Monday, October 08, 2012
Well TMM had a weekend that that belied the rather pleasant weekend weather in the South East of England. If bad things come in threes then we are in credit for a while. Nothing serious such as health issues but every job embarked on turned into a cascade of disaster. TMM call it the photocopier syndrome when just sending out a copy of a document turns into a nightmare involving phone calls to photocopier help desks, keys to stationary cupboards being locked in drawers of secretaries who are out to lunch and finally ends 6 hours later being covered head to foot in photocopier toner (probably with your trousers missing too). Which is just like our frustrations in today's markets - only it feels that if we are not careful the colour of that toner ink will be red.
Our micturating into the gale force blast of AUD bearishness has left us just above our stop loss positions and seeing how AUDJPY and everything JPY crossed has taken a battering this morning we are sanguine about the outcome . Brace yourself boys this might hurt. Equities are however holding better.
Today is back to "Price is News" and it does feel as though the market is scrabbling around for fresh bad news to pin on the lower numbers. To TMMs amazement and to some extent interest as surely this must be the real lesson, Jack Welch has become the mascot of every conspiracy theorist out there. If Jack Welch says its conspiracy then it must be conspiracy. All TMM can do is remind folks that there was once a time when Tom Cruise and David Icke appeared normal.
TMM have been watching with some interest the Asian export data that seems to have been largely ignored by a market that believes that the China slowdown and that of the region more broadly, is the only game in town. Fair enough. The trouble with this view, however much policymakers (and Jim O'Neill) carp on about economic rebalancing within the region (or the much vaunted capital outflows from China) is that the evidence is not particularly convincing. At best, the externally led slowdown (driven by Europe and the US to a degree), has optically meant that consumption and investment have ticked up a bit (mainly as a result of exports to Europe kind of, well, collapsing), but also in halting one of the primary themes of the past decade - that of Asian FX reserve accumulation as the US and Europe have imported less. It is easy to see how the story of capital outflows and the end of the Asian currency appreciation story could be spun, particularly given the outflows seen from China earlier this year.
But it's all kind of stopped now, with Asian central banks once again being forced to intervene to weaken their currencies, USDCNY spot trading at the bottom of the band (as suddenly onshore banks have found themselves long of Dollars) and there are signs of an export-led recovery in the region - once again the function of ISM and its Orders/Inventories components bouncing dramatically over the past couple of months. Indeed, putting this together with the stabilisation in the European PMIs, TMM's model of Real Chinese Export Growth is signalling a reasonable bounce:
So far, so just a model... But last week's Korean Export figures showed a robust bounce, particularly in electronics. And Taiwan's export numbers this morning similarly showed a dramatic improvement, beating expectations for just a 1% YoY increase, to +10.4% YoY. And it does not appear to be the result of any particular distortion, showing broad-based strength across the board, in terms of sectors. When looking at the regional breakdown, however, it becomes a lot more interesting: while exports to Europe remain weak, falling 10.5% YoY (though up from -17.4%), exports to China jumped 6% (vs. -5.7% last month) and to the US by 2.7% (vs. -8.4%). And this, in a month that traditionally see exports fall, seasonally. This is a big turnaround from the weakness we have seen over the past few months and suggests that activity has begun to rebound.
One of TMM's pet hates is the seeming inability of commentators to look at Real Export Growth rather than the Nominal numbers, especially when these statistical agencies so generously provide us with Export Price data... Nevermind... Anyway, the below chart of Real Export Growth in the region also suggests a rebound, while Singapore lags somewhat, and is one of the main reasons TMM have liked shorting SGD vs. the basket as something of a hedge for their long risk views. Though, going into the MAS meeting this week, the risk reward is probably not enough to be adding to that position right here, especially given the impression that we are not alone in this trade.
So, adding it all up, TMM reckon with China back this week, the potential is there for the market to reassess the Asia slowdown trades, because it looks to us as though these are - particularly in China and Australia - past their sell-by date.