Although he personally finds equity markets to be fairly uninteresting at the moment, caught in some sort of soul-destroying (for those short stocks or long vol) drift higher, Macro Man has noticed a slight uptick in throat-clearing and finger-twitching from stock market bears of his acquaintance. Practitioners of chart-reading esoterica appear to be aligning around a view that a top is imminent; although he is not a card-carrying member of the Elliot Wave or (especially) Demark club, your author does tend to at least raise an eyebrow when their assorted congregations begin singing from the same hymn sheet.
In that vein, there are a couple of developments that may warrant attention. Gold, which until very recently had shrugged off dollar strength (or at least euro weakness) amdist stories of Chinese reserve buying, performed noticably poorly yesterday. Not only did it break the uptrend line off of the year's low, but it also has breached the 55-day moving average, which suggests that some of the momentum crowd may start bailing soon. And if gold loses its luster, the risks must surely rise that equities will, at least temporarily, find that their recent shine gets tarnished.
What could be the catalyst? At the risk of drawing from the same well once too often, Macro Man can only point at China. Last night saw the monthly data dump of price, monetary, and activity figures: in aggregate, the results suggested that the current uber-easy monetary settings are become less appropriate by the day.
Retail sales surged 22.1% y/y, and while IP disappointed at just 12.8% y/y (versus a 19% consensus forecast), the undershoot looks like a seasonal adjustment issue; YTD y/y IP rang up a better-than-forecast 20.7% result. Lending and money supply figures also slightly overshot the consensus forecast.
Perhaps most importantly, however, the price data continued to show an acceleration in inflation. PPI and CPI both exceeded expectations (at 5.4% and 2.7%, respectively); significantly, non-food CPI ticked up to 1% y/y.
Why does this matter? Well, it was only last week that PBOC announced that they are pursuing a 3% inflation target for the year; from their perspective, therefore, today's data dump contained little cheerful news. Conspiracy theorists have observed that China hiked its RRR on January 12 and February 12; a swift glance at the calendar reveals that tomorrow is March 12.
Some analysts are also suggesting that an exchange rate adjustment might be imminent; of course, many of these same chaps have been saying the same thing for a number of months now, so their "nudge, nudge, wink, wink" assertions are best taken with an unhealthily large dose of sodium chloride.
Still....if China does move the RRR, hike rates (by some feng shui-compliant multiple of the number 9), or move the FX rate, it could be the catalyst that the bearish priests of chart-reading arcana are looking for.
In that vein, there are a couple of developments that may warrant attention. Gold, which until very recently had shrugged off dollar strength (or at least euro weakness) amdist stories of Chinese reserve buying, performed noticably poorly yesterday. Not only did it break the uptrend line off of the year's low, but it also has breached the 55-day moving average, which suggests that some of the momentum crowd may start bailing soon. And if gold loses its luster, the risks must surely rise that equities will, at least temporarily, find that their recent shine gets tarnished.
What could be the catalyst? At the risk of drawing from the same well once too often, Macro Man can only point at China. Last night saw the monthly data dump of price, monetary, and activity figures: in aggregate, the results suggested that the current uber-easy monetary settings are become less appropriate by the day.Retail sales surged 22.1% y/y, and while IP disappointed at just 12.8% y/y (versus a 19% consensus forecast), the undershoot looks like a seasonal adjustment issue; YTD y/y IP rang up a better-than-forecast 20.7% result. Lending and money supply figures also slightly overshot the consensus forecast.
Perhaps most importantly, however, the price data continued to show an acceleration in inflation. PPI and CPI both exceeded expectations (at 5.4% and 2.7%, respectively); significantly, non-food CPI ticked up to 1% y/y.
Why does this matter? Well, it was only last week that PBOC announced that they are pursuing a 3% inflation target for the year; from their perspective, therefore, today's data dump contained little cheerful news. Conspiracy theorists have observed that China hiked its RRR on January 12 and February 12; a swift glance at the calendar reveals that tomorrow is March 12.Some analysts are also suggesting that an exchange rate adjustment might be imminent; of course, many of these same chaps have been saying the same thing for a number of months now, so their "nudge, nudge, wink, wink" assertions are best taken with an unhealthily large dose of sodium chloride.
Still....if China does move the RRR, hike rates (by some feng shui-compliant multiple of the number 9), or move the FX rate, it could be the catalyst that the bearish priests of chart-reading arcana are looking for.
12 comments
Click here for commentsWe can only hope - managed to get some appraisals etc from real capital analytics.... appraisal fraud is alive and well in China. Bank results will be very interesting indeed.
Replyi've noticed myself the jan-feb 12 dates for announcements (around 10-11am London time btw)
Replyand as you said, the data recently surely points for a need to tighten policy
what I find interesting is that I failed to pick up much interest in the issue in the market chatter; asked FX sales who cover hedge funds, risk takers, sellside economists. everyone seems tired of trying to time these China policy moves, whether rates/RRR or FX.
so I think a move today or tomorrow would definitely catch the mkt by surprise; Spoos, AUD all hovering at the highs of recent ranges..
I hedged short in gold (DZZ) yesterday for the first time in seven years. I hope your prediction is confirmed. However, I think we will still see $2000 before we see $800 gold so I've still kept my core long position on.
ReplyChina letting the Yuan appreciate is a matter of when, not if. My team has had a theme this quarter called Chinese Ox in a Box, which drove our call on the correction in the China equities market, and is also driving our long bias on the Yuan. We think that it's as safe a place to park your capital as cash, and pays off when they let the currency appreciate. hedgeye.com for more.
Replybeen alot of chat about gold and SPX moving together for the last month or so...the spx/gold ratio was 1.0 often as in when they were both 1044 together at the feb lows!
Replyinterestingly: the nasdaq made it's all time high march 10th, 2000, and that when i looked at 10,20,60 all the way to 120 day highs on ES they all printed 1148.00!
today is rollover to june contract day in ES etc
SPX hasn't gone up 9 straight sessions often in history, but looks more likely from that history that a small pull back could lead to another leg higher
ftse the 5600 rounder right now could be the tell !!
Cheers :)
Bloom TV had an interview with a Macro HF guy this morning from New Haven, his analysis basically sounded a lot like yours, MM. But you're in London so he can't be you. Positions were mostly those with which I agree or hold, except TIPS.
ReplyLong: RMB, USD, health care stocks, TIPS.
Short: Spain, Gold, SPY and IWM.
Several people mentioned the March 12 possibility in the media today.
I think that AUD is going to move higher. Chinese inflation is higher than expected, and Australia employment is worse than expected. But AUD barely moved. There should still be quite a room for bull to run.
ReplyHmmm - the whole "well they did it on the 12th a couple times already" thing has a touch of the same hopeful whiff about it that those folk had that played for eurchf intervention on the ecb tender last time (and we all know what happened when that failed to materialise on the appointed day (Dec 16th if I recall correctly).
ReplyNot saying it won't necessarily happen tomorrow, just a comment on the amount of speculation (note small 's') that seems to be accompanying this across both the banking / hf sector chattering classes and also in the econoblogosphere.
Meanwhile BoK and even by some accounts MAS laying down markers as well today....
I think your post pretty much summarizes current sentiment on US equities...bored and unexciting. And yet they sit close to their previous highs (S&P) or above the highs for this rally (Nasdaq). And all of this in the face of some pretty abysmal headlines...most notably tightening.
ReplyI wonder where the pain trade is and what the response would be to a breakout/continued breakout.
The Greek crisis is obviously over.... the Greek people have taken to the streets to support the austerity measures and to show their love for German bankers. The Spaniard and Italians will no doubt follow suit.
ReplyThe shift from (indirect bid) foreign to domestic (direct bid) buyers of US Treasuries continues:
ReplyDirect Bid at 30y auction
This is consistent with the thesis that has been discussed here many times - namely, that the US will see a gradual decline in consumer credit and an increase in domestic savings.
MM your "feng shui-compliant multiple of the number 9" is actually for the convenience of abacus users - 9 is not an auspicious number. But of course "witty" (read: "disrespectful") western trader cares not.
Reply