5 pre-payroll bullet points

There's too much to talk about to write in free form prose, so today's post is confined to bullet points:


*  If you're reading this, you don't need Macro Man to tell you that it's been a bad start to the year for equities.   You might, however, be interested when he tells you just how bad it's been.  He analyzed US data going back to 1930 (using the Bloomberg synthetic SPX calculation)....and this is the worst percentage return for the first four trading days of the year over that entire span.

It's also been the worst 4-day start of the history of the DAX.....

.....and (barely) the Nikkei....

.....however, Macro Man must apologize to Mark Carney, who's finally demonstrated why he's paid so much as governor of the Bank of England.  It's only the second worst start of the year for the FTSE!

Now obviously, a four day performance window is about as arbitrary a sample size as you could wish for, even if it does carry substantial psychological weight via coming at the beginning of the year.  It does not necessarily follow that Armageddon is about to come knocking, though by the same token it feels rather more likely than if the signs on all the year-to-date returns were reversed.   Macro Man ran correlations for each index on the returns for the first four days of the year and those for the remainder of the year (i.e. from day 4 until the end of December.)  For each index, the correlation was positive, but not massively so- the coefficients ranged from 0.09 to 0.35.   Perhaps tellingly, the low reading was on the SPX, which had the biggest sample size.

So while it isn't time to panic, it is worth considering the technical and psychological damage that's been done to the market already.

* Curiously, however, not every manner of risk asset is getting chucked out with the bathwater.   Perhaps it's short-covering, perhaps it's merely a dead-cat bounce off of a previously over-sold condition.  However, Macro Man finds it very interesting that high yield has actually traded pretty well since the December Fed meeting, particularly in light of what both stocks and oil have done this week.

At the same time, gold has traded very well this week and the miners have breached the 50- and 100-day moving averages as well.  Macro Man bought some on the open yesterday, and it was interesting to observe how it traded with a negative correlation to Spooz all day.  As a value proposition, GDX looks pretty good to your author....and if it's a diversifier against the rest of an equity portfolio....well, there's a lot to like there.

* Well what do you know, USD/CNY is going to the moon in a straight line after all.   Last night's USD/CNY fix was virtually unchanged, which the market has taken as an unalloyed positive at the time of writing.  The irony, of course, is that that was actually quite a 'weak' fixing for the CNY given what the USD did yesterday against other currencies; the EUR/CNY fix, for example, was up by 115 bps.  By Macro Man's calculation, the CFETS basket has just breached the 100 level.

The implication is that if you thought Chinese currency weakness was a good reason to panic yesterday, any relief you see today is an opportunity to hit the exits.  From Macro Man's perspective, not a lot has changed; if anything, the decline in the basket to lows below last year's indicate a more serious intent to weaken the RMB a bit further.  If you think that is Armageddon-worthy (and Macro Man doesn't necessarily, at this juncture), then consider yourself forewarned/forearmed.

Perhaps the real irony of the whole thing is that for years, China's FX regime was a major driver of the EUR/USD exchange rate via PBOC/SAFE reserve rebalancing/recycling.  These days, however, price action in EUR/USD helps dictate the level of the CNY basket via the EUR/CNY axis....which then influences where PBOC fixes USD/CNY and how many dollars they have to sell to intervene!  (As an aside, the answer in December was 'a record amount', and there are some stories circulating that just on Weds/Thurs the amount of USD sales were equivalent to nearly an entire month's worth of trade surplus.)

* Although there has been some commentary to the effect of "ooh the Fed cannot go with stocks down and the market pricing so little for March", the reality is that it's much too early to make any determinations of the sort, regardless of the inflation commentary in the minutes.   In fact, current Fed pricing for March is at levels the market ascribed for December's meeting at the absolute height of the crisis last September.  Moreover, pricing for March has never been much more than a 50/50 proposition over the last couple of months.  Although the minutes did highlight inflation, recall that in the December press conference Yellen was quite clear that employment still matters a lot, too.  One also wonders how quickly the committee will forget how the equity market made chumps of them last September....

*  As for today's number, Macro Man's model is quite bullish, looking for 246k, well above the consensus.  In fact, this is a higher forecast than for any month last year.   Macro Man has the feeling that the initial market reaction will be good news = good news and bad news = bad news, insofar as Chinageddon represents some sort of hideous unknown deflationary depressionary force in the eyes of John Q. Punter.

Good luck!