That Time Of The Month

Friday, September 04, 2009

It's that time of the month again already.....and with a full moon to boot! Bring out your crystal balls, ouija boards, tea leaves, and the collected works of Nostradamus, John Dee, and Hermes Trismegistus. Yes, ladies and gents, it's payroll day today.

The data comes at a curious time for markets, which seem uncertain about whether or not to lurch into the usual September downdraft, or whether to execute a trampoline-style bounce. Certainly the mandarins in Beijing are attempting to execute the latter, with yet another "regulatory enhancement" announced today- namely, increasing the maximum QFII quota per asset manager from $800 mio to $1 bio. In the context of the size of the A share market, this is like increasing the weight of foreign participation from a proton to a neutron.

(This hasn't stopped the usual suspects from trumpeting the impact of the move, however.)

In any event, we're at an interesting juncture in the US labour market. The straight-line deterioration in the data has evidently come to an end; while the unemployment rate dipped for the first time last month, ancillarly indicators like weekly claims and the jobs hard to get component of the Conference Board survey showed signs of stabilization/improvement earlier.
So really, we could get anything today, and that's outside of the usual statistical frailties of the data. Your guess is as good as the magic 8-ball's.

What's notable, however, is the fairly extreme change in market pricing since the last, reasonably "strong" employment figure. While US fixed income of every stripe was marked lower on August 7, the following Monday saw a strong bounce that has continued uninterrupted to this day. The rally in the eurodollar strip has been particularly impressive, with the reds and beyond all rallying 75 bps or more.
To be sure, that's partially a function of jittery equities, partially a reaction to dovish rhetoric from Jackson Hole (though that didn't stop Stan Fischer from jacking rates up), and partially a function of the continued decline in spot LIBOR.

But at the same time, it's also ignored the fact that the cyclical data has remained pretty decent over the last few weeks, as evidenced by the Citi economic surprise index.
Of course, as noted the other day, this divergence could simply represent a warning sign that so-called "smart money" is rotating out of the bullish trades and positioning for weakness, as we seem to be at the apex of enthusiasm for the inventory rebuild and cash for clunkers.

On the other hand, it could just be a naked carry trade; certainly we've seen that in other markets such as Euribor.

Either way, it looks like a lot of risk premium has been taken out of the eurodollar strip, and it doesn't look like a bad bet to take a punt on a correction of the last month's trend, whatever the NFP randomizer spits out this month.

Posted by Macro Man at 9:28 AM  

19 comments:

I think usdjpy is set up for a bounce. Street heavily short cross yen and a potential false break on 10yr UST.although anything is possible on payroll Friday.

Anonymous said...
10:28 AM  

Nice analogy,MM, though I suppose it won't make a particle of difference (see what I did there?) Just remember, though, that a tiny change in nuclear mass is what powers the sun.

But What do I Know? said...
12:32 PM  

What is the deal with the Kiwi? Is it all about rate hike expectation?

12:34 PM  

Both the Kiwi and the Aussie are essentially the Energizer Bunny right now. They just keep going and going with nothing ever getting in their way.

Anonymous said...
12:39 PM  

Re: NZD...well, the day ends in "y" but doesn't begin with "s", so by definition some short kiwi possys have been stopped out.

BWDIK?: True, nuclear fusion powers the sun....but to extend the analogy, at some point a stellar core runs out of material, and stars collapse on thmselves.

Macro Man said...
1:14 PM  

well, the kiwi is obviously not about general agri commodity weakness.

the only reason i can see to be long is the hands off approach by the government compared to other neighbours...seems to be carry trade but vs USD now rather than JPY...RBS had a piece on the seeming "undervaluation" of the JPY risk crosses vs SPX

Anonymous said...
1:28 PM  

Question to all, in terms of eurdollars, what does the the term "REDS" refer to? I have also heard other terms for parts of the strip

Thanks in advance

AS. said...
1:38 PM  

whites = 1y (so contracts 1, 2, 3, 4)
reds = 1y fwd 1y (so contracts 5, 6, 7, 8)
greens = 2y fwd 1y (so contracts 9, 10, 11, 12)

note this assumes quarterly months only, no serials

there are also blues, golds etc...but first 12 contracts most widely traded

Anonymous said...
1:44 PM  

reds = the pack of 4 quarterly contracts one year out - so current red pack = sep10. dec10. mar11, jun11

Anonymous said...
1:50 PM  

Seems to me like people betting on a surprise NZ rate hike next wed.

2:03 PM  

That is not happening, no way, no how.

Macro Man said...
2:04 PM  

"With both inflation and deflation perilously close to the terrifying figure of 0, and the sun's radius still expanding inexorably on a daily basis, gold seems set to advance again today", said Hans-Jürgen ("Hansi") Oberscheißer, a commodity trader at Oberscheißer & Überscheißer Metallgesellschaft GmbH, this morning. "We also like the US unemployment figure of 9.7%", he said. "This is very bullish for gold as unemployed Americans are known to order gold-plated faucets for their bath tubs, and gold hub caps for the Ford Pinto."

leftback said...
2:06 PM  

there is more behind the kiwi story than just a simple rate hike

http://www.economist.com/businessfinance/displaystory.cfm?story_id=14363244

only exposure I have to that part of the world is a small AUD/CAD possie

Anonymous said...
2:31 PM  

to AS.

blast from the past - when locals were physically standing at CBOT in a long row- different tenor futures local were denominated by their jacket colours hence the colour assignment to the tenors.

Anonymous said...
3:19 PM  

feels like fx market is still searching for direction at the moment..notch one up against another long series of headfakes as false breaks.. guess were are likely to close where we started the week as far as most G10 is concerned.

Anonymous said...
3:22 PM  

Thanks all for your explanations on whites, reds, greens and the wonderfully colourful spectrum of financial contracts. Now I can colour coordinate the line items on my PA. :)

Thanks Anon at 3:19pm, I thought there may be some legacy reason.

AS. said...
3:42 PM  

This may be why FNM and FRE had such a big run-up over the last few weeks:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHgWaKmdS9yw

Perhaps they will be flushed now?

leftback said...
4:04 PM  

MM is right, The chance of a RBNZ rate hike next week is 0.01%

Bollard made the following comments on NZ National Radio on the 31st of August

"The market's always got its own views, and often it's wrong. We'll come out with our views next week and we'll be, as usual, clear cut about that"

One NZ bank, ASB, is actually betting that the RBNZ will cut the OCR next week by 25bp's and have already dropped their floating mortgage rate in preparation. Although, they are alone in their thinking among the NZ Banks.

byronical said...
3:00 AM  

Ever since the heady days of the Japanese housewife NZD uridashi craze, I've had to shake my head at the trading that goes on in these NZD instruments.

This is a country which ranks 60th in world GDP, sitting behind Belarus, #59. How macro can you be when you're speculating about an export economy which primarily exports meat and dairy products?

Anonymous said...
8:34 AM  

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