Wednesday, March 31, 2010

Synthetic Payroll Day

Welcome to payroll day! OK, it's not literally payroll day, but given that a) we get ADP today, and b) markets are actually open on the day, punters might do well to treat this afternoon as a "synthetic" payroll day. After all, the ADP will presumably contain the "meat" of the payroll report anyways, which is private sector hiring; markets are surely clever enough to look through the Census hiring as temporary, right? Right?
While there has been much rumbling about the strength of Friday's payroll figure much of it will, after all, be that temporary government hiring. After all the ink spilled and bonds sold in anticipation of Friday's figure, Macro Man cannot help but wonder if it's now firmly in the price. A weak-ish ADP would be a useful test of that thesis.

Macro Man was also intrigued to see the leak in Caijing (sadly, he cannot find a link, but the story is alluded to here) that China will move back towards a managed crawl next month. Now, regular readers will know that your author has long supposed that the current hard peg would remain intact through H1, but given the brewing storm of protectionism in Congress, might the Chinese decide that discretion is the better part of valour and allow the RMB to jiggle before they are named (if not shamed) in the Treasury manipulators' report?

And if they do, would that not cause a) more hot money flows into China, and thus more reserve growth, and b) something of an entente between China and the US? If so, perhaps China might re-emerge as a buyer at Treasury auctions, which could come in handy at next week's 3, 10, and 30 year efforts.

Moreover USD/JPY, an asset price closely linked to US yields, has reached what might be presumed to be a local top. Not only has it bounced off the early-January high on this, the first day of the new fiscal year, but the seasonality turns bearish for much of April into early May.
While there's clearly no guarantee that any link between US yields and USD/JPY will be maintained at current levels/rations/whatever, it still gives Macro Man pause for thought. The US flattener, which was flavour of the month a couple of weeks ago, has retraced 61.8% of its move from late Feb to last week.

Call Macro Man crazy, but he finds himself sorely tempted to flirt with a bit of long duration or perhaps the flattener on synthetic payroll day...


melki said...

not crazy but certainly punchy

Rossco said...

ive triple thunk the adp to the point of mild dollar bullishness either way i think

deke said...

alot of whiners over here regarding non farm friday, in that the world will get to react friday and monday before america even gets open to do business...

March 31-- China’s stocks fell for the first time in four days, capping the worst quarterly drop since entering a bear market in August last year, on concern faster inflation will curb corporate earnings growth.

The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, declined 0.6 percent today for a 6.4 percent quarterly decline...

yet... China stock trading accounts continue to open at brisk pace - A total of 432,897 trading accounts were created last week, a fifth weekly increase and the highest level since the five days ended Nov. 27

econobserver said...

ADP is negative, certainly a surprise to me. I wonder if ADP will lost its credibility. How big the market reaction will be? Or willstock markets go up since the interest rate will not be raised with such a negative job number?

Leftback said...

Excellent call, MM. This will probably be seen as bullish for equities tomorrow, if not sooner, as it reduces the likelihood of an early hike.

Now we have to hedge long end exposure against the Friday NFP which is presumably full of census jobs.

The ADP number is rather sobering for the V-shaped crowd, of which I am not a member.

Pascoe said...

Hmmm - well longer term the correlation stands solid, intra month frictional stuff notwithstanding (12m correlation mid 90s). It just doesn't suit the short termers.

Interestingly the CNY nugget I heard last week was that the local regulators were leaning on the banks to unwind the onshore / offshore arb positions (or at least to wind them in a bit).
A case of the proverbial "Pull the ladder up Jack"?

AD said...

so -150k NFP, mkt tanks, anything between 0 and 200k, mkt bullish (no chance of a rate hike), and 300k+ mkt offered over?
Is that what we're reduced to?
Mkt just wants to go up?
Been bearish and been wrong.. and barely strong.

Leftback said...

rebruAD, good mental gymnastics there. 0 would probably be the perfect "Goldilocks number" for the markets at this point in time.

Most likely scenario: NFP +100-250K on the census jobs, so they sell the long end and equities are higher anyway with the Q2 fund flows starting tomorrow. So then we are watching rates. Auctions next week, so we might tickle the magic number of 4.00% on the 10y, 5% on the 30y and that is going to be a RATE SHOCK for this economy in its present state of ersatz recovery. Any early Q2 earnings disappointments and we may be in for the long-awaited trip to the CORRECTIONAL FACILITY.

econobserver said...

I assume Bill Gross is talking his own book. If SAFE, Bill Gross and others all think Treasury will go down and bet on it, if everyone is expecting a bad auction next week, who is left to short Treasury then?

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deke said...

smart move with the large auctions next week:

Treasury Secretary Timothy Geithner said Saturday the U.S. will delay a report to Congress on China's currency policy... In a written statement, Geithner cited a spate of high-level meetings between China and the U.S. over the next three months as a reason to delay. The meetings, he said, "are the best avenue for advancing U.S. interests at this time."