Thursday, December 04, 2008
Today is all about financial limbo. No, not the zombie-fied state of most global banks, or a state of non-being after dying in sin (an apt description of all too many funds these days.) It's more a question of "how low can you go?", the motto of the stick-clearing dance which saw its heyday ion the 1970's.
It turns out that the governors of the Swedish Riksbank (one of whom is pictured, left) are pretty darned adept at the dance, as they cut rates by a resounding 1.75% this morning, substantially more than the consensus forecast of 1.00%. This, as far as Macro Man is aware, is the largest one-shot rate cut from any country other than Iceland, which frankly at this point is little more than a ward of the international community.
Far from his image as a claret-quaffing, pot-bellied City dweller, Mervyn King proved his limbo credentials last month with his resounding 1.5% easing. While he may not do the same again, (and then again, maybe he will), chances are the BOE drops rates at least another percent. Certainly that's the message from Macro Man's one-factor base rate model, which suggests that rates are heading to 2%.
Less adept at playing financial limbo is, of course, the ECB, which disappointed markets last month by only trimming rates by half a percent despite ample evidence that nominal GDP growth has hit a brick wall. Recent leaks from an ECB member (pictured, left) suggest that the bank is disinclined to do more than 50 bps today....hardly a recipe for success in new game of financial limbo.
Then again, the slogan on the T-shirt is a decent description of the attitude taken by European policymakers for most of the financial crisis, so perhaps it's not surprising that they're crap at the game.
There is a slightly different version of the game that will play out tomorrow, when the US employment report is released. After ADP and the ISMs, Macro Man has received a raft of forecast downgrades for tomorrow's payroll number, with some suggesting it could print -400k and one chap even suggesting an outside chance of -750K!!!
To be sure, the dynamic of the labour market continues to weaken, and the unemployment rate is likely to print somewhere just south of 7%. But the payroll figure is a real crapshoot; even if the "true" number is -350k, it is well within the real of statistical probability that the figure could print -200k, which would be a real surprise given recent survey data.
So Macro Man is on the hunt for low risk, low-cost plays on a better-than-expected number. Something of a holy grail, it seems, because the pickings are unsurprisingly slim. But Macro Man has learned this year to be surprised by nothing and to be wary of one-way bets; from his perch, that's what this payroll figure seems to be. He can't shake the feeling that playing for a -500k will be yet another exercise in "how low can you go"....of the P/L kind.