Sigh. It looked like it was so on, baby, but yesterday proved to be something of an anticlimax. The opportunity hasn't been bungled quite as painfully as Mikey blew one of his; rather, we seem set to tread water until the earnings flow begins in earnest.
Still, there were a couple of notable features about yesterday's session. Stocks initially popped on the better-than-expected services ISM, but swiftly lapsed back towards the low of the day. That, at least, appears to be something of a sea change from price action of the past few months. The market sold off pretty hard to bad employment data on Thursday, and wilfully shrugged off good news yesterday.
What does that suggest about the underlying nature of the market?
Indeed, it took a late-session squeeze from Team 888 (the re-incarnated version of Team 1250, perhaps?) to engineer a positive close on the day.
Still, it looks like despite the optimism of institutional equity investors (try and get your hands on the latest piece from CS' Andrew Garthwaite), the momentum of economic surprise has waned considerably. Citigroup's US economic surprise index has finally started to lurch lower; as this series is both serially correlated and mean-reverting, it suggests that we should expect the tone of US macro data over the coming weeks to be poor.
Perhaps Team 888's mettle will receive a sterner test, and soon.
Elsewhere, today marks the end of the ECB maintenance period, so we should find out this afternoon whether they'll drain much of the recent "wheelbarrow tender." Strangely enough, much of the €442 billion uptake has found its way back on overnight deposit with ECB, presumably to await future liquidity needs.
'Twill be intresting to see what happens if the ECB drains (or doesn't drain) some of this liquidity. One could argue that the reaction of the euro and European equities (particularly banks) should be inversely proportional, though that ascribes a level of rationality to the market that Macro Man isn't inclined to extend at the moment.
In any event, perhaps it's irrelevant. Maybe we're stuck here until Team 888 gives up the ghost.
Still, there were a couple of notable features about yesterday's session. Stocks initially popped on the better-than-expected services ISM, but swiftly lapsed back towards the low of the day. That, at least, appears to be something of a sea change from price action of the past few months. The market sold off pretty hard to bad employment data on Thursday, and wilfully shrugged off good news yesterday.
What does that suggest about the underlying nature of the market?
Indeed, it took a late-session squeeze from Team 888 (the re-incarnated version of Team 1250, perhaps?) to engineer a positive close on the day.
Still, it looks like despite the optimism of institutional equity investors (try and get your hands on the latest piece from CS' Andrew Garthwaite), the momentum of economic surprise has waned considerably. Citigroup's US economic surprise index has finally started to lurch lower; as this series is both serially correlated and mean-reverting, it suggests that we should expect the tone of US macro data over the coming weeks to be poor.
Perhaps Team 888's mettle will receive a sterner test, and soon.Elsewhere, today marks the end of the ECB maintenance period, so we should find out this afternoon whether they'll drain much of the recent "wheelbarrow tender." Strangely enough, much of the €442 billion uptake has found its way back on overnight deposit with ECB, presumably to await future liquidity needs.
'Twill be intresting to see what happens if the ECB drains (or doesn't drain) some of this liquidity. One could argue that the reaction of the euro and European equities (particularly banks) should be inversely proportional, though that ascribes a level of rationality to the market that Macro Man isn't inclined to extend at the moment.In any event, perhaps it's irrelevant. Maybe we're stuck here until Team 888 gives up the ghost.
23 comments
Click here for commentsTop of the morning to ya from California. As you know it's bury the pedophile err.. Michael Jackson burial day and the media is somehow comparing it to the death of princess Diana.
ReplyI'm worried that my head might actually explode this time.
Dear world, please short the Banana Republic formerly known as the United States.
It's a channel. One big damn channel.
I, for one, am grateful to have watched an incredible exhibition of power tennis go down to the art of the shotmaker. Can anyone believe that Fed hit 52 aces serving at a much lesser speed than Roddick? Guess the 46" lcd was worth the investment after all.
ReplyA little heads up with the coming buy in dirty tricks. After having been in the position for three weeks on average. I had a little discussion with the trade desk about the five? days to find a borrow, rather than letting the squeeze run and force me in. We had to invoke the Father, the Son as well as Chris Dodd and Barney Frank. Wasted campaign contributions, but at least I learned the names.
I have cast the I ching to get your answer MM. ECB will mop up liquidity at 13:00 gmt. Good luck to your equity markets. It appears that the borg, the ones who absorbed Picard, not the great Swede, have consumer confidence at 17 month high. That does not seem bully to me.
as Trichet told us last week, the ECB will not engage in any extraordinary liquidity absorbing operations. the market will self-regulate to a lower level of excess balances (for example by taking up less in 1w repo operations), but it will take a while for the excess to dry up.
ReplyPerhaps the equity bulls have Chuck Norris on their side? He has fought a bear with his own hands and won..My sense is that investors out here in Asia are bullish. There is a growing belief (I think wrongly) that China will save the world...
Replyi think yesterday's price action still fits with the bear case.
Replyas for the CESIUSD Index. its a simple arithmetic yet very effective and useful. the VIX is no longer a good indicator, but economic forecasters' herding is still 'priceless'
China seems to be having a hard enough time keeping its own house in order....
ReplyMM,
ReplyHate to say it because I mostly agree with your take, but it might be a good moment to be net long equities - cautiously and with low expectations.
Who's going to generate the selloff? Leverage is low so contagion is less of an issue. There are no retail people parlaying their HELOCs into the brightest of all possible futures. Everyone else long is hedged and/or in for the duration.
Money should be able to be made on the slow and steady dismantling of the all-trades-are-one cartel, however.
Hi MM
ReplyDid you not hear yesterday, that Italy Berlusconi said that he believed that the "worst was over", while his Chinese Counterpart PM Hu Jintao disagreed and still saw "Significant Problems" for the Economy.
That is us in Asia! Always conservative.
Looks Our Nifty is ready for a dive and a break below 4100 would open up 3600
From India...
regarding the sell off after ISM services, if you do remember, we sold off aggresively after ISM Manufacturing last wed too (although we did pop up to new highs shortly after...which was a total screw job)
Replybut one thing is for sure. you cant make money by punting long into the figures anymore...
if the markets go down after good (better than expected earnings) next week that should reaffirm the view.... Nice post MM
regarding the sell off after ISM services, if you do remember, we sold off aggresively after ISM Manufacturing last wed too (although we did pop up to new highs shortly after...which was a total screw job)
Replybut one thing is for sure. you cant make money by punting long into the figures anymore...
if the markets go down after good (better than expected earnings) next week that should reaffirm the view.... Nice post MM
@from INDIA:
ReplyBerlusconi is ALWAYS optimistic, Jintao probably isn't conservative, he's realistic.
off topic but did anyone hear/see anything about the mysterious japanese duo and their New Zealand-sized treasure chest of USTs?
ReplyYes, I've listened something about two japanese in italy at the crossroad with switzerland, with 134 BLN dollars.. 249 Federal reserve bonds (500mln each) and 10 Kennedy bonds (1bln each).
ReplyNow: are they real or not? who is the owner (they're only for central bank..)? what's the meaning?
If they're true, Italy could keep for tax 40% of the amount!!!!!
yes indeed it's a big deal... so how come there hasn't been a single story about this for 2-3 weeks?
ReplyThere have been a number of stories. It seems fairly likely that the bonds are counterfeit...bearer bonds of such large denominations haven't been issued in many, many years.
Reply@Macro Man: I appreciate your blog a lot, while I must say that your understanding of central bank liquidity is rather poor. It is not strange that the liquidity is flowing back to the deposit facility. It is rather natural, i.e. the only way. Imagine central bank reserves like water in a closed system. Reserves cannot get lost (ok, they can, but only in very rare circumstances), so if the ECB is providing too much (i.e. in excess of reserve requirements and so-called autonomous factors) this excess will mechanically find its way back to the deposit facility (as long as there are positive interest rates for depositing with the central bank).
ReplyAnon, perhaps my understanding is poor, but there were a hell of a lot of people who bought, for example, Schatz, on the presumption that this excess funding would find its way into a positive-carry investment, rather than a 0.75% annualized negative carry one like re-depositing the funds with the ECB.
ReplyMM, 'fairly certain' deeply understates the case. The Treasury officials responded with their best bland, bureaucratic equivalent to "how are you even asking us this, you benighted lackwit excuses for journalists?" Those bonds are so fake it makes my eyes bleed. That 'news' story is of interest only to Ricky Jay and to those who (admittedly like yours truly) admire a gigantic, brazen confidence game.
ReplyYeah, you got me. I originally typed 'obvious' , then changed it to 'certain' because it had been a few weeks since I'd read the story and I couldn't remember all the facts on when the bonds were last issued and I was too lazy, er, busy, to look it up.
Replywhoops, I mean I changed 'obvious' to 'likely'
Reply@MM What you said certainly did happen. But that doesn't mean that the liquidity is not, at the end of the day, re-deposited with the ECB. Just imagine, somebody buying all that stuff you said for the carry, this somebody surely pays with cb reserves to somebody else, for instance a private agent wanting to get out of a long position. Now this agent has an increased deposit with his bank, which in turn then find itself in a cash surplus position. This cash is then sent to the ECB, since it still yields a bit of interest. So, the effect of all this is
Replya) a change of relative asset prices, i.e. the ECB takes out some formerly priced in credit risk from the market
b) a superlow o/n rate
Does this sound like a story you could live with?
Low volume, low momentum, low price action. What say you Voldemort on fair value, earnings season and upcoming price action.
ReplyFeed Voldemort and strap him into his chair and do share.
It's on, it's so on, baby! The bear trade I mean.
ReplyOn excess reserves being deposited with the ECB, don't discount behind the scenes deals. In the US the growth in the Fed balance sheet is almost entirely due to a backdoor bank bailout in which banks lent $1 trillion to the Fed, which the Fed used to buy asset-backed securities from the banks at above-market prices. Great deal for the banks, and relative carry rates are inconsequential to the decision. Look how the ECB is using the excess reserves, and cui bono.
On the bearer bonds, we don't know the full story. They could be fake bonds created by the US government for an intelligence operation gone awry, for instance. The Italians have killed the story, released the agents and the bonds, and quieted everything down. We'll never know the truth.