The Dreaded Return of Five Minute Macro

Thursday, July 30, 2009

Oh, dear. It looks like that most fearsome of beasts, "five minute macro", has made an unwelcome return. How else to explain the frenetic "risk on, risk off" swings that can most charitably be described as "erratic" and more realistically as "impossible"?

The "Great Fall of China" story was good for a few hours of juice yesterday, but even a poor five-year UST auction and tepid Beige Book couldn't propel stocks outside of their established ranges. Indeed, looking at 24-hour price action in S&P futures this week is pretty telling: there have been a few peaks and a few more valleys, but broadly speaking they're unched on the week. If only Macro Man could say the same about his P/L....
These kinds of markets are always tricky for Macro Man; short-term trading is not his forte, and he finds that cross asset correlations tend to weaken during periods of extreme noise. This, in turn, tempts him to layer additional, usually stupid, trades onto his portfolio. It's just as well that he's flying off soon and will disengage from micro-term price action.

Still, there are a couple of interesting developments that are worth keeping an eye on. The euro has traded very poorly indeed over the last 48 hours and seems to have broken its uptrend line against the dollar. Heck, even GS has stopped out of their research long. What's peculiar about this move is the degree to which central banks have been sellers of euros.
It became clear a few weeks ago that they had ended a dollar selling program, and have since been content to play the many cases trying to extract a pitifully small return from their punting. But all the while, money flows into these markets, with the CBs mopping up the flow (and accruing dollars.) If past behaviour is any guide, at some point the switch will flip for these bozos and they'll start buying EUR/USD more aggressively, and we'll get a pop higher, as was the case in May and June. In the meantime, FX will probably move in the direction that costs the most people the most amount of money.

Somewhat more interesting has been the development in fixed income markets. This week's two- and five-year auctions in the US have gone very poorly indeed; if today's seven-year auction makes it a hat trick, then there could be a bit of carnage. The eurodollar carry trade, having had a shocking setback after the payroll data in June, has subsequently recouped all those losses (and, in some cases, more.)

Yet it's all starting to roll over again.....much as it did, frankly, in the two weeks before the June downdraft. The chart of EDU0, pictured below, is pretty emblematic of the meaty part of the strip, and it looks pretty bearish from Macro Man's perch.
What odds that another seasonal adjustment-driven "improvement" in claims and a bad auction hat-trick generate a CTA puke-a-thon? Enquiring minds want to know.

Regardless, Macro Man cannot shake the feeling that markets are increasingly resembling a coiled spring. Tomorrow's US GDP print and, crucially, next week's payroll data could provide enough of a "signal" to push markets quite a long way in one direction or another.

Frankly, Macro Man's at the point where he doesn't care which way it all pans out, as long as it spells the end of five-minute macro.

Posted by Macro Man at 8:54 AM  


Let's end the twenty four hour macro. I don't know which devil decided to bid the gbp ahead of the astounding housing uptick. At this point, I will be crying crocodile tears when all the fledgling Trumps of the Isles get handed fifty percent haircuts on their investments. But bugger off already will ya. Ya just fodder for the Brown nose man and the Swerve to do what? Get through another month before a no confidence vote?

Bloomberg has turned into CNBC cheerleading service. It's all going to hell in a hand bucket.


Anonymous said...
9:48 AM  

Agree with Anon 9.48 re bloomberg's new CNBC slant. Must have taken ths fed/GS/illuminati shilling ..

Its all like living in "the Matrix" at the moment. The governing powers are sucking dry the very lifeforce of the populace for their own means, all the while providing there comatose bodies with an illusion of a false reality.

Dish out the Red Pills!!


Mr and Mrs Bollox-Innit and their son Saul

S B-I. said...
10:05 AM  

What do you make of this?

Anonymous said...
12:15 PM

correct link

Anonymous said...
12:17 PM  

Macro Man, I wish I hadn't come back from holidays. Trading the noise is extraordinarily labor intensive and marginal P&L at best.

How on earth did you survive as a market maker in FX options in your youth doing this if you hate the 5 min game so much?


Nemo Incognito said...
12:18 PM  

As tempting as it is, I find google trends crap for tracking memes. It just doesn't seem to work that well. For example, I don't think this captures what is going on right now that well:

Nemo Incognito said...
12:26 PM  

Nemo, let's put it this way: I was so bad at it that after a couple of years I got shunted straight to the dark side (read: a sales desk) for a year and a half....

Macro Man said...
12:44 PM  

MacroMan - Try waiting 20 minutes, your P&L may turn around.

What's with this claim that European earnings are good, any truth to it?

Anonymous said...
1:12 PM  

Yeah, there were like 70 companies reporting today...seems as if they were solid in aggregate. Divvy strip gone bid, which is a prtty good tell on how it was taken..

Macro Man said...
1:14 PM  

Do you really think next week's employment makes a difference at this point? Wouldn't the number have to be extremely far off expectations? Even then, don't we all sort of know we have employment problems?

1:28 PM  

Today's US first-time claims matched the consensus and were better than I expected. We'll have to see how this plays out in coming weeks, but I would characterize this as the best weekly report since Jan 3. On pace for US unemployment to peak Q1 2010 circa 11%. Consistent with July employment report showing a loss of 250k overall with unemployment 9.7%.

PJ said...
2:08 PM  

Initial claims, while punk, despite seasonal-adjustment noise have been at "improved" levels from their worst for a while. This heartens folks, rightly, into believing the end of the recession may have happened or may happen soon. And they're right: things probably trough in Q3 or so.

But that's still no excuse to go limit bid stocks, unless you expect a V-bottom. And a peak in claims is not enough for a V-bottom. The market is getting its bid nevertheless. As I have said, it just wants to rally.

wcw said...
2:31 PM  

not central banks sellers. actually "middle east names". are these rumors still working?

Anonymous said...
2:34 PM  

Question to all: bought 1000 mini calls to hedge the book, do we roll up to 1040 from here? This is nuts. I hope this 2 yr auction comes out wiiiiiide.

Nemo Incognito said...
4:05 PM  

2 year did come out wide (on Tuesday.) I have a sneaky susicion that the Cbs will coem back to play in today's 7 yr

Macro Man said...
4:07 PM  

I'm actually bullish on equities and even I'm surprised at the strength of this market - don't get in the way of this thing

Anonymous said...
4:11 PM  

7 not 2. I need to stop trading treasuries or adjust my sleep patterns - doing this out of asia when results come out at 1am is not cool.

Nemo Incognito said...
5:23 PM  

Can't handle the's neurotic need to explain away daily equity price action in ten words or less. There's a culprit for the five minute macro.

Anonymous said...
5:31 PM  

MM - Brilliant call on the CB's coming in to save the day on the sevens. Here I come to save the day, that means that Mighty Mouse is on his way. Or Charlie Chan.


Anonymous said...
8:51 PM  

You never said you were friends with Lincoln Ellis. Getting props on Bllomberg, from not a shill. Cool.


Anonymous said...
8:59 PM  

MacroMan - Good call on central banks, but also the Fed bought $6.5 bn of Treasuries today, That doesn't hurt.

Wouldn't be surprised if the US did some kind of deal with China to have it extend maturities at this recent pow-wow. The Fed balance sheet has been moving steadily out to higher risk, China is the last big pool of risk money still uninvested in risk assets.

Equity markets are at insane levels. I guess some of the hot money didn't want to wait for the GDP data, and sold at the US close.

PJ said...
9:56 PM  

Did Voldemort stop hoovering Euros?

The 5 minute macro has given me the itchy finger and I missed half the recent move on cable.

Professional Gringo said...
11:47 PM  

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