Thursday, July 02, 2009

Although it's only Thursday and the Fourth of July is still two days away, there is potential for an early set of fireworks today. While this afternoon's ECB meeting may be somewhat less interesting than usual, tomorrow's US holiday has pushed the release of non-farm payroll data forward to today.

And you don't need to be an elephant to recall what happened at the release of the last payroll report; a better-than-expected headline generated carnage in fixed income markets, though as the chart of front Dec eurodollars shows, many contracts have subsequently retraced virtually all of their post-payroll losses.
Still, positioning seems a bit lighter (or at least warier) than a month ago, and the Fed has tried to dissuade markets from expecting an early tightening. Given that yesterday's poor ADP figure (which admittedly is as useful for projecting monthly payroll data as a bag of chicken bones and a magic 8-ball) was merrily shrugged off by equities, perhaps the fireworks could come in stock market space today? Just wonderin'....

But we've already had at least one firecracker today, with the Riksbank unexpectedly cutting interest rates and offering a one-year fixed rate tender at 0.40%. Naturally, many of the same analysts who wholeheartedly endorsed shagging the dollar when the Fed cut to 0.25% and engaged in QE now claim that the surprise Riksbank move doesn't alter their (bullish) SEK forecasts. Such is the luxury of not having a P/L...

Elsewhere, the flightless bird looks like it's been dropped out of an A380 and could be set to plunge to earth. There are ~4 bio of NZD uridashi bonds maturing this month, and the bulk appear unlikely to be rolled over. Meanwhile, the price of milk continues to drop; the latest Fonterra auction shows milk prices dropping 15% from May.

(The chart below shows US milk prices, but the trend is very similar.)

A local flavour on the Fonterra auction can be seen below:

Is it just Macro Man, or does this chap remind you of Murray Hewitt?

Elsewhere, the good news keeps on rolling for housing. It appears that the agencies have decided that the best way to deal with a global crisis caused by too much leverage in the housing market is to.....increase leverage in the housing market by offering 125% mortgages!

WTF? Can it really be that these clowns still don't have a Scooby this deep into the crisis?

As always, the solution appears to be throw debt and leverage at the problem and worry about who pays later. Sadly for the state of California, the time to pay is now, and the well is dry. Perhaps receiving a non-legal tender IOU from the Terminator (not personally autographed, alas) instead of a tax refund check won't affect consumption....but then again, maybe it will.

Hmmmm. Perhaps California should consider paying for Chinese imports into Long Beach Port with Arnie-bucks? After all, the Chinese clearly want an alternative to the dollar (which they're either pushing or not for discussion at the forthcoming G8 meeting); given that no major banks are accepting Arnie-bucks, California's IOUs are clearly a distinct instrument. C'mon, Arnie, make it happen: everyone's a winner!

Posted by Macro Man at 8:33 AM  


Why didn't we do a Wile E. Coyote at 2pm est in the equities when Arnold gave us iou's instead of helicopter bucks? Does anyone price risk now, or am I the only fool who thinks that this is a preamble to something very bad? I do not feel connected to the rest, although this is not a new condition. I just want some sleep.

MM, not to ascertain your social standing, but are you going to see Murray in the semis. If you want some company for the finals and you are getting comped, I will fly over.

H(oratio) said...
9:32 AM  

I have become completely numb to fundamentals of anything but enjoyed the HSI's mystery collapse this afternoon. Everyone seems to be catching on to the Michael Pettis thesis on Chinese debt but reading some Japanese monetary and fiscal history from 85-90 I don't think the conga-line of decouple-tards is stopping for anyone just yet.

Nemo Incognito said...
9:45 AM  

Horatio, I was originally supposed to be doing a driving day tomorrow, but sadly the swollen knee has forced me to withdraw. A late bid for tickets to tomorrow's action has thus far not been filled (any readers looking to take a friendly Macro Man to the tennis tomorrow, let me know!), though in any case I am no fan of Murray's. As for the final....I'll be at Goodwood on Sunday with the family and some friends...

Nemo, I too enjoyed the HSI's little shelling. Mike Pettis is just about the only one I believe on China, for the simple reason that he's the only commenter that I can discern who doesn't have a vested interest in the recovery story being true (or not true, as the case may be.)

Macro Man said...
9:52 AM  

Andy Xie (ex Morgan Stanle who was booted out of a small country south of China for telling the truth) has sensible views on China. See his articles on the "Caijing" website, quite a good one recently called "Fear the dark side of China's lending surge"

Anonymous said...
10:28 AM  

Yeah, you're right, he's quite good. Caijing generally seems to be a refreshingly independent source of news onshore...both Pettis and Xie are featured there.

Macro Man said...
10:33 AM  

There is also an independant economist out here in Asia called Jim Walker(ex CLSA)who is very good also. He is from the "Austrian School"

Anonymous said...
10:54 AM  

North Korea tests 2 missiles and its only worth a point spoos. Armageddon ain't what it used to be

Nemo Incognito said...
11:07 AM  

hmm, if it wasnt mid summer and 4the july week i might put more worth on the hints of weakness in the usual risk suspects. interesting spanking of hte USD yesterday, cable nor kiwi a willing participant. red flag?

Anonymous said...
11:23 AM  

I would love to see another reaction like last month to the NFP number. The chance to buy Fed Funds futures at bargain prices made my whole quarter.

Anonymous said...
11:26 AM  

The jawboning from China is indeed starting to get a bit ridiculous. Yesterday afternoon they float the idea of discussion of an alternative reserve currency and the Euro barely moves and now more than a big figure lower and ambiguity on whether they will broach the idea. I really wonder if and when the banks will stop quoting Voldemort, or at least quote them 20 wide in clips of max 100 when dealers know there is another yard or two getting stuffed down the market's throat elsewhere.

Anonymous said...
11:32 AM  

Bernard Hickey (twin of Murray Hewitt)gets far too much time in front of a camera in NZ. Ma's & Pa's seem to think he has a seat at the top table of world economists, but he is really nothing more than a guy who reads the business section of a few online newspapers and regurgitates them as a PR exercise for his website.

Anonymous said...
12:54 PM  

I thought 'Murray Hewitt' was a pss take on Andy Murray and Leighton Hewitt :)

Anonymous said...
12:57 PM  

Yeah, I know nothing about Hickey other than he has the floppy hair and silly beard of Murray. I half expected him to say "band meeting" in the middle of his little blurb.

Anon @12.57, for shame! You need to check out Flight of the Conchords.

Macro Man said...
1:20 PM  

sorry to interrupt the water cooler chat.. but what do we think of the price action post nfp ?
is this going to be tossed aside like most poor data in recent days?
or has this bull run used up its 9 lives ?
on my charts if we break below 905-910 than its going to be a standing count first, and then probably an early shower for the Big Green Shoot

spagetti said...
1:53 PM  

Let's see where equities are at 3 pm. I had a little go at selling after the number...and of course, futures are a bit higher. Fixed income done what it says on the tin....EDU9 now completely converged on LIBOR, and even March went 99 bid.

There are a lot of potential head and shoulders formations developing across indices, so it does indeed look like things could get interesting, especially if earnigns suck.

Macro Man said...
2:01 PM  

just got an uber-confident bloomie msg from a salesguy; no reason for the S&P to break 900. why would anyoe make a statement like that, when its less than 1% away.

spagetti said...
2:09 PM  

Was he from GS, perchance?

Macro Man said...
2:21 PM  


Nemo Incognito said...
2:22 PM  

Big picture... does anyone think the S&P will make a new low (break 666)?

Anonymous said...
2:30 PM  

Drew Baptiste at Morgan Stanley does. I'm not sure if I believe him, though if the last year has taught us anything it's that stuff can go a lot further than you dreamed of.

Macro Man said...
2:35 PM  

cad getting slammed again, equity/ commodity pull bk certainly a factor(also for aud, nzd) BUT cad's been getting slammed across all currencies recently, what gives?

Carney talked off QE last time, and didn't speak of intervention too forcefully,

is it jus that cad is tied way more than other commo block with the Us recovery.

Also, there is some expectation of chinese oil firms making a go into some of the canadian independents, that could be a factor eventually

tom said...
2:43 PM  

Consensus is probably not thinking about a new low, right? Emerging market equities are probably a better sell if risk appetite does lurch lower again. Valuations are elevated and prices overbought...

Anonymous said...
2:46 PM  

AUD has more "China" leverage than CAD, iron ore is the key commodity - - that's the perception...

Anonymous said...
2:55 PM  

Any piece by Drew Baptiste that we can read? I also believe that it is time for bear to come out but not sure where the bottom is.

Anonymous said...
2:58 PM  

the loonie is getting humped because while everyone goes on about it being a commodiity powerhouse, the population is in hock to their eyeballs and still spending like no tomorrow. i think it is a great short vs the USD. it also has an even more inefficient government than the US...people over there think it is a great catch to get a govt job...usual reasons...nice pay, nice hours and fat pension...

nice reversal in Fedex today, well at the moment before it gets ramped 3 bucks into the close.

Anonymous said...
2:58 PM  

yes MM
from GS..
and indeed it didnt break 900 for a whole 30 minutes after he sent it out

spagetti said...
3:04 PM  
This comment has been removed by the author.
spagetti said...
3:04 PM  

We need something, anything, to repeatedly kick the FX in the nuts.

And I have a new term for this market "death yodeling." But I'll bet you that all hell will break loose in the next 3-4 weeks.

In the meantime I've put a fan and a bottle of tequila at the desk. Here in California you can only use your Arnie dollars at the Mexican restaurants as they haven't figured it out yet. Bless them.

Professional Gringo said...
3:06 PM  

So we broke 900 but we still have a mexican standoff around 898. Somehow I think we're all getting a little to excited about this.

Nemo Incognito said...
3:21 PM  

Drew's a technician, and an Elliotician at that, so his stuff can be a bit of a slog at times for non-believers.

I certainly don't think consensus is looking for a new low in the major indices, let alone in the IBOV, HSI, etc. The problem with shorting the latter, of course, is that can be a bit more costly to do in terms of bid/ask, volatility, etc.

No real view on the loonie, though there was a lot of kerfuffle about buying it on the crosses yesterday against stuff that looks even worse- eg the antipodeans. I think everyone who trades FX has a few bete noir currencies...for me, the CAD is there along with the be warned that I'm not the best one to listen to on CAD.

Spagetti...why isn't that a surprise?

PG, I suspect Mrs. Watanabe (or, more accurately, her husband) might be about to get kicked in the nuts as yen crosses cascade lower....

Macro Man said...
3:22 PM
So this is why crude rallied the other day, a rogue broker?!

Anonymous said...
3:41 PM  

Perhaps a few ticks but both WTI and Brent trade in total well over 1 billion barrels each day in futures so that rogue broker did not exactly put the market on fire.

Anonymous said...
3:58 PM  

Hmmmm....spagetti, I'm told that GS has been the 898 bid in the minis all day. Perhaps your sales guy knew somnthing????

Macro Man said...
4:22 PM  

Yiminy, what an unpretty set of numbers with claims and NFP. My current favorite green-shoots second-derivative indicator (PDF) just went flat on them.

I'm still roughly zero effective beta, probably -0.1 in dollar terms, but thinking of broad-market short-dated puts.

wcw said...
4:23 PM  

re GS sales guy
he is ex-EM sales, so always bullish. thats what i figured. but maybe GS is indeed busily propping up the mkt ?
i never believed these consp. theories.. but there was so much suspicious price action the last 1-2 months, that im beginning to wonder..

spagetti said...
5:32 PM  

So word is a certain bank paid 7% for overnight money last night.

Any clues?

Professional Gringo said...
5:58 PM  

9.5% unemployment 125% mortgages when i was young you went to the US to earn real money and escape the socialists sad state of affairs

maple leaf said...
7:19 PM  

ITS A BULL MARKET!!!!!!!!! Get your cowboy hats on.

Alls I know is if this market breaks that neckline there will be alot of ashamed analysts and forcasters out there.

We can only hope....

Anonymous said...
10:00 PM  

"does anyone think the S&P will make a new low (break 666)?"

I do, but probably not this year. It will take a confluence of negative events combined with a reversal of the slowdown of the rate of economic contraction.

"The problem with shorting the [HSI], of course, is that can be a bit more costly to do in terms of bid/ask, volatility, etc"

The futures trade over 50,000 contracts a day. There is certainly a lot of volatility, but I think that makes it easier to put positions on, unless you want to do a huge number at one time.

Anonymous said...
2:04 AM  


Appropo of nothing in general, I'm envious that you're off to Goodwood..a pity about the driving day.

Secondly, nice to see your stuff on SA on a semi-regular basis, although I suspect 90+% of your stuff is over their heads...(mine, too).

"Old Trader"

Anonymous said...
7:21 AM  

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