Monday, March 08, 2010
Well, when all was said and done Friday's payroll report wasn't half bad. The BLS clearly scuffled with figuring out just how much of an impact the snow had on the data, but even so with only a marginal adjustment for the weather you'd end up with a pretty decent set of figures.
The reaction in equities and "pro-risk" currency pairs was fairly predictable, though the decent performance of European currencies may have been a modest surprise. The star performer was, of course, the yen complex; Macro Man can only wonder if the absence of trolls on Friday was due to the registration requirement or the fact that they were all stopping out of long yen possys...
In any event, while the strip has rolled over, thus far the extent of the damage has been pretty modest. EDZ0 (the fourth contract, for another few days at least) is currently threatening its uptrend line, but at this juncture is only a dozen ticks or so off its highs. What continues to worry Macro Man about the short end is the amount of positioning in the complex: the lower line in the chart below shows aggregate open interest in the eurodollar strip. As you can see, it dwarfs anything observed in 2009 (during which there were obviously a couple of bum-clenching sell-offs.
Switching gears, Macro Man's email/Bloomberg message box lit up like a Christmas tree over the weekend as PBOC governor Zhou made some comments touching upon the RMB exchange rate. Depending on which news source you read, he either said that Voldy will move the RMB exchange rate....or that he won't (any time soon at least.)
It seems as if we're not at the stage where PBOC statements on the currency are going to be parsed as closely as an FOMC statement (or, dare we say, a Harry Potter story.) Sadly, Macro Man's Mandarin ain't what it used to be, so like all other foreign devils he is reliant on the translation services of others.
Unsurprisingly, the nature of the translation that you get is dependent on the viewpoint of the translator. What does seem clear is that Zhou characterized the unwavering peg of the USD/RMB rate as a emergency, "crisis" setting which differs from the previous "normal" crawling peg.
Of course, that "normal" setting only existed for three years, and we're closing in on two years for the "emergency" regime (in addition to a decade before July '05), so one could credibly wonder which policy really is "normal."
Still, the fact that Zhou is willing to even publicly comment on the exchange rate and muse upon the future of the current regime suggests that change will come...eventually. But while sell-side analysts may froth at the mouth at the prospect of "correctly" calling for a move in the RMB, those who actually have risk on the table are justifiably more sceptical, essentially saying "Zhou me the money", as you can see from the less than explosive move in the 1 year NDF overnight.
The question is: will the US Treasury be singing the same tune (Zhou me the money) when it comes time for the semi-annual report on currency manipulation? As enticing as it would be for China to be named (if not shamed), somehow Macro Man doesn't think that the Treasury has the cojones to do it, just like they haven't since 2003. Perhaps Obama can hire Rod Tidwell into Treasury.....?!?!