Monday, October 05, 2009

Drilled

Don'tcha just love payroll day? The number was an unmitigated shocker, which duly produced the expected gap lower in equities, risky currencies, and yields....only to be followed by a slow grind higher in all of them throughout the rest of the day. Indeed some of them, especially in currency space, ended comfortably higher on the day.

While the headline figures in the report were bad enough, beneath the surface the details were, if anything, even worse. The household figure, for example, was nearly the worst in a quarter century, other than the uber-weakness observed around the turn of the year. The chart below, incidentally, illustrates why it is the NFP is generally followed, rather than the household data. For all its flaws, the payroll figure is substantially less noisy than the HH data; if markets were to discard the former as fatally flawed, the end result which almost certainly be an uptick in market volatility given the substantially higher vol in the monthly household figure.
In any event, the week has started relatively slowly...though somehow, Macro Man has managed to lose a little bit on most of his positions, which sums to an irritatingly large portfolio-level result. As if that's not bad enough, he will be paying another visit to the dentist this morning, where the cavities discovered a month ago will be drilled and filled. Irritating, indeed.

In any event, the G7's pleas for China to allow its currency to move are now bordering on the pathetic; the impotence of this "organization" leaves Macro Man shaking his head. One hint as to why the RMB has remained stable may be found elsewhere in Asia; Korea, for example.

The currencies and equity markets of Asian economies are usually pretty highly correlated; they either price in happy days or risk aversion in tandem. What's interesting is that recently, as foreigners have been orgiastically piling into all things Asia, the market performance has been rather poor, led by weakness in the exporters.

Observe in the chart below how the KOSPI peaked a couple of weeks ago and has since fallen steadily, despite the ongoing strength of the KRW.
Now perhaps this can continue, but Macro Man wouldn't bet on it. These things have a funny way of snapping back when you least expect it. And if Q3 earnings season, which kicks off with Alcoa Wednesday night, turns out to be a disappointment? Let's just say that Macro Man's teeth might not be the only things to get drilled.

39 comments:

Nemo Incognito said...

Alcoa will probs pop on cash for clunkers but when Kleinfeld gives his outlook ex that it and the materials space should start to slide. Channel checks here do not look good.

Anonymous said...

KRW rate hikes

Anonymous said...

Regarding payroll data, what about the interesting "rumor" about how the BLS's model is failing to account for an additional 835,000 or so jobs, and that the y/y adjustment come first of the year will be horrific?

Green shoots!

-Ivanovich

dblwyo said...

Payroll was adjusted down by over 800K jobs anyway (cf Floyd Norris of the NYT). The two really interesting things, aside from using YoY changes to smooth and look for patterns, is that LT growth forecasts are for 2.5% real GDP growth which results in breakeven on employment. Which does not make up the -12million in the hole US jobs. If the US consumer is still the sine qua non engine of world growth they ain't coming back for the rest of this decade and that doesn't appear to be priced into any market I've seen nor discussed here. Charts and discussion here:
http://llinlithgow.com/bizzX/2009/10/refreshing_the_economic_outloo.html

Steve said...

Speaking about leaked data, how about the non-mfg ISM number? SPUs shot up 9 figures prior to the release, and as far as I know that is not a subscription series.

Someone should get prosecuted for that, it's shameless.

Brother Jimmy said...

Why will nobody tell me who Voldermort is in reference to the markets? Is it a close guarded secret?

Anonymous said...

Only 5 comments in regard to an MM post by 3:30pm...lowest i've seen in a while and i'm a regular reader. I think it reflects how despondant macro players are (as opposed to the quality of MM's post which was excellent as always). As has been pointed out, the markets seem to be at the whim of CB manipulation making participating on logic or fundamentals a frustrating and losing process.

Nemo Incognito said...

We're not theme free right now: I'm trying to work out where a trade/currency dust up would take us: short shipping / nickel / SOE exporters in China seems to make sense.

I think its just a bit more of a long/short world but its not as if there aren't things like NOK which aren't trending themselves silly.

Steve said...

Brother Jimmy, Voldy is...China.

Anon I think it's interesting too, maybe just Monday apathy. Frankly to me it's a pretty interesting time, first of all markets have finally shaken their 1-correlation behavior, and second, we have the "IS THIS FINALLY IT?" equity question.

I'm in the YES IT IS camp but the jury is still out of course.

Steve said...

MM any info to be gleaned from your MM hit-o-meter?

leftback said...

HY and IG not following the lead of the equity markets today. Surely one is not seeing irrational exuberance? Glad I am not short today, though, as trash and banks are zooming. Treasuries surprisingly strong ahead of wed and thurs auctions of 10s and 30s. Another largely wasted hedge by LB.... this ain't easy...

Nemo Incognito said...

For those of you who hate equities but hate being short the carry etc check out Tokyo Electric Power from 90-00. Utilities might not be a bad hedge, not much else pays good divs these days so you have a bit more room to be short.

Macro Man said...

Steve, for the past week or so the hits have tailed off, though that may have been related initially to my few days in Cornwall. Mondays are usually a bit slow, but today doesn't look exceptionally so. Maybe people are just turned off by the thought of getting their teeth drilled...

Professional Gringo said...

FX is just garbage these days MM. I'm steering clear.. waiting and watching.

Taking a lot of long hikes with the dogs in California and Arizona mountains. Not much else to do. I feel guilty about working on the golf game when I'm not making money though. Strange that.

Crisis Management said...

Incredibly it looks like gold might make a run for it after some post-G20 dollar selling. Even the dollar-yen couldn't rally about 90 at all on escalating MoF rhetoric.

Risk off = yen strength
Dollar off = yen strength
Sound of screaming exporters caught offsides = priceless

leftback said...

Punter gone early, Skippy, now it looks like game on Oz v the Kiwis [this is not a post on AUD:NZD]

Nic said...

About AUD - do you think they will hike rates or wait til next month?

PJ said...

How can earnings be a disappointment, when all you have to do is guide analysts to 2% below actual results a few days before the announcement?

I don't know why 100% of companies don't outperform, given how easy it is.

Professional Gringo said...

Hey Nemo, watch the cost of food in China. Food price inflation could be the tipping point for them.

Anonymous said...

Were living a depression but the virtual reality, created by "them", keeps the faith. And all is abouth the faith.

Faith in the authorities, the markets, the midia, the currencies or even in god.

Enjoy as you can. eheheheh

Skippy said...

Nic, odds have increased for a 25bp move at the October meeting today. I would not be surprised if the RBA will do more. As mentioned last week, the RBA Governor is a natural hawk and has been clear in his public comment that official rates are at an 'emergency level' at 3% (neutral would be considered 5% to 6%). Stevens hiked rates during the last federal election campaign (previously taboo) and eased by more than consensus on the way down (why not on the way up?). There has also been a lot of guidance from 'informed journalists' (the RBA tends to telegraph rate moves through key media contacts).

LB, ;)

static age said...

The Labor Department needs to raise their vol estimates:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXoQJ14iSlWg

Crisis Management said...

UK Independent story about moving oil pricing to a basket of currencies plus gold credited with recent gold strength and a dollar sell off in Asia. No US response thus far.

Report is sourced to "Gulf and Chinese banking sources in Hong Kong." Seems a bit treacherous for these Gulf countries which depend on the US military for protection to make such a move, especially at this time.

China is frequently criticized by MM and other for its aggressive FX "reserve management," this move seems to be of a similarly hostile tenor.

Nemo Incognito said...

Phils inflation just printed a touch on the high side.... agricultural commodities anyone? Its not just cocoa and sugar anymore.

Nemo Incognito said...

Viz that oil rumor, I just wonder how long these FX issues can be kept under wraps. Its kind of remarkable, did someone just defang America?

Crisis Management said...

Well I think that someone is the Obama administration doing their level best to sabotage the country. Through the years the guy has cultivated around himself a rogue's gallery of Marxists, terrorists and terrorism supporters.

Ever seen Seven Days in May? Hopefully some folks in the military have...

Nemo Incognito said...

And on that point:

http://www.viddler.com/explore/supremelegend/videos/35/

Nemo Incognito said...

Sorry, here it is

Crisis Management said...

Haha, I wish we had Chappelle in there!

Nemo Incognito said...

Aussie rates wawawiwa.

Now, I wonder if this is going to take some shine of some carry-free store of value trades like gold?

Crisis Management said...

Russia recently commented that it couldn't convert reserves into AUD and CAD due to "liquidity constraints."

NZD is a few % away from where the RBNZ intervened two years ago. Wouldn't be surprised to see RBA warnings if this thing breaks out.

KRW is an interesting example of intervention amidst expectations of rate hikes soon as next month. Gold

Crisis Management said...

Bleh, gold has no central bank of its own.

Skippy said...

The most interesting aspect of the RBA's statement, in my view, was the big upgrade to trading partner growth, now seen close to trend in 2010 (key trading partners are China, Japan and Korea). The growth upgrade suggests a quicker path to "normal" from "emergency levels". I think they are a little optimistic myself, but it has certainly put a rocket under the AUD (perhaps along with the other anti-dollar news).

Nemo Incognito said...

Until the IMF and Obama pull their thumb out of their ass on certain large countries I live in engaging in the perpetration of global imbalances I am staying in on this trade in FX.

Skippy said...

Oh, and the other point is the divergent policy trends for foreign exchange markets. Or in other words, de-coupling...hmmm

Nemo Incognito said...

all repeat after me: DGDF. Phils inflation print means that SE Asian currencies are going to go apesh!t and allowing them to appreciate is one way to contain inflation. China will be tempted if ags and food prices start to pick up.

I know this is strangely contrary to what the general view of this board is but its time to face the facts: the black hole that is the Western world's balance sheet is probably not going to take down everything with it. Positioning needs to be adjusted accordingly.

Anonymous said...

I was thinking China was on its last legs, propping itself up with pointless infrastructure spending, silly commodity stockpiling/speculation and bubbles inflated with forced loans from banks. However Clinton Dines disagrees.

Skippy said...

Nemo, would you agree that China will probably need to move on the RMB first, before other Asian countries? I can't see anyone else in Asia allowing meaningfull currency appreciation while the RMB is steady. But I could be wrong.

The biggest problem I have with DGDF is that it is the most crowded trade on the planet. But tough to fight

Nemo Incognito said...

China has to move. IMF wants it, US wants it, Korea/Taiwan/Thailand/Malaysia/Japan want it. No one wants the RMB peg anymore unless you're a big dumbass SOE hooked on cheap credit. At some point its going to come down to trade sanctions or a timetable for appreciation. I doubt they open the capital account outright, it will be more Brazil/Russia like especially at first.