Economies and markets

While the situation between Turkey and Syria certainly appears to be serious, it does provide a useful laboratory experiment to test Macro Man's longstanding thesis that geopolitical events generally do not matter for financial markets beyond those fleeting moments of time after the red headline has hit.  To be sure, there are local exceptions- witness the performance of Turkish stocks since the incident- but broadly speaking there was a decided lack of contagion evident by the end of the day.


That's not to say that such events have no impact whatsoever on economic life.  One might reasonably posit that the Paris atrocities put a dent in US consumer confidence, and the absence of Russian tourists from Turkish beaches next summer could give another kick to Turkey's ever-present external balance concerns.

However, it's an old saw that economies are not markets, and vice versa.  Here's a fun game to see how well that's playing out at the moment.  Macro Man downloaded y/y GDP, CPI, and equity return index data for ten countries.    See if you can match each country to its GDP, CPI, and equity returns...without cheating!   Answer will be posted separately later today.









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Anonymous
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November 25, 2015 at 11:54 AM ×

D-measuring contest + poor following = anon

GDP
7,00% India
3,40% Australia
3,30% Canada
2,30% Spain
2,17% US
2,00% UK
1,70% Sweden
1,00% Germany
0,90% Japan
-2,60% Brazil

CPI
9,93% Brazil
5,00% India
1,50% Australia
1,00% Canada
0,30% Germany
0,20% US
0,09% Sweden
0,00% Japan
-0,10% UK
-0,70% Spain

Equity
14,80% India
11,70% Japan
2,20% USA
1,00% Spain
-2,50% Sweden
-4,10% Germany
-6,70% UK
-9,60% Canada
-10,70% Australia
-12,90% Brazil

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Anonymous
admin
November 25, 2015 at 12:03 PM ×

in the same format my best punt

GDP
7,00% India
3,40% Australia
3,30% Spain
2,30% Germany
2,17% UK
2,00% US
1,70% Sweden
1,00% Canada
0,90% Japan
-2,60% Brazil

CPI
9,93% Brazil
5,00% India
1,50% Australia
1,00% Canada
0,30% Germany
0,20% US
0,09% UK
0,00% Japan
-0,10% Sweden
-0,70% Spain

Equity
14,80% Japan
11,70% GermanyJapan
2,20% USA
1,00% India
-2,50% Sweden
-4,10% Spain
-6,70% UK
-9,60% Canada
-10,70% Australia
-12,90% Brazil

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Anonymous
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November 25, 2015 at 1:35 PM ×

I'm the Anon who said to JBTFD yesterday. Following a +1% reversal in the Dow Jones yesterday, EU equity indexes are up almost +2% today. Wake up and smell the coffee people, rates are going -ve in EU, the ECB and BOJ will literally monetize 100% of their debt and equities will stay bid for longer than you could ever imagine.

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November 25, 2015 at 1:35 PM ×

It really seems the current set of geopolitical events are/have been a positive for markets. And markets are considerably higher than otherwise. The market was going down ahead of France terror and the subsequent few days exploded higher. Perhaps as traders start to lean more short and, this trade works, the terrorism caused a squeeze on the simple lack of an increase in risk aversion and the inability for markets to go lower.

So this time, perhaps not only did it not matter, but has been a clear bullish catalyst.

Odd market of 2015

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Anonymous
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November 25, 2015 at 2:54 PM ×

Suppose a nuclear bomb was dropped in Eastern Europe, pre-market in the US. No doubt spooz would have a shakey open. But then punters would figure out that massive CB intervention would be required to prop up consumer confidence and by the end of the day all time highs would be taken out!!!

Rossmorguy

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Leftback
admin
November 25, 2015 at 3:05 PM ×

Usually at this time of year the only war is the one between USA and Turkey, with a lot of cranberry jelly on the side.

Bucky clears 100 with gusto, EURUSD still hasn't touched its lows from earlier this year, so we still have that to look forward to. You can already visualize the next screaming squeeze in FX, although I am not sure what the trigger will be. We are staying out of all markets this week until the usual patriotic fervor has abated.

Post-Paris rally was an expiration week, so the easy trade that Monday morning was to wait 15 minutes and sell vol. As for this week, this is Turkey Trading, likely culminating in a Black Friday short session Silly Buggers rally. I wouldn't read too much into equity price movements of late. Probably best to remain agnostic, as we are currently. If you ignore Spoos and look at small caps the market action still looks somewhat bearish. Recent price action in US fixed income is constructive, however.

A really very important read going forward from here is what may happen in the commodities markets and EMs, some of which are showing clear signs of life, even as Bucky continues to put in what may be a short-term top this week. Crude oil, the main inflation driver for the US, can either put in a convincing bottom, thereby guaranteeing a modest tick upwards in inflation for 2016, or if supply continues to overwhelm demand, may crash yet again, breaking through the previous lows with additional disinflationary consequences.

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Anonymous
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November 25, 2015 at 3:23 PM ×

EU equities are going back to all-time-highs very soon.
ECB are selling euro and buying EU equities.
BOJ are selling yen and buying EU equities.
No-one knows what the Fed is doing (not even the Fed) - they are total fckwits, esp. Yellen.

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Leftback
admin
November 25, 2015 at 3:23 PM ×

Bund to US10y spread = 175 bps. That divergence should continue to put a bid under US fixed income for some time. There is also a timely reminder here that EM bonds have done better in the last year than many might have expected. In a low yield world this is a trend that may continue.

Review of EM Debt

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Anonymous
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November 25, 2015 at 3:26 PM ×

"No-one knows what the Fed is doing"

Let me guess - they are buying EU equities?
We get it - you like EU equities.

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Polemic
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November 25, 2015 at 3:30 PM ×

Rossmorguy.

I'd go further to suggest that if a nuke was dropped on eastern europe then 12yr old quants would say it didnt happen because it hasnt happened before and so is an infinite sigma deviation from their model, that an ETF in Bratsilavian property would be formed, Scottish Nationalist party would claim credit for it not being targetted on Scotland, Corbyn would say we should have negotiated with the fuse on the bomb and talked it out of going off, BBC would report that is was due to Osborne's U turn on Tax credits, Sky would say what ever twitter said, stock in an obscure Silicon Valey start up would go throug the roof because they have a web page crowdsourcing an impossible to build new form of Geiger counter (probably cast in a natty rounded case of tactile grey rubberised coating, and called the 'Hey, Is it Hot'), every sales desk at every bank would become armchair meterologists calling trades on which way they see the wind blowing the fall out, spot traders would yell 'do I sell it or buy it', Credit departments in banks would pull lines to Bombadier and any other companies whose names can be linguistically linked to bomb or bang or nuke, and bank travel departments would forward on travel guidelines to all staff telling them that it would be dangerous to visit the epicenter of the explosion and to check the home office website. Oh and the M25 London orbital motorway would be closed just in case a piece of debris landed on it, they close it for less.

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Anonymous
admin
November 25, 2015 at 5:17 PM ×

@LB, agree with your opinion on commodity, it looks like a rebound is coming.

HYG is still tepid and diverged from spoos. Based on some back of envelop history lessons, spoos is likely to continue rallying for another few weeks to really converge to HYG. So short should really be patient.

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Anonymous
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November 25, 2015 at 5:22 PM ×

The GFC & stalling economy since 2007, was the direct result of delusional government & central bank policy based on a "perpetual money machine" paradigm. Since the 1980's consumption has been funded by smaller savings and debt (via financial engineering). This is stark contrast to the productivity fueled growth of previous decades. The result has been a succession of bubbles and crashes.

Read the full paper here:
http://www.mdpi.com/2227-9091/2/2/103/htm#html-abstract

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Nico G
admin
November 25, 2015 at 5:28 PM ×

hahahahaha Pol !!

thanks for the mastercraft humor

the saddest thing about Syria is that the JBTFD crowd has morphed into the JBTFNuclearD3x

i met a dude on the beach who has been selling VIX futures for the last 3 years and said 'you must make so much money trading is so easy'

in the same place in February 2000 i also met a French truck driver in a $2000 a night resort who was truckload long of all the Cisco and Akamai of those days and decided he would dump his regular job on his way back

Anon - CB spokerpersons enjoy while it lasts, ride Santa if Santa exists, 2016 is going to teach you a little lesson

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abee crombie
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November 25, 2015 at 5:29 PM ×

More bad news from Brazil, BTG's Esteve's arrested today. At some point this is going to get up to Dilma and Lula.

Lets see how the numbers come out next week. I think we start to see equities drift higher still and rotation back into EU, small caps .. if EEM joins the party along with commodities, we might see AUD go back to 76 which I think is a good sell point.

EUR is interesting here. Not sure I wanna go long but I covered my shorts

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Anonymous
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November 25, 2015 at 5:54 PM ×

nico-528; i agree- this selling vix business is so easy nonsense is going to blow up in style given how much money is chasing that trade....trading with short bias with tight leash ...trying to job around a bit with loaded up on 10d puts...3months area

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