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.