Roll Over, Beethoven

Friday, October 02, 2009

Macro Man's back in the saddle, or at least his office chair, this morning. Just in time for that noisiest of days, the US payroll report. Unwillingly or not, it is difficult for a macro manager to avoid getting sucked into the mosh pit of NFP. One can only hope that the end result produces more of a Ode to Joy.

Speaking of Beethoven, it certainly looks like a lot of things are starting to roll over. Going beyond the usual peaks and valleys of market price action (more on which below), it certainly does look like the second derivative of growth data is starting to look decidedly weedy.

A roll over in economic surprise indices, noted in this space on several occasions, is axiomatic as forecast profiles are adjusted. But it looks like we are now seeing an adjustment in the actual underlying trend of economic data....potentially heralding the onset of the second half of the much-ballyhooed "W" profile?

Last night's auto sales figures, the first after cash for clunkers came to an end, is a case in point. Sales fell back nearly to their early year lows, with domestic sales in particular undershooting expectations. So while consumption should show a nice rosy pop in Q3, we're setting up for a rather less positive figure in this, the new current quarter.

Similarly, the inventory cycle appears to have finally turned. The ISM new orders-inventories spread, which soared earlier in the year, fell sharply in yesterday's report. While this suggests that inventories are being built in real time, which is actually accretive to GDP, there is likely to be a decent offset as some of that build comes from imported goods, widening the trade deficit.
At the same time, in the absence of a sustained rebound in final demand, the end result will just be another undesired increase in inventories, which will then need to be run down next year.

Looking back at the last cycle, the ISM orders/inventories spread peaked in March before heading back down over the next several months. The stock market swiftly followed suit.

In that vein, this week's weakness in the SPX (and other risky stuff like Eastern European currencies) could be telling. As readers have no doubt observed, many major indices, including the SPX, have broken what appears to be a pretty important support line.
But wait.....stop me if you've heard this one before. One could have (and, in the case of your author, has) drawn a large number of similar trendlines over the past six and a half months.....none of which have worked terribly well.
So while bearish risk structures are making some pretty sweet music this week, from Macro Man's perch the jury remains out. Yes, the data has rolled over like Beethoven...but having been burned before, he will reserve judgement before playing the Victory could all still go to the dogs.

Posted by Macro Man at 10:03 AM  


I think its worth watching copper. If Voldy doesn't want to hold it at 2.65 then we really could have a party on our hands. Its been resistant as all hell, ditto Hang Seng. Those SOEs though have been getting beaten with a stick which is all good news for Nemo.

Nemo Incognito said...
10:50 AM  

Whats more interesting is this is coinciding with a lot of breaks in moving averages too, not just trend lines.

Nemo Incognito said...
10:58 AM  

The question is are markets decoupled ,or not. In other words would weakness in one major economy signal the same in it's trading partners. If you believe the answer to that is yes ,then looking at Japan you'd ask is the Nikkei leading where others will follow. The Nikkei doesn't even look technically marginal ,break of a support trendline ,it's actually fallen through the buying from summer isolating a lot of buyers who came in expecting private sector growth ,not public sector safety nets.

Anonymous said...
11:11 AM  

Might also add that means right now the Nikkei June options expiry are getting squeezed.

Anonymous said...
11:17 AM  

What is also interesting is you have simultaneous breaks in the dollar (USDCAD trend line break, AUDUSD outside day, failed breakout), treasuries (TY) etc through important trend resistance. As Nemo also pointed out, MAs are being crossed and turning down. Also, MACD, momentum, RSI all have made double or triple negative divergence the last couple of months.

There are now a plethora of negative technical factors in many risk markets. Also, many have put in a closing lower low. Depending on how you define "low", this is rare - maybe once since feb this has occurred.

Anonymous said...
12:11 PM  

I don't think the trendline is very important. It had to break, or SPX would be at record highs within months.

Anonymous said...
1:04 PM  

See the real S&P support from March at 1000. Agreed on caution reigning at the moment. Think $ZAR is ripe for a pop especially.
Good luck.

Anonymous said...
1:39 PM  

SPX down for the count but AUD didn't stay at .8575 for long and someone (Voldy?) saved copper. Let the EM/growth-story-athon roll on.

Nemo Incognito said...
1:46 PM  

Who exactly is Voldermort? Thanks!

Brother Jimmy said...
2:07 PM  

he's the bad guy in harry potter innit

Anonymous said...
2:14 PM  

It is ON after that US employment data, hours worked down to 33.0. Macro Man did you see that IG spreads widened considerably yesterday, and LQD fell out of its trading channel? Not a good sign for equities.

leftback said...
2:20 PM  

US equities getting bought again just now after the gap lower. I'm not long (and boy my Q3 wishes I had been, though in a normal market it was a fine quarter0, but I'm just saying.

What I kinda want to see before going short in any serious way is a gap lower on mediocre numbers, or a failure to gap higher on strong ones, accompanied by dropping vols. Complacency, in other words, breeds turns.

I'm not seeing complacency, I'm seeing worry.

wcw said...
2:37 PM  

Hary Potter appears to think Voldermort`s magic continues to suit the other side at the moment and into the future too (until green shoots grow grey hair).

Anonymous said...
2:51 PM  

have a look at HYG ;)

I'd begun to wonder if i'd sold my junk too early ,but maybe not.

Anonymous said...
3:15 PM  

Voldemort's hand is all over that EUR rally and copper rally.

Anonymous said...
3:19 PM  

uhh, which copper rally , pls??
3M mow 5890 offered!

Anonymous said...
3:25 PM  

Looks like another traditional NFP Friday! SPX bounced from another "trend line" at around 1012.

Any thoughts on the impact on the USD and SPX (if any) if Chicago is the winner this afternoon??

Kimosabi said...
3:36 PM  

So the logic appears to be that a weak labour market will keep the Fed on hold for longer. That has given a boost to all things with 'carry' (in the broad sense of the word).

Never mind that private sector credit is contracting and therefore the precondition for a recovery in final demand is absent.

In my view, the incoming news probably fits with a double-dip in 2010. Just a matter of time until 'growth sensitive' assets react.

Enjoy the weekend everyone

Skippy said...
3:45 PM  

Ugly moves in many markets. The lies man Steve Liesman says "it hasn't gotten any worse." We have 263K people going unemployed and this is the propaganda, unreal.

Interesting that the yen still trades mostly up with the risk off trade. If 1000 on the SPX gives way, could be a catalyst to drive the rate through 87. Unclear why Team Japan isn't out right now trying to drive it above 90.

Crisis Management said...
4:49 PM  

EUR:USD keeps trying to rally and is rejected. That is encouraging for Bears holding on to short positions. Also the early sell-off in Treasuries has reversed.

leftback said...
5:01 PM  

Govt bonds are long and what happens on any given day is irrelevant unless you want to join the day traders.
Started in August on the back of the September wobblies and if you notice high risk went sideways since mid Sep.
Now govt bonds will take the moneyflow from other areas of fixed income ,corp bonds,which are very extended, as people (like me) reallocate and lock in some of the outstanding profits of this year.

Anonymous said...
5:44 PM  

Anon at 5:44. Noted. LB had anticipated that move by snapping up govies in midsummer when TNX was around 4%. Plenty more mileage in the EoY FTQ trade until the next grand reflationary event, eh? Anyone think we will see a repeat of last year's TIPS dumping?

leftback said...
5:59 PM  

Anonymous @ 5:44 - Are you Bill Gross? He was just on TV and said the *exact* same thing. Seriously though, I think you're correct.

Crisis Management said...
6:16 PM  

The S&P bounced exactly at the 38.2% retracement of the whole downmove from the 1570s to 666. Pretty cool. This feels like a dead cat bounce though, after going a bit higher to possibly 1035-1040.

Meanwhile, my EUR short worked well...

Steve said...
6:47 PM  

Steve, silver did almost the same thing. The move from 21.3 down to 8.4 was like 39% if you measure from the end of the silver standard.

Crisis Management said...
6:57 PM  

Crisis 4.49, I'm much better looking than Bill Gross and my book is mine to work...LOL

I'm the same guy who said don't finght the USD$ flow and got shot to ribbons because it was taken as some kind of pik tops/bottoms comment. ..LOL

Whereas like our good friend Leftback I'd got a lock on govt bonds and that helped me to ride to help me ride the reflationary trade rather than fight it.

Anonymous said...
7:02 PM  

Dead cat bounce in HY coming Monday and Tuesday in front of the 10-yr and 30-yr auctions. Then the downtrend will continue...

leftback said...
9:37 PM  

Agree. Metals space is eating a sh!t sandwich with no end in sight, unless Voldy or similar get on the bid in Shanghai on Monday. I'm taking my 3 cents and walking.

Fund flows data still showing inflows to Asia etc though....

On a related point, given all the fund flows to EM/long duration out of money market funds it occurs to me that if/when rates rise (2H 2010? who knows) the back end will sell off very hard and fast. for the TGTF crowd (similar to DGDF) that would appear to be the key catalyst as everyone gets progressively longer and longer carry.

Nemo Incognito said...
9:44 PM  

Guess the consumer demand story will be mostly concentrated around the post-thanksgiving pre-christmas season Q4. If the green shoots are to survive this winter of discontent the hohoho had better not sound hollow.

Judy said...
2:24 PM  

check out the 30 day MA on your boy EuroStoxx.... looks like we are going for a test of the 100day

MM I hear ya with the trend lines.. but I get the feeling moving averages trigger more "systems" than do trend lines

ps - great blog MM

abee crombie said...
12:42 AM  

Another strong bid to the AUD again today following more comments from 'well-connected' journalists in Australia. While the probability of a 25bp rate hike at tomorrow's RBA Board Meeting has increased, don't be surprised if the increase is even greater, 50bp or more

Skippy said...
8:46 AM  

Oh and in case no one got the not-so-subtle hint, New Zealand want a weaker NZD...

Skippy said...
8:52 AM  

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