Thursday, July 23, 2009
Despite the on-the-surface tensions causedby earnings season and the Bernanke testimony, it's frankly been a fairly uninteresting few days. This is naturally the product of asset-price lethargy; if things were really wanging around, no doubt Macro Man would be decaliming on what interesting times these are.
To underscore the lack of interest at the moment, consider that the 10-day realized vol (close/close basis) in the EURUSD exchange rate is now less than 8%, the lowest since the heady days when one could buy and sell Lehman Brothers stock.
Uninspired price action is hardly the exclusive province of currency markets, however. While the 10 day vol of MSCI World is not at its lows of the year, it ain't for off. That in and of itself is pretty remarkable, actually, when you think about it, given that the observation window caputd the last gasp of the head-and-shoulders break and the subsequent uber-squeeze.
Not that everything, is uninteresting, however. There is a rather curious situation brewing in the UK, where Macro Man has frankly been surprised by the strength of the rebound in the economic data- and he's hardly alone. Today's retail sales figures, flawed as they may be, comfortably exceeded economists' expectations and validated the recent rise in the CBI distributive trades survey.
Moreover, the cumulative inflation surprised (measured by the m/m out-turn versus the consensus forecast) has been a whopping 1.5%. Hmm....stronger-than-expected activity data, surprisingly sticky inflation, a looming VAT hike....and a CB currently forecasting CPI to remain below target for the entirety of the next two years.
C'mon, kids, let's play "which of these things is not like the others?"
With an updated quarterly inflation report due for release next month, there's a decent chance that things could get a bit spicy in UK fixed income markets. Although some tightening is priced into the curve next year, something tells Macro Man that the market isn't yet ready for the BOE to begin laying the groundwork for a foreseeable withdrawal of some of the extraordinary monetary stimulus.
Should that prove to be the case, Macro Man suspects that things just might get a little more interesting.