Bank Holiday Special 2: Number Crunching with the Chinese

0.3%  Change in RMB fix vs the USD, prompting global equity rally and hosannahs from the press.





-0.05%  Change in RMB fix versus the basket that PBOC claims is the proper reference for assessing FX changes, leaving it at the lowest point since the basket was announced.  In an unrelated development (cough, cough), China also announced the largest monthly trade surplus in the history of the world, registering $63.3 billion in January.



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abee crombie
admin
February 15, 2016 at 1:59 PM ×

For BiT ;-)

Jan Hatzius, at Goldman Sachs, suggests that they recently presented evidence that the risk of a US recession remains relatively low, mainly because of economic factors such as spare capacity and lack of significant overall debt growth.

“But could the tightening in financial conditions— the third-biggest move in our Goldman Sachs Financial Conditions Index (GSFCI) since the 1980s—alone push the economy into recession?

We think this is unlikely, barring further significant FCI tightening. Empirically, the growth impulse from financial conditions is closely related to the year-on-year change in the FCI, which started to turn more adverse in late 2014 but has been reasonably constant since mid-2015. This means that FCI tightening is a good explanation for why US growth has slowed since late 2014, but not necessarily a good reason to expect further significant slowing from here, much less a recession.

It is also instructive to compare the current FCI impulse with the estimated fiscal impulse to growth in 2013. By our estimates, this impulse was significantly bigger, and the economy nevertheless escaped recession.”

http://www.fxstreet.com/news/forex-news/article.aspx?storyid=ecaf8283-79ae-49e0-92f9-adbcb160ba31

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jbtfd
admin
February 15, 2016 at 2:14 PM ×

So PBoC, BOJ and ECB are in easing mode. Equities will be heavily bid and FX will be manipulated to support this as long as these guys control things. We're back to the 2009-2015 mantra of central bank puts. Spoos 1800 will NOT be allowed to fail. Period.

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CV
admin
February 15, 2016 at 4:07 PM ×

The perma bulls have taken over the perma bears' mantle as the real wing nuts here. Ominous. If the yanks follow up on today's party in Europe a more sustained bounce is likely, though. Look at bonds in the main. I think they will drive it.

MM is absolutely right on the trade surplus in China. Consider that the "mercantilist" Eurozone runs a trade DEFICIT with China of about 1% of GDP, which is on track to swell to 1.5% this year.

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Leftback
admin
February 15, 2016 at 4:08 PM ×

I think what MM is trying to say is "short covering rally into options expiration driven by any old rumour flying around".

Here is something we have all been saying here for ages re: monetary and fiscal policy, not just in Europe but the U.S.:

Europe Should Tighten Monetary and Ease Fiscal Policy

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Bruce in Tennessee
admin
February 15, 2016 at 4:45 PM ×

Well, conditions here are somewhat like last year, with whipsawing being the investor torture of choice..and I find it hard to have confidence with any long term choices in markets like these..

I do still have a question about China and the US...I think all who invest and looked at the China figures understands their underlying problems, and if they are as severe as it appears, who becomes the driver for the global equity markets? The obvious answer is the US, but taper tantrums that we've observed whether brought on by the rumor of tightening or a very minimal tightening make me wonder what would be the support for our markets if Wall Street doesn't get what it wants when it wants...

Gets back to what makes an investor smart? You don't have to be Albert Einstein and write a theory of relativity while working at a Swiss post office, or James Joyce with Ulysses...no an investor is smart if they can identify trends and put money to work with the properly identified trend...What makes them a genius? Einstein or Joyce? No, an investing genius is one who can make those investments year after year. Peter Lynch had a basic bull market background to aid him...Jesse Livermore lived in a much different era, and I am afraid we will have Jesse's problems with us in this day and time...

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Bruce in Tennessee
admin
February 15, 2016 at 5:25 PM ×

http://www.rttnews.com/2613021/old-cancer-drug-offers-new-hope-for-alzheimer-s-prevention.aspx?utm_source=rttnews&utm_campaign=popup

"As part of the research, Bexarotene was given to nematode worms genetically programmed to develop Alzheimer's disease, and the way the drug worked at molecular level was analysed.

According to the researchers, Bexarotene works by suppressing primary nucleation reaction, a process that initiates the formation of malfunctioning proteins called amyloid fibrils. As you may know, accumulation of amyloid is a hallmark feature of Alzheimer's.

But there's a catch...

Bexarotene had no effect when it was given to the nematode worms once symptoms had already appeared. But when the drug was given to the worms before any symptoms became apparent, there was no trace of the disease."

...I found this of interest, since genetic testing for Alzheimer's is now possible...sorry if this is too off topic for a financial site...but this is probably really good news..

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abee crombie
admin
February 15, 2016 at 6:23 PM ×

I agree Bruce. You don't and probably shouldn't have a PhD if you want to play in the markets. Lots of wound up hedge funds by very smart ppl end up losing a lot of money. Perhaps James Simons is a rare exception given that he is a bonfide genius.

I'm no perma bull. If been bearish on oil and momo stocks for a while. And the Primary trend in equites looks very suspect here. But I like hatzius..

As far as what are the trends at the moment I just think world growth has been crap all last year. That is not something new. It could get worse, but it could also get better ( most likely for a few quarters ) and then let the primary trend re assert. Let's see.

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negative volatility
admin
February 15, 2016 at 7:22 PM ×

it's amazing to me how the chinese have struggled so mightily with communicating the shift in their monetary policy framework.

unrelated to your post MM, but HY is starting to offer a compelling entry point here. spreads are already implying recession in the US, even ex- energy/materials. Equities meanwhile, are not already implying an oncoming recession.

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Nico G
admin
February 15, 2016 at 7:51 PM ×

Simons is applying the best mathematics and has the world's best IT department to trade multi-markets and switch strategies in a milli second when market conditions change. That requires a lot of brains indeed

You need to be dumb to trade a trend - just follow it and ignore the contrarian views. I can't do that. And from experience trend traders hardly ever get at the top and give a way so much profit. Just because you HAVE to be greedy to trade a trend. Anyway it also pays to trade as a contrarian every time you 'feel' the trend folks have gotten a bit complacent

did i sort of announce that they would try to floor the market at 1800 uh? that didn't take brain at all, you just had to try to imagine what would happen if they would slice through a failed double bottom

any folk who resisted selling the hole bravo now you have to think ahead and probably opt to get out of all longs by the end of April...

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Anonymous
admin
February 15, 2016 at 8:02 PM ×

Any reason behind april end timing for rally top ? Quite a few places calling for rally into April before next leg

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Anonymous
admin
February 15, 2016 at 8:04 PM ×

@anon 8:02

Sell in May? I do not think the bounce can last that long. March is my bet.

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Monsieur Marche du Prick
admin
February 15, 2016 at 8:25 PM ×

Dear Market Participant,

We would like to apologise for the technical difficulties we are experiencing, which may be causing you to see erroneous prices on your screens. Rest assured, the second installment of Wolfgang Peterson's epic Das Boot will resume tomorrow.

Happy Viewing

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Bigtail
admin
February 18, 2016 at 5:39 PM ×

MM: As CNY is controlled vs the USD. There is quite limited "Wiggle room" for CNY vs the currency basket. It´s essentially USD vs the currency basket. Plus/minus any weakening/strength of CNY vs USD.
In other words, CNY can´t weaken/strengthen vs basket without USD ditto, unless USD/CNY shifts.

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