Thursday, March 11, 2010
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.