Fairly Uninteresting

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.

Posted by Macro Man at 9:57 AM  

21 comments:

Let the debt monetization begin.....

Asia still f-ing nuts. I've been long this momentum for months, got short for one day and got a bloody nose. Moral of the story: don't fight trends backed by Chinese retail.

Nemo Incognito said...
11:14 AM  

Did they hike the RRR in the end? Seems as if there was a rumour but nowt confirmed?

Macro Man said...
11:16 AM  

Nothing official yet, tried to find the journo at the 21st Century Biz Herald but no luck. Imagine some hiking etc does come after national day but for all I know my puts will be another 6% out of the money by then. IMF report today was interesting - assuming China would be able to block anything in that report the discussion of further appreciation of the Yuan is pretty strong. Fits the Brazil model of China turning in on itself, not giving a monkey's about exports, backing up crap industries domestically and then finally having the door shut by carbon tariffs imposed in December. Makes it quite likely that the market runs but that export driven stuff comes under serious pressure later in the year. FX wise, NDF levels should move up.

Interesting op-ed (english) from Caijing here. The "credit too loose" meme is catching on but sadly for my P&L today the market was utterly oblivious

http://english.caijing.com.cn/2009-07-23/110202368.html

Nemo Incognito said...
11:25 AM  

the whole aud recovery story starting to smell as though its gonna hit a wall early next year ... rates and fx markets tightening ... all required now is for hard commodities to come off after china inventory buid up and terms of trade heading south. forget about the aussie passoport, canada is the way to go.

Anonymous said...
11:41 AM  

Quite the contrary, if they revalue the CNY the bid for all those commodities is going up. Ags look particularly cheap if it comes with some rural fiscal stimulus.

Nemo Incognito said...
11:43 AM  

revalue the CNY? REvalue? I thought we'd concluded that generating enough internal demand was a futile enterprise...

Anonymous said...
12:01 PM  

Well waiting for the US consumer might take longer. Read the report, interesting read given how frank it was for a bunch of supra-national politically correct bureaucrats who can't afford to offend anyone.

Nemo Incognito said...
12:03 PM  

much to my dismay I disagree about the IMF... nobody actually reads their reports so they can afford to be pretty forthright, plus the quality of research is head, shoulders, torso, legs, etc above Street level...

Anonymous said...
12:05 PM  

US unemployment data consistent with recent trends ... taking out the auto re-tooling layoffs and the exaggerated seasonal adjustment, looks like August will run around 560k NSA first-time claims and 630k SA headline number, seasonal adjustments being unfavorable in August ... Today's will be the last good headline number for a while.... The mysterious drop in people receiving extended/emergency benefits last week was reversed, now again at record highs ... The number of continuing claims is rising and highest since April 25, not good since the peak layoff weeks of early January are expiring from the rolls. In general, a weak employment environment, about the same as April and slightly worse than Q2 as a whole.

Seasonally US employment is strong in Q2-Q3 due to preparations for Christmas and summer construction/agriculture/outdoor work, Q4-Q1 weak. The bull case is that weakness in construction is making unemployment worse than you would expect and we may not have the normal seasonal rise in unemployment in Q4. The bear case is that many businesses hang on through the seasonally strong Q2-Q3 and then give up c. October, and with a weak Q3 a lot will give up. There's still a significant risk of another October crash.

Anonymous said...
1:52 PM  

There are reports (Denninger) that the Dollar is being used for the carry trade.

Anonymous said...
2:38 PM  

On the subject of China, can someone please explain to me this paragraph from today's WSJ:

http://online.wsj.com/article/SB124831063020974381.html

"The People's Bank of China injected a net 141 billion yuan ($20.64 billion) into the money market this week, the largest weekly fund injection in six months, to ease tightening liquidity caused by China State Construction Engineering Corp.'s big share offer."

Am I correct that they printed $20 billion to facilitate an IPO? Maybe it isn't retail money driving this market. Maybe it is newly created government money?

PPM

PPM said...
2:40 PM  

Whenever there is a big IPO in China dn HK, money leaves bank deposits to pay for the shares. This creates a shortage of cash in the banking system...hence the injection.

Macro Man said...
2:47 PM  

MM,

Can you elaborate ?
SS prices in some tigthening into 2011 - much more so than other countries except the Aussies maybe.
Do you see the carnage coming in FI or SS or both ?

Hubert said...
3:03 PM  

Well, I think the issue is not so much how much tightening will the BOE do by, say, September of next year...but how much the market will eventually price. Short sterling being short sterling, overshoots are inevitable, so having some sort of short delta there makes some sense to me. So, too, gilts, I suppose, though liquidity there sucks (for futs at least) and I guess there's always the risk that the BOE expands QE or some reason, which would make a gilt short very, very painful.

Macro Man said...
3:08 PM  

cta abouts to start getting short the short sterling ... look out below

Anonymous said...
5:20 PM  

Feeling your pain today, Macro Man, being short of other people's USD hedging instrument (formerly known as oil), and experienced a significant pain in the portfolio area, but I guess that's what you get from being long quality stocks and short over-leveraged commodities at the moment. China looks like such a great short but I just can't go there yet.

leftback said...
5:26 PM  

LB, I've actually done OK this week/month. I cut all the equity short fairly close to the lows but left all my "risk-on" hedges in place, which have done nicely since. As I mused a few days ago, this is definitely a trading rather than thematic market...unless that theme is just abundant liquidity (which for the time being, it may well be.)

OH, and with KP out, it's game on for the rest of the series, eh?

Macro Man said...
6:33 PM  

Hubba hubba, no volume over here. I'm throwing elbows for 20 pips man.

How about Voldemort wreaks some havoc with the upcoming Asian and European session?

Professional Gringo said...
7:13 PM  

Macro Man, KP is overrated as a Test batsman, and besides, he fields like my granny. The bowlers are the key to the series, and if Freddie goes down again England would be in trouble, although Harmison is waiting in the wings.

Now, back to my regularly scheduled whine about the failure of EUR:JPY to reverse, thereby enriching LB and fellow US, commodity and China bears...

leftback said...
8:07 PM  

Fairly uninteresting? Yesterday maybe... All these beats stink, arguments made that bottom up analysis slow to change implies real turning point, but I'm still a slightly battered cynic (not as nimble as I should be). Your mention that JPMs beat was "synthetic" due to downward analyst revisions led me to find a story that Barcap had cut eps est from something like 40c to 5c 2w prior! SP500 1000 here we come?
JL

Anonymous said...
9:07 PM  

Where can I get vol for EUR/USD?

thx for the info

Anonymous said...
9:07 AM  

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