Wednesday, March 31, 2010
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...