Seven charts

Readers can consider themselves excused if they feel a little washed out, as the last few days have been chaotic to say the least.  Then again, just imagine how Kuroda and the BOJ must feel, having their latest shot blocked so comprehensively by the market.  Here are seven charts that summarize some of Macro Man's thoughts on the state of play:

1) The dollar had a shocker yesterday, though it wasn't quite unprecedented.   According to Macro Man's calculations, it was the 25th worst day for the USD TWI since 1975.  Interestingly, yesterday's decline (-1.59%) was almost exactly the same as that of last August 24th (-1.55%), the day that marked the 2015 low in Spooz.  (In case you're wondering, the all-time worst performer was the day after the Fed announced QE.)


2)  It's funny how often a) history repeats itself, and b) we recall formative events from early in our careers.   Macro Man was a callow young man of 22, working on the FX floor of the CME, when USD/JPY took a Valentine's Day swan dive in 1994, a mere 12 days after the first Fed tightening of that cycle.  That gap wasn't closed until early 1996.


3)  For what it's worth, despite the clear jitters, fear, and illiquidity in the market, Macro Man's risk indicator remains well above local lows.  Perhaps this represents some sort of positive divergence?



4)  One of the reasons why the risk indicator is not showing panic is that the VIX isn't, either.   Despite yesterday's gyrations it closed at 21.65, which suggests a market that is almost sanguine in comparison to the sentiment expressed in some quarters!   A reader pointed out the unusual kink in the VIX curve, where the first future is higher than spot, and the curve slopes downward from there.  Macro Man ran the numbers and found 125 days in which this condition held sine the inception of VIX futures in 2004.   On average, the price change in the SPX over the next 4 weeks was 0.45%.  This compares with an average return over the same holding period for all trading days since 2004 of....0.45%.


5)  Today's Bank of England meeting isn't expected to produce any policy changes, but the accompanying Inflation Report will be closely scanned for clues (a forecast inflation undershoot, anyone?) that might open the door to a policy easing. Markets are now pricing in a meaningful chance of rate cuts by late summer.


6) It seems unlikely that Carney will try any unorthodox policy moves ahead of the Brexit Referendum, which looks likely for late June.  In any event, the BOE governor has been a harsh critic of the banking sector since his arrival on Threadneedle Street, and a move to zero or negative rates would be just the ticket to stick the boot in even further.  Then again, perhaps this is unnecessary, given the relative performance of banks under his economic stewardship.  One wonders if Carney has a secret agenda to become the highest-paid banker in Britain...


7)  Finally, it's worth noting that there is a bull market in conspiracy theories out there.  Not only has the comments section become sadly littered with dark mutterings of central bank manipulation to explain every two-bob move in market pricing, but look at this stock that has gone ballistic lately, rising nearly 9% yesterday alone.   That would be the share price of Aloca, purveyor of the raw materials used to make the conspiracists' aluminum foil deflector beanies.


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Anonymous
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February 4, 2016 at 7:09 AM ×

MM thanks for all the great work. First time post and a little off topic - curious whether anyone here has a strong view of what happens to the USD on a significant Chinese devaluation? I presume PBoC communication is key; poor communication leads to further reserve drawdown and therefore selling of EURUSD, GBPUSD and buying of USDJPY. But even if the communication is good, commodities print new lows and the USD rallies. I guess equities get killed - not sure what the FX implications are currently of risk on vs risk off however. My thesis is generally that a deval is USD positive vs the majors - keen to hear views.

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JB
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February 4, 2016 at 7:56 AM ×

Feeling a little washed out last night was an understatement. However I did have a good laugh whilst reading through yesterdays comments section last night...... thank you contributors.

Thanks MM for the update. It certainly puts things into perspective. As they saying goes, its never as bad in the morning. And I must admit looking across my charts outside of the a few rip roaring candles in the dollar pairs nothing stands out, which certainly didn't feel that way yesterday. Even the face ripper in oil wasn't anywhere near as extreme as the moves seen early August........ the exit door is as good as shut when everyone's lunging for it as the same time!

So we have seen the top in the DXY as the the realisation that the Fed could be on hold for 2016 finally sets in. The equities felt as though the aggressive capitulation low was put in (it was certainly more pronounced than the sedate price action we saw in the January sell off) So things aren't as bad as they seem, business resumes..... And I may just dip my toe in, buy some equity indicies an even pluck up the courage to sell some FI.

Happy hunting everyone

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JB
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February 4, 2016 at 8:04 AM ×

Great link on what yesterdays Oil/DXY exit looked like yesterday (There some very ingenuitive ideas).

http://www.messynessychic.com/2013/01/31/25-secret-doors-to-hidden-places/

Sorry, I couldn't resist.

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Theta
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February 4, 2016 at 8:18 AM ×

Aloca is clearly being bought aggressively by central banks.

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Anonymous
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February 4, 2016 at 8:34 AM ×

Barclay global macro index shows the avg macro return over the past 4 years as being circa +3%. Since we're seeing daily moves in excess of that, seems to me that you guys might wanna pay attention to the tin-foil hat brigade - you never know you might even make some money...

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amplitudeinthehouse
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February 4, 2016 at 8:35 AM ×

Don't worry about looking at the charts, MacroManVIP. Reminiscing about your young days in Chicago makes FX these days seem surreal, not bizarre. But who would fly all the way to New York for a job on the floor and to be passed over when things got boring with today's regulation. Moving on to markets that are transparent such as the indices you'd have to say traders of the Chicago pit may resemble TED and dumbo!

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amplitudeinthehouse
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February 4, 2016 at 9:18 AM ×

MacroMan, I hear you when discussing your mistakes in the trading pit in Chicago in your younger days, we all pay for our mistakes from our younger days, but please , just because this market has been bottled up in easy liquidity doesn't mean it cannot draw parallels with the debate of which comes first, the spirit or the mind , as when this market finally awakens to its true value relative to mind. Markets can think for themselves from time to time you know. Is it nature or nurture :)

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Booger
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February 4, 2016 at 10:40 AM ×

doh, after saying AUD.USD would not be doing a HS targeting 0.724, here it is. That is so irritating.

Oil: basically it has gone nowhere lately and in view of the USD weakness lately, oil has in fact been weak too. I was expecting it to rally to $40 but that hasn't happened yet. If or when the USD strengthens this may argue for another leg down in oil.

FX: Some covering in USD longs and stops being cleared out but nothing too out of the ordinary. In the commodity bloc, I might be wrong, but I see some good value emerging in terms of short possibilities now that the spec short interest has been/is being cleared out. Even USD.CAD is looking enticing at 1.36, which is quite different to 1.46 about a week ago. The BOC does have another rate cut coming one would suppose if oil prices stay below $50 in the next 6 months.

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Polemic
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February 4, 2016 at 10:49 AM ×

positional shake down and a slaughter of sacred trade cows triggered by market determination that Fed WILL follow markets and not he other way around.

Carney is like a bad trader . he buys the tops and sells the lows. He'd still have his integrity intact if he had in fact said nothing for the last few years.A small figurine of the Pope would have done a better job and not threatened that 'richest banker' position.

Re 7 .. I was in Marks and Spencer yesterday looking for some socks in my size but they had none. I asked the girl why and she told me that central banks had been in. I was amazed but she said they regularly popped in buying and despite trying to hide their actions, could be spotted by their rather unconvincing false beards and Hombergs.

Hang on where's my phone charger .. bloody central banks again.

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abee crombie
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February 4, 2016 at 11:03 AM ×

Noco, thanks for the thoughts, the quality of your posts has been very high. And of course MM is still at the top of his game and it's great to see freshly squeezed updates daily.

As a reformed day trader now working for lazy real money my style has changed. while you can skin a cat many ways, it's not feasible for me to churn out trades, even though when I see markets like this I'm dying to play.

Longer term is all about going with the trend, imo, along with buying when valuations are reasonable and occasionally buying when everything is cheap but trends are shit.

Today's long term trends are on edge in equities and we have signs of a major top. A lot of ppl see that. Yet we also have historically wide differences in value vs momentum stocks as all these factor based whiz kids (monkeys) quantity trade equities. In addition we have classic sector rotation into defensives..however the "turn" that everyone is trying to catch is a fast one, so sometimes you need to be early. But with markets on edge it's a tough call. Though oil turning is a big deal imo, as it's super correlated with value in these markets.

Macro hedge funds suck as do most hedge funds bc they are slaves to idiot pension money that would rather have high sharp ratios vs higher returns. Besides when you are rich you take less risk as u have more to lose. Though Bridgewater was putting up good numbers until recently and running boat load of money.

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Anonymous
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February 4, 2016 at 11:08 AM ×

"Carney is like a bad trader" - bit like yourself then?

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Anonymous
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February 4, 2016 at 11:21 AM ×

Here's how it's done: +225% return on a $4 mio a/c (only one slightly negative month in 2 yrs). Trading FX on a short time frame with a macro viewpoint.
http://www.myfxbook.com/members/FXViperTrading/fx-viper-mamm-ic-markets/960020

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Anonymous
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February 4, 2016 at 11:24 AM ×

On hedge funds; are there any out there that nailed tge commod collapse, either through the assets, fx, equities or something fancy? No one getting much media attention for it.

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Polemic
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February 4, 2016 at 11:43 AM ×

Anon 11.24 the ones who nailed it were the producers who hedged at the expense of the funds who took the other side.

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abee crombie
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February 4, 2016 at 12:07 PM ×

On commodity collapse, chanos, was short vale in 2011. He's a smart guy. Been doing it for a while. Check out tsla, a more recent short of his.

Lots of guys saw commodity collapse. Not many made a boat load. No one was giving free cds, like they were in 07. Passport's burbank has been on the ball as well but returns are nothing crazy.

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Cityhunter
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February 4, 2016 at 1:14 PM ×

OH, here comes the equity dip again. This should be a perfect free lunch to dip buyers as the magical central banks should come out and buy the dip again and again.

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Bruce in Tennessee
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February 4, 2016 at 1:47 PM ×

http://www.rttnews.com/corpinfo/EconomicCalendar.aspx?PageNum=5

...Morning. Couldn't help but notice that non-farm productivity for the 4th quarter is -3%....and coincident with that unit labor costs up 4.5%? Just thinking out loud here, but that can't continue...

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Bruce in Tennessee
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February 4, 2016 at 1:52 PM ×

Uh, oh, I see ZH has the same concern. Never mind then........back to my knitting...

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hipper
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February 4, 2016 at 2:14 PM ×

"Thou shalt not disgrace the Japanese".

It's no longer a matter of policies, rather about Honor and Dignity. I guess we can reasonably assume what that means. Banzai! And lets throw in some additional zeroes to the end before the decimal point while we're at it?

Here goes EUR as well and the extremely sensitive EZ growth prospects along with it. Thou I wonder if now everyone and their dog are expecting the second hike pushed into 2018 at least. And whether it my be a case of NFP sell the rumor/buy the news for Bucky... It wouldn't be a shocker if they come out with some hawkish jawboning again at some point.

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Anonymous
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February 4, 2016 at 2:37 PM ×

hipper - Don;t expect anything from the BOJ and/or ECB - they don;t involve themselves in markets... MM told us so.

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Macro Man
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February 4, 2016 at 2:43 PM ×

Tsk tsk anon. I took the time to analyze every single BOJ equity purchase since 2011, which I wager is a more exhaustive analysis than you have done. The ECB buys bonds and covered bonds, but not equities. If you want to believe they do, by all means, do so. The door to ZH is over there.

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Polemic
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February 4, 2016 at 2:55 PM ×

Anon 11.08 I don't know where that came from but if your retort was describing my total ineptitude and diabolical inability to put a profitable trade together ... then go for it if it makes you feel better as I can't disagree

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Anonymous
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February 4, 2016 at 3:04 PM ×

Bus fulls of lippy new punters getting lairy with the management just a sign of uncertain markets.

They'll slip or crawl away once the sun starts coming up.

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JB
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February 4, 2016 at 3:16 PM ×

........ will the CBs just get on the damn bid in the Dax!!!

B in T, I find reading a source of media that fits your view can be quite dangerous at times. From experience I'd steer clear of the likes of ZH. He has been calling for lower lows since 2008/9.

Is it just me, or for an economy that is now being tipped to enter a recession this year, its stock market doesn't seem to think so. From reading the tape, the US indexes are and have been holding in very very well, esp when compared to there peers. A boarding top might just be forming but its not time to sell up and run for the door just yet.

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CV
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February 4, 2016 at 5:29 PM ×

Divergence is the key ... is anyone looking at EMs. No? Good, keep it that way, keep selling please! ;)

Of course, this does seem to be the kind of market where a lot of energy, and as a result punters' margin, is being spent on just standing still, which suggests that it hasn't really decided whether to move up or down for the next leg. I think it will be up for the record and all, but it could go either way to be honest.

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Anonymous
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February 4, 2016 at 5:29 PM ×

12mo Euribor hits 0% for first time ever . Does not suggest EU bank credit in trouble but might be ECB rigged

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Anonymous
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February 4, 2016 at 5:34 PM ×

DXB, DTK and DKT ( all $DB pfds ) getting anihilated . Blackrock funds biggest holder of all 3 .

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Anonymous
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February 4, 2016 at 5:37 PM ×

About $615 million of Chicago School munis due in 2044 are pricing for a preliminary yield of 8.5 percent. Stunning.

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Macro Man
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February 4, 2016 at 5:49 PM ×

@ Anon 5.29...if I had a euro for every time European banks lent to each other at euribor....I'd have an empty wallet.

@ Anon 5.34...yes, that's also tied in with the Cocos, which are getting crushed.

@ Anon 5.37...if half of what I have heard about CPS's finances are correct, I can only assume that the bidders for these bonds are in fact graduates of the Chicago Public School system.

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Anonymous
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February 4, 2016 at 5:51 PM ×

Italian banks 400 billion euros in non-performing loans

IMM positioning: EURO is extremely underowned

Steen: https://saxobank.adobeconnect.com/_a720063299/p683h8so7o2/?launcher=false&fcsContent=true&pbMode=normal

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Anonymous
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February 4, 2016 at 5:52 PM ×

MM..you are on a roll today ROFL!

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