blunt the rise in oil).

2. The signal from Russia that resource nationalism, and resource hoarding (Hotelling Rule) are not fading but ramping up again.



Anonymous said...

Mexico is in a more dangerous state than most investors seem to realize. The southern part of the country is basically in a state of insurrection, held down by the presence of troops. Food prices brought on a great deal of suffering nationally and the government is not exactly competent. This was illustrated by floods in the not-too-distant past, in which they failed to warn the populace that the dams were certain to overflow. Corruption is at exalted levels, even by Mexican standards. And if/as the US goes into recession, the level of remittances will fall (not to mention a decline in tourist revenue). That's either their second or third largest source of income, if I recall, so it's a very big deal.

This is one global macro I would delve into pretty deeply before investing. Granted, they've fooled me so far.

-Charles of MercuryRising

Anonymous said...

Being 1 of the 142, or was it 2 of the 142, Lehman Brothers winners I will await the receipt of my prize by post with feverish anticipation. And I truly hope that my prize does arrive before Washington Mutual goes under and ruins the spirit, and integrity, of the entire contest.

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