You are of course referring to her classic "I say a little prayer". That's what Yellen needs if she really thinks she can raise rates in this world as it stands.
yup checkmate - interesting reaction from spoos being down and all - i imagine we will open 30 points higher in cash on monday as the mkt realizes this means ZIRP foooooreeeeeverrrrrr......
CDS going through zero?..."meaning one institution paying another institution for the privilege of insuring it against a bond default." http://tinyurl.com/k7jueuu
Oh this is really quite intriguing. Did we finally wander into the "bad news is really bad news" territory or is that still waiting down the road?
Mr. Market has been in detoxification from US QE for a while but he's not quite in the clear yet. There's a very real risk that the symptoms return, should there be a combination of favorable circumstances....
Bill Gross says a disappointing jobs report won’t dissuade the Federal Reserve from raising interest rates by September.
Why? Because U.S. central bankers can’t wait to normalize monetary policy after keeping benchmark borrowing costs near zero since December 2008.
“They want to get off the dime,” Gross. “They want to get off zero, if only to prove that they don’t have to stay at zero for a long, long time.”
Gross’s view contrasts with a market that’s now putting the odds of a rate increase in September at 35 percent, down from a 39 percent likelihood on Thursday, based on trading in fed funds futures. Odds of a June liftoff are 10 percent, the trading implies.
I do like the PMs/GDX call here and I am cautious on US fixed income for a while, until we see what happens with Greece/EU. Safety trade unwinds can be as painful as ripping off a Band Aid...
For a while now, we have been envisaging a scenario where foreign capital flees the trifecta (SPX, US10y, USD) for greener pastures (Europe, EMs) and that actually might drive US rates a bit higher, just as the economy is slowing.... a lower USD also kindly provides a little bit of inflation just to spice the stagflationary dish.
So, perhaps I should add that we think the "bad news is good news" theme is off the table at the moment. This, we would argue, is because a lot of foreign capital took refuge in the US b/c of the "stronger US economy - Fed hiking - stronger USD and equities" argument. Once you start pointing out the fallacy of this argument, then we might see a fairly sharp reversal of some of the 2014-Q1 2015 trades that proved so popular with so many.
For example, there is a fair amount of evidence that Russian capital started to enter their own domestic stock market late last year and that flow seems to be gathering pace now that the RSX is back in bull market territory. We can expect hot money from other countries to follow suit.
The first 2% reversal from DXY 100 was probably viewed as "buy the dip" opportunity by most, but the media news flow changed this week, even ahead of the NFP number, and investor mood seems to be souring rapidly on the US Impossible Trinity trade. Not sure what next week will look like but there are bound to be people caught leaning the wrong way so a few days of adjustment to positioning seems likely. A while ago, MM and others suggested we might get to see some Fib retracement levels for the DX from 100, and we'll expect some of those to be tested soon for sure.
Those of you who followed us into emerging market debt or equities are probably feeling happier now.... be aware that this isn't a global credit crunch, and a falling dollar in a liquidity-drenched environment is a good thing for EMs.
"So, perhaps I should add that we think the "bad news is good news" theme is off the table at the moment"
That is an assertion - untested till we see what happens next week - do you really think the crowd that was paranoid about fed rate hikes as a reason to not own the market will somehow turn on a dime and be just as scared of the opposite?
"Those of you who followed us into emerging market debt or equities are probably feeling happier now.... be aware that this isn't a global credit crunch, and a falling dollar in a liquidity-drenched environment is a good thing for EMs."
Yes, in the short run, and a resounding no when the dollar rally resumes, which will be once we have retraced to the levels you probably correctly presume we shall test - I also think its very risky to own commodity/resource EMs when you have markets like India and Thailand that you could buy instead.
Beijing Shifts to Easier Credit and Liquidity stance
On March 15th, China’s Premier Li Keqiang issued a rare “hot-tip” of advice, saying the ruling Politburo can do much more to allay fears about a stumbling economy. Li assured traders that policymakers would prop up the Chinese stock market, especially if economic growth is at risk of breaching a “lower limit.”
“In recent years, we have not taken any strong, short-term stimulus policies, so we can say our room for policy maneuver is relatively big, the tools in our toolbox comparatively many. If the slowdown in growth approaches the lower-limit of a reasonable range, we will stabilize policies in the market, and at the same time, we will increase the intensity of targeted policy control,” Li said. Traders interpreted these remarks to mean that further cuts in interest rates and bank reserve requirements would be on their way in 2015.
“China needs to be on alert for deflation,” PBoC chief Zhou Xiaochuan warned on March 30th, adding the central bank was also on the watch for deflation around the world, and falling commodity prices. “China’s inflation is declining. We need to be vigilant to see if this trend continues, and if it will lead to deflation.”
On Feb 28th, the PBoC lowered its 1-year loan rate -25-basis-points to 5.35%, - its second rate cut in just over three months. The PBoC also made a system-wide -50-bps cut to bank reserve requirements to 19.5%, the first time it has done so in over two years, to unleash a fresh flood of liquidity to fight off economic slowdown and deflation. The reduction of -50-basis points can free up 600-billion yuan ($96-billion) or more held in reserve at Chinese banks - which could then mushroom into 2-to-3-trillion yuan of added liquidity floating in the economy due to the multiplying effect of bank loans.
On March 30th, the PBoC took additional measures to boost the local economy, it lowered the amount of money needed for a down payment to buy a house to 40%. The PBoC said on its website that all banks “are encouraged to offer commercial support to families to buy their own home with the down payment not lower than 40%.” All these measures - unleashed by the PBoC - helped to power Chinese stock indexes to a seven-year high. Real estate stocks included in the Shanghai composite property sub-index closed at all-time highs, even after Chinese property sales in the first two months of 2015 plunged -16% against January-February last year, amid a glut of housing supply. In other words, bad news on the economy is good news for stocks, if its leads to fresh liquidity injections.
Just how high can Chinese Red-chip stocks fly? It’s not wise to stand in front of a raging Bull in a China shop. But if history is any guide to the future, Shanghai A-shares did soar to a +95% premium over H-shares at the peak of the Chinese stock market rally in Oct-2007, before succumbing to the PBoC’s tightening of its monetary policy. This time around, Shanghai red-chips are +32% above H-shares, on average, and have the wind of PBoC easing at its back, so it wouldn’t be surprising to see the China-300 index climb above the 5,000-level in the year ahead, up from around 4,125 today.
There are now approximately 425 companies spread across 64 sub-categories involved in crypto-tech computing, decentralized services, cryptocurrencies, Bitcoin and the Blockchain
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/ae02f268-d81c-11e4-80de-00144feab7de.html#ixzz3WTOOpOO9
"Nomura strategist Wendy Liu says this year marks the start of a three-year bull market for Chinese stocks, with a rally built on reforms, stabilising economic growth and improving property sales. Ms Liu expects the MSCI China index to rise 60 per cent between the start of this year now and 2017."
Guillaume Chatain, head of equity solutions at JPMorgan Private Bank in Asia: “When I look at China A shares I’m not necessarily seeing a bubble yet. It’s not a crazy rally. Compared with 2007, it’s nothing. Yes, we have the start of a bubble, but I don’t think we’re at a level yet where we should really be afraid.”
TBH this China commentary just makes me want to go and smash a china analyst nose or two. Look at the general commentary a year ago. It turned out to be very wrong. Now things are heading up ( and we haven't had any real change in the broad background other than CH slowing and policy adaptation to that) and they all have their extrapolationist rulers out saying woo hoo here we go for a bull run. It's complete CNBC amateur hour and they shouldn't be let out of their kindergartens.
To be fair, Wendy Liu isn't a 12 year old and she did call for China easing last October. She is at Nomura, which isn't generally a headless chicken shop..
"they all have their extrapolationist rulers out saying woo hoo here we go for a bull run"
LOL.
Washed - I think right now bad news really is bad news, not just b/c we are short, because weak earnings are coming at us and there is a price level where earnings do matter, at least for those investing in companies that make money. A little bit of mini-capital flight is ahead for the US, a nasty surprise for many. Enjoy...
The Fed's 2% inflation target has undershot for the 34th straight month. The Fed must be so envious of Russia right now where the CPI rose 16.9% from a year earlier in March.
So what do people make of the Friday/Monday disconnect? It's tempting to see friday as "without quant" and monday as "with quant". Many futures-specific models rely on cross-asset correlations anyways so were turned off friday.
Or is this Dudley effect? I cant imagine what he said was much of a surprise.
I’d still say, gun to head, for a long term scenario the liftoff is still a likely deal. The alternative is that rates globally get killed and never again rise to react to any kind of positive turns in the economic cycle. I think that would one way or the other be a prelude for the extreme end game of the whole financial system, but I it’s hard to believe that we’re at that point –at least yet. So unless we believe that the end point has already arrived for the global financial system, there needs to be a liftoff, and the US economic cycle I believe is already in a very mature phase – it would be a very bad signal to waste yet another year. And there will be more soft patches guaranteed, but I think the pressure to get this thing off the ground is going to turn out triumphant in the end. I’m just saying liftoff should definitely be a done deal but how long the normalization flight will continue, that’s probably completely another issue. It’s even possible that it will turn out to be a deja-vu – a la Trichet in 2011. Precisely for the reason that the economic upturn phase is at a mature stage and EM’s are getting saturated as can be witnessed by the great shift in China, which can rely consistently less on exports and foreign investments.
I’d like to recall the phrase “international developments” from the Statement. It was clear that the dollar had quickly (start of 2015) become a major concern, probably the FED knew that a strong dollar would ultimately become a major headwind for global emerging markets, leading to problems for their major import client Europe and it would hinder domestic exports development, ultimately leading to further domestic consumer headwinds. Europe is now showing some signs of life which and might soon be handed the baton which – if persisting – would create a good opportunity for the hike and alleviate the worrisome “international developments”.
On Europe, I think corporate earnings will get a one time boost from FX, but that will be pretty much it. Local emerging export market growth will turn anemic or even negative, which will ultimately start feeding back to the major extra-EU exporter consumer confidence indicators. And when the German consumer starts getting wary, be assured that it will do no good for the peripheral parts which count on intra-EU trade from the extra-EU surplus countries to keep their own current account afloat. I’d guess the stuttering in data starts within a year from now, quite likely much earlier. However it is quite possible that the market won’t notice this as a warning sign, DAX, EUROSTOXX and Co. will continue to run for many months after the expected FX boosted earnings materialize expecting for more. I think there will still be new highs to come but it might not be such a bad idea to start cashing sometime this year, definitely before the stuttering starts becoming more persistent and apparent.
So I’d guess EZ will continue to run for some time with the FX boost, QE and improving data which might last for a little while and the baton will be handed over. That’s should be the window of opportunity for the Fed while everyone’s looking the other way, but soon after that the safe heaven trade will again resume as it will become apparent that emerging markets start showing signs of trouble, meaning big troubles for Europe, and ultimately the late stage economic growth in US turns into a decline.
Mr.T - I mentioned earlier on Friday someone was buying up Emini. No Europe today to spread against. Market walks up on low volume. Happens so often on European holidays.
Big intraday moves get everyone excited but you only have to expand your chart to say 4 months to see that we are still in ranges in a flat though huuugely whippy year. Miss Whippy is whipping Mr Market but the leather straps are still holding him to the bedstead.
But looking at today's action alone you would have thought that Mr Market has seen, out of the corner of his tear stained eye, Miss Inflation enter the room.
First of all, washed, brilliant call on today. Well done, sir.
But.... I think Polemic is right. Miss Whippy at work, and just when Mr Market thinks he is getting ready for the happy ending she is going to drop him out the window....
Mr Market is actually making a series of lower highs in 2015, so unless he breaks out into the wild blue yonder in the morning, today is just misdirection.
We can all be as cynical as we want here (and as a group we certainly are) but earnings are ahead, and earnings matter, and earnings are sensitive to the $. So for now we are staying with our game plan, which is long Stoxx and emerging markets and short QQQ. We had a pretty good day today as the reflation trades had a decent bounce.
If you look at the bigger picture on QQQ, it just about made it back to the 50 day, and the chart still looks bearish. There are way too many bulls and dip buyers....
Hipper - too much drama, mon ami. LB sees no end game, no US lift off (Jobs? Helloooooooo?), no Grexit, no TEOTWAWKI, we are just going to grind on with faux growth, low rate, TWINE scenarios for a very long time.
I see one of the market's great momo merchants and trend following artists may have just stepped off the dollar express and is following some of us punters into emerging markets and Yoorp....
In the context of FX it was notable that the USD bounce today was much weaker than the jerk higher in equities. Keep an eye on USDJPY as traders have reduced JPY shorts abruptly these last few weeks.
39 comments
Click here for commentsYou are of course referring to her classic "I say a little prayer".
ReplyThat's what Yellen needs if she really thinks she can raise rates in this world as it stands.
yup checkmate - interesting reaction from spoos being down and all - i imagine we will open 30 points higher in cash on monday as the mkt realizes this means ZIRP foooooreeeeeverrrrrr......
Replyagree with washedup, this must be the most equity bullish report in over a year.
ReplyMourning in America.
ReplyCDS going through zero?..."meaning one institution paying another institution for the privilege of insuring it against a bond default."
Replyhttp://tinyurl.com/k7jueuu
Oh this is really quite intriguing. Did we finally wander into the "bad news is really bad news" territory or is that still waiting down the road?
ReplyMr. Market has been in detoxification from US QE for a while but he's not quite in the clear yet. There's a very real risk that the symptoms return, should there be a combination of favorable circumstances....
There will be no FED rate hike in 2015. Period.
ReplyThink someone was loading up on emini's. Pushing book down to trade size every couple of handles
Replyhttp://www.bloomberg.com/news/articles/2015-04-03/bill-gross-says-fed-to-tighten-even-with-job-growth-slowing
ReplyBill Gross says a disappointing jobs report won’t dissuade the Federal Reserve from raising interest rates by September.
Why? Because U.S. central bankers can’t wait to normalize monetary policy after keeping benchmark borrowing costs near zero since December 2008.
“They want to get off the dime,” Gross. “They want to get off zero, if only to prove that they don’t have to stay at zero for a long, long time.”
Gross’s view contrasts with a market that’s now putting the odds of a rate increase in September at 35 percent, down from a 39 percent likelihood on Thursday, based on trading in fed funds futures. Odds of a June liftoff are 10 percent, the trading implies.
FT:
ReplyBill is talking his book; his duration is below "benchmark";
Classic example of over-thinking the the oponents' next move.
Time to retire for good.
Before the market realizes it's ZIRP forever, we need a good down leg in equities and FED confirmation.
Q3 or Q4 is still my guess.
Last, we might have seen the bottom in PM for good. Time to load the boat if we break the 1220 / 17.40 area.
I do like the PMs/GDX call here and I am cautious on US fixed income for a while, until we see what happens with Greece/EU. Safety trade unwinds can be as painful as ripping off a Band Aid...
ReplyFor a while now, we have been envisaging a scenario where foreign capital flees the trifecta (SPX, US10y, USD) for greener pastures (Europe, EMs) and that actually might drive US rates a bit higher, just as the economy is slowing.... a lower USD also kindly provides a little bit of inflation just to spice the stagflationary dish.
Trust me, if there's a cloud, LB will find it.
So, perhaps I should add that we think the "bad news is good news" theme is off the table at the moment. This, we would argue, is because a lot of foreign capital took refuge in the US b/c of the "stronger US economy - Fed hiking - stronger USD and equities" argument. Once you start pointing out the fallacy of this argument, then we might see a fairly sharp reversal of some of the 2014-Q1 2015 trades that proved so popular with so many.
ReplyFor example, there is a fair amount of evidence that Russian capital started to enter their own domestic stock market late last year and that flow seems to be gathering pace now that the RSX is back in bull market territory. We can expect hot money from other countries to follow suit.
The first 2% reversal from DXY 100 was probably viewed as "buy the dip" opportunity by most, but the media news flow changed this week, even ahead of the NFP number, and investor mood seems to be souring rapidly on the US Impossible Trinity trade. Not sure what next week will look like but there are bound to be people caught leaning the wrong way so a few days of adjustment to positioning seems likely. A while ago, MM and others suggested we might get to see some Fib retracement levels for the DX from 100, and we'll expect some of those to be tested soon for sure.
Those of you who followed us into emerging market debt or equities are probably feeling happier now.... be aware that this isn't a global credit crunch, and a falling dollar in a liquidity-drenched environment is a good thing for EMs.
"So, perhaps I should add that we think the "bad news is good news" theme is off the table at the moment"
ReplyThat is an assertion - untested till we see what happens next week - do you really think the crowd that was paranoid about fed rate hikes as a reason to not own the market will somehow turn on a dime and be just as scared of the opposite?
"Those of you who followed us into emerging market debt or equities are probably feeling happier now.... be aware that this isn't a global credit crunch, and a falling dollar in a liquidity-drenched environment is a good thing for EMs."
Yes, in the short run, and a resounding no when the dollar rally resumes, which will be once we have retraced to the levels you probably correctly presume we shall test - I also think its very risky to own commodity/resource EMs when you have markets like India and Thailand that you could buy instead.
Beijing Shifts to Easier Credit and Liquidity stance
ReplyOn March 15th, China’s Premier Li Keqiang issued a rare “hot-tip” of advice, saying the ruling Politburo can do much more to allay fears about a stumbling economy. Li assured traders that policymakers would prop up the Chinese stock market, especially if economic growth is at risk of breaching a “lower limit.”
“In recent years, we have not taken any strong, short-term stimulus policies, so we can say our room for policy maneuver is relatively big, the tools in our toolbox comparatively many. If the slowdown in growth approaches the lower-limit of a reasonable range, we will stabilize policies in the market, and at the same time, we will increase the intensity of targeted policy control,” Li said. Traders interpreted these remarks to mean that further cuts in interest rates and bank reserve requirements would be on their way in 2015.
“China needs to be on alert for deflation,” PBoC chief Zhou Xiaochuan warned on March 30th, adding the central bank was also on the watch for deflation around the world, and falling commodity prices. “China’s inflation is declining. We need to be vigilant to see if this trend continues, and if it will lead to deflation.”
On Feb 28th, the PBoC lowered its 1-year loan rate -25-basis-points to 5.35%, - its second rate cut in just over three months. The PBoC also made a system-wide -50-bps cut to bank reserve requirements to 19.5%, the first time it has done so in over two years, to unleash a fresh flood of liquidity to fight off economic slowdown and deflation. The reduction of -50-basis points can free up 600-billion yuan ($96-billion) or more held in reserve at Chinese banks - which could then mushroom into 2-to-3-trillion yuan of added liquidity floating in the economy due to the multiplying effect of bank loans.
On March 30th, the PBoC took additional measures to boost the local economy, it lowered the amount of money needed for a down payment to buy a house to 40%. The PBoC said on its website that all banks “are encouraged to offer commercial support to families to buy their own home with the down payment not lower than 40%.” All these measures - unleashed by the PBoC - helped to power Chinese stock indexes to a seven-year high. Real estate stocks included in the Shanghai composite property sub-index closed at all-time highs, even after Chinese property sales in the first two months of 2015 plunged -16% against January-February last year, amid a glut of housing supply. In other words, bad news on the economy is good news for stocks, if its leads to fresh liquidity injections.
Just how high can Chinese Red-chip stocks fly? It’s not wise to stand in front of a raging Bull in a China shop. But if history is any guide to the future, Shanghai A-shares did soar to a +95% premium over H-shares at the peak of the Chinese stock market rally in Oct-2007, before succumbing to the PBoC’s tightening of its monetary policy. This time around, Shanghai red-chips are +32% above H-shares, on average, and have the wind of PBoC easing at its back, so it wouldn’t be surprising to see the China-300 index climb above the 5,000-level in the year ahead, up from around 4,125 today.
Gary Dorsch, Global Money Trends
Is this the new, new thing?
ReplyThere are now approximately 425 companies spread across 64 sub-categories involved in crypto-tech computing, decentralized services, cryptocurrencies, Bitcoin and the Blockchain
http://crypto.silk.co/
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/ae02f268-d81c-11e4-80de-00144feab7de.html#ixzz3WTOOpOO9
Reply"Nomura strategist Wendy Liu says this year marks the start of a three-year bull market for Chinese stocks, with a rally built on reforms, stabilising economic growth and improving property sales. Ms Liu expects the MSCI China index to rise 60 per cent between the start of this year now and 2017."
ReplyGuillaume Chatain, head of equity solutions at JPMorgan Private Bank in Asia:
“When I look at China A shares I’m not necessarily seeing a bubble yet. It’s not a crazy rally. Compared with 2007, it’s nothing. Yes, we have the start of a bubble, but I don’t think we’re at a level yet where we should really be afraid.”
Ms Liu .. Start of a 3 year bull market? where were you last year when some of us were JBTFD? we are a year in already.
ReplyTBH this China commentary just makes me want to go and smash a china analyst nose or two. Look at the general commentary a year ago. It turned out to be very wrong. Now things are heading up ( and we haven't had any real change in the broad background other than CH slowing and policy adaptation to that) and they all have their extrapolationist rulers out saying woo hoo here we go for a bull run. It's complete CNBC amateur hour and they shouldn't be let out of their kindergartens.
ReplyHumph... Pol
And the pisser is that these amateur China analysts could turn out to be right for all the wrong reasons and despite their lack of chops.
ReplyTo be fair, Wendy Liu isn't a 12 year old and she did call for China easing last October. She is at Nomura, which isn't generally a headless chicken shop..
Replyhttp://video.cnbc.com/gallery/?video=3000319901
+10 for this though, Pol:
Reply"they all have their extrapolationist rulers out saying woo hoo here we go for a bull run"
LOL.
Washed - I think right now bad news really is bad news, not just b/c we are short, because weak earnings are coming at us and there is a price level where earnings do matter, at least for those investing in companies that make money. A little bit of mini-capital flight is ahead for the US, a nasty surprise for many. Enjoy...
LB, reading the finance papers today I came across the details of the latest must have..polo ponies..
ReplyI inquired further, result..nothing there for me now to invest in..all gone.Over and out.
Japan admits to fabricating wage growth data. (BOJ and Japanese treasury explicitly monetising Japanese debt).
Replyhttp://www.zerohedge.com/news/2015-04-03/japan-admits-fabricating-2014-wage-growth-data
The Fed's 2% inflation target has undershot for the 34th straight month. The Fed must be so envious of Russia right now where the CPI rose 16.9% from a year earlier in March.
ReplyKroll Bond Rating Agency (KBRA)...
ReplyTotal cost of funds for all U.S. banks was just $11 billion in Q4 2014 (versus over $110 billion in 2008)
and banks earned $119 billion in gross interest income in the same quarter
"..the best way to improve the returns attainable by savers was to do what the Fed actually did: keep rates low"
Ben Bernanke March 30, 2015
Some day , the American people will wipe that smirk off Ben's face.
hey - any of u haters still think bad news is bad news???
ReplyAll very interesting folks, now just BTFD already. I will be surprised if equities aren't pushing new all time highs soon.
ReplyKudos to washedup who completely nailed today's move.
So what do people make of the Friday/Monday disconnect? It's tempting to see friday as "without quant" and monday as "with quant". Many futures-specific models rely on cross-asset correlations anyways so were turned off friday.
ReplyOr is this Dudley effect? I cant imagine what he said was much of a surprise.
I’d still say, gun to head, for a long term scenario the liftoff is still a likely deal. The alternative is that rates globally get killed and never again rise to react to any kind of positive turns in the economic cycle. I think that would one way or the other be a prelude for the extreme end game of the whole financial system, but I it’s hard to believe that we’re at that point –at least yet. So unless we believe that the end point has already arrived for the global financial system, there needs to be a liftoff, and the US economic cycle I believe is already in a very mature phase – it would be a very bad signal to waste yet another year. And there will be more soft patches guaranteed, but I think the pressure to get this thing off the ground is going to turn out triumphant in the end. I’m just saying liftoff should definitely be a done deal but how long the normalization flight will continue, that’s probably completely another issue. It’s even possible that it will turn out to be a deja-vu – a la Trichet in 2011. Precisely for the reason that the economic upturn phase is at a mature stage and EM’s are getting saturated as can be witnessed by the great shift in China, which can rely consistently less on exports and foreign investments.
ReplyI’d like to recall the phrase “international developments” from the Statement. It was clear that the dollar had quickly (start of 2015) become a major concern, probably the FED knew that a strong dollar would ultimately become a major headwind for global emerging markets, leading to problems for their major import client Europe and it would hinder domestic exports development, ultimately leading to further domestic consumer headwinds. Europe is now showing some signs of life which and might soon be handed the baton which – if persisting – would create a good opportunity for the hike and alleviate the worrisome “international developments”.
On Europe, I think corporate earnings will get a one time boost from FX, but that will be pretty much it. Local emerging export market growth will turn anemic or even negative, which will ultimately start feeding back to the major extra-EU exporter consumer confidence indicators. And when the German consumer starts getting wary, be assured that it will do no good for the peripheral parts which count on intra-EU trade from the extra-EU surplus countries to keep their own current account afloat. I’d guess the stuttering in data starts within a year from now, quite likely much earlier. However it is quite possible that the market won’t notice this as a warning sign, DAX, EUROSTOXX and Co. will continue to run for many months after the expected FX boosted earnings materialize expecting for more. I think there will still be new highs to come but it might not be such a bad idea to start cashing sometime this year, definitely before the stuttering starts becoming more persistent and apparent.
So I’d guess EZ will continue to run for some time with the FX boost, QE and improving data which might last for a little while and the baton will be handed over. That’s should be the window of opportunity for the Fed while everyone’s looking the other way, but soon after that the safe heaven trade will again resume as it will become apparent that emerging markets start showing signs of trouble, meaning big troubles for Europe, and ultimately the late stage economic growth in US turns into a decline.
Mr.T - I mentioned earlier on Friday someone was buying up Emini. No Europe today to spread against. Market walks up on low volume. Happens so often on European holidays.
ReplyBig intraday moves get everyone excited but you only have to expand your chart to say 4 months to see that we are still in ranges in a flat though huuugely whippy year. Miss Whippy is whipping Mr Market but the leather straps are still holding him to the bedstead.
ReplyBut looking at today's action alone you would have thought that Mr Market has seen, out of the corner of his tear stained eye, Miss Inflation enter the room.
First of all, washed, brilliant call on today. Well done, sir.
ReplyBut.... I think Polemic is right. Miss Whippy at work, and just when Mr Market thinks he is getting ready for the happy ending she is going to drop him out the window....
Mr Market is actually making a series of lower highs in 2015, so unless he breaks out into the wild blue yonder in the morning, today is just misdirection.
We can all be as cynical as we want here (and as a group we certainly are) but earnings are ahead, and earnings matter, and earnings are sensitive to the $. So for now we are staying with our game plan, which is long Stoxx and emerging markets and short QQQ. We had a pretty good day today as the reflation trades had a decent bounce.
If you look at the bigger picture on QQQ, it just about made it back to the 50 day, and the chart still looks bearish. There are way too many bulls and dip buyers....
Hipper - too much drama, mon ami. LB sees no end game, no US lift off (Jobs? Helloooooooo?), no Grexit, no TEOTWAWKI, we are just going to grind on with faux growth, low rate, TWINE scenarios for a very long time.
I see one of the market's great momo merchants and trend following artists may have just stepped off the dollar express and is following some of us punters into emerging markets and Yoorp....
ReplyStock Rotation
Actually happy to have that confirmation, from a fairly smart FX pontificator.. no offense, mate, read your stuff every day... quality.
In the context of FX it was notable that the USD bounce today was much weaker than the jerk higher in equities. Keep an eye on USDJPY as traders have reduced JPY shorts abruptly these last few weeks.
ReplyQ1’s Corporate Bond Issuance:
Reply2009 → $399B
2010 → $338B
2011 → $429B
2012 → $457B
2013 → $448B
2014 → $429B
2015 → $496B ( C'mon, who would have predicted this )
IG CDX closed at 63.1bps last Thursday. A whole new round of short covering from the credit bears if 60bps gets taken out.
Seems Australia is on it's way to begin taxing bank deposits starting January 1, 2016. How soon before the U.S follows?
ReplyTaxing bank deposits, or charging banks for lending them its aaa rating?
Replyspeaking of Yen, when's the next relevant BOJ day?
Reply