Wednesday, March 11, 2009
Repeat after me: six percent rallies don't happen in bull markets, six percent rallies don't happen in bull markets....
A six percent rally did happen yesterday, however, which tells you everything you need to know about what kind of market we're in. It was possibly (probably?) overdue, and now that it's come, it's time to survey the landscape and say "what now?"
Macro Man is struggling to get too excited, he must confess. 750 on the SPX, which more or less marked daily lows for a solid week before giving way, should provide some decent resistance on the way back up. That's only 30 points from yesterday's close; given that spoos have already rallied 50 points from the lows, the implication could be that the correction is already more than half done. Ouch. March is often a month when crowded positions get shaken out. If the equity rally were to get more legs, one possible casulaty would be the front end of Europe. German two years yield just 30 bps more than their US counterparts, despite the obviously larger spread in policy rates. True, the US has a bit of a supply issue, but still; given the scope of the rally in Schatz, euribor, et al, would a 30 bp backup in yields really be that surprising?
Speaking of yields, today sees the onset of QE in the UK. While the Treasury is auctioning Gilts as fast as they can print 'em up, the Bank will start reverse auctioning them out of the public domain. Somewhere in Westminister, Gordon and Alistair will share a quite high five, no doubt.
Finally, back to China. First, the good news. Fixed-asset investment rose 26.5% y-t-d in February, better than the expected 21%. Hurrah, the stimulus package is working! Looking at the details, however, Macro Man was less enthused. Despite dealing with a real estate bubble of tis own, Chinese property investment has yet to decline y/y, and in the first two months of the year represented more than 23% of all fixed investment. That's a higher percentage than was recorded for all of 2008. Not exactly what Dr. Keynes ordered when there's already a 14 year excess of office space in Beijing, is it?
Meanwhile, the trade figures were a literal shocker, as the surplus collapsed to just $4.8 mio, much less than both the January surplus of $39 bio and the expected $28 bio. Interestingly, the narrowing was all on the export side; imports actually rose in February (while still collapsing y/y on Macro Man's preferred 3 month moving average measure, of course.)
It will be interesting to see the breakdown by region when that data is released next month. China has recently swung into surplus with Asia, might today's figures suggest a reversal into deep deficit, which could buoy growth in the rest of the region?
Perhaps, but the anecdotes aren't supportive. The price of Australian thermal coal, used to provide electricity in manufacturing powerhouses like Japan, Korea, and Taiwan, is falling sharply due to collapsing demand.
Repeat after me: we're not out of this yet.....