Archive - Jan 2011

Markets have remained range bound since the start of the year in Fixed Income and very little conviction seems to be present. Equities have been grinding higher but a lot of technical signs are flashing red and volumes are anemic so participation is minimal. Finally in FX the USD has also been range bound with the dollar index stuck between 77.5 and 81.5. Last week was another example, with slightly higher yields and weaker USD, but overall not much worth expanding on in the G10. However emerging markets took a beating from Wednesday onwards. Mexico & Brazil's stock markets are posting worrying technical patterns, following Asia which has been leading the way south. AUDUSD is sitting just above the 01/12 lows and the 100-dma and a break would confirm a move lower towards at least 0.95. The market broke the trend since last May on Wednesday while a retest pf the trend line as resistance is customary we would only look for selling opportunities here. This is in line with poor trading in emerging market bonds of late and China seems to be experiencing a liquidity crunch with the Shibor experiencing a lot of volatility. - Nic Lenoir

• Irish meltdown (FT)
• China GDP 'to slow this year' - Decreased rate due to measures to curb inflation, think tank says (China Daily)
• Warning From S&P on Munis  (WSJ)
• In Case of Tech Bubble, Do Not Break Glass (BusinessWeek)
• Metals Traders Worth $3 Million at Wall Street Banks (Bloomberg) - guess where massive vol is going next
• Inflation Fears Grow (WSJ)
• Sarkozy: No Desire To Question Global Role Of US Dollar (Market News)
• Special Report: Life in Europe's "squeezed middle" (Reuters)
• Fed "expert network" Larry Meyer getting nervous, sees big pressure for rate hike: Fed Signals Seen Raising Treasury Yields 60 Basis Points in 2011 (Bloomberg)
• Proposal On Greek Debt Buy Back Circulating In Europe (Market News)
• Thank you yield curve, ZRIP and inflation: Treasury's toxic asset funds gain 27 percent (Reuters)
• How like the stock market to sell off just as the news turns good. Will the Fed "let" the downturn continue? (Barrons)

We’re still not sure whether CNBC was making a joke or simply advertising its ignorance with a recent headline, “Accounting Tweak Could Save Fed from Losses,” This was a tweak about as subtle and ingenuous as Bernie Madoff’s balance sheet. What the central bank did was revise and advantage its own rules so that if some financial catastrophe were to inflict huge losses on the Federal Reserve System, the U.S. Treasury would take the hit, not the Fed itself.

Markets slightly off this AM amid a slew of global economic stories and a data heavy week. Today features nothing in the US economic calendar, but this week will give us Case/Shiller Home Prices Indices (Tuesday), FOMC (Wednesday), Durable Goods (Thursday), Cap Goods (Thursday), GDP (Friday), and PCE (Friday). The initial focus for the week will be the switch in FOMC voters and what that will do to the tone and language we see within the Fed’s statement. Fisher, Evans, Kocherlakota and Plosser all join the fray as Bullard, Hoenig, Pianalto, and Rosengren depart the voting. Hoenig has been the hawkish dissenter as of late, while the incoming Fisher and Plosser are seen as his likely replacements. Given the calls for better communication from the Fed – from the Fed itself – Wednesday will be fun to watch as far as drastic changes. A more splintered approach will result in more vol and more speculation about the curve in general. After that, 4Q10 GDP will be on focus for the market. S&P issues warnings on US muni bond market, expects downgrades to rise in 2011.

As we highlighted yesterday, and predicted a week ago, following the Ivory Coast's halt of cocoa exports, futures in the substance have moved to one-year highs on Monday as "ongoing political tensions in the world's top producer escalated." The WSJ reports that "New York ICE second-month cocoa futures soared more than 4% to a one-year high of $3,340 a metric ton. In London, front-month March futures jumped 7% at the open to a five-month high of GBP2,307/ton ($3,692/ton)." We hope that our prediction that JP Morgan is the mastermind behind this most recent key commodity market implosion, made surely in jest, remains that way and that no cocoa ETF is currently being prepared by JPM without anyone's knowledge, until it is of course, too late.

Last Friday we pointed out that Chinese 7-Day SHIBOR had hit a fresh all time high just days after pundits thought that the year end liquidity shortage was temporary and things would be back to normal. This morning it appears that the PBoC is scrambling to restore some form of liquidity in suddenly frozen interbank market, especially with the traditionally liquidity draining Chinese new year coming up, as the central bank is said to have injected CNY300 billion of liquidity via reverse repos. To those who are concerned that the PBoC is playing an increasingly more volatile game, with liquidity either in big excess or completely absent, and with a very limited arsenal of measures, you are not alone.

The week ahead will have interesting GDP prints out of the UK and the US in store. The market has recently shifted to price in a stronger US recovery and a higher probability for BOE hikes – so both prints will be watched closely and will inform investor decisions. Also worth watching are the German and Eurozone PMIs and if they confirm the signs of ongoing strength by the IFO. Against the strong growth back drop in the Eurozone, political events always the potential to increase uncertainty and the prospect of earlier Irish elections than the previously scheduled March date could be a concern. The US FOMC is expected to acknowledge the improvement in the macro data but not to change its policy stance. President Obama’s state of the Union address will likely focus on budget consolidation and policy to support employment. Hungary’s and Israel’s central banks are both expected to raise base rates on Monday, and so is India’s on Tuesdsay. The minutes from the recent MPC meeting in the UK should continue to indicate that the MPC will likely see through the volatile nature of the commodity price pressures which have led to higher CPI inflation against the drag that fiscal consolidation may pose on domestic demand ahead.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 24/01/11

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.

Bruised, but not defeated, the bankers knew that in order to get their plan put into action they needed support from the very TOP of the US Government: the President of the United States. Consequently, they engaged in one of the most sophisticated lobbying efforts in history, backing all THREE candidates (Taft, Wilson, and Roosevelt) in the 1912 election.

Al-Jazeera has released thousands of previously classified documents which due to their content will likely bring the already sensitive situation in the Middle East to a boil once again. While the document progenitor could well be Wikileaks, the TV network refuses to disclose the source: "Because of the sensitive nature of these documents, Al Jazeera will not reveal the source(s) or detail how they came into our possession. We have taken great care over an extended period of time to assure ourselves of their authenticity." As for what is contained: "The material is voluminous and detailed; it provides an unprecedented look inside the continuing negotiations involving high-level American, Israeli, and Palestinian Authority officials." Apparently, the disclosure is so sensitive that the ISP of the Palestinian authority has just blocked the Aljazeera site containing the early releases. We look forward to reading the documents as they are released between January 23 and 26. Judging by the prompt retaliation they will be worth the read: according to the Palestinian Authority, Al-Jazeera has just declared was on Palestinians, which intuitively makes little sense.

When a week ago we observed the Onionesque reality of life in the Ivory Coast, where deposed president Gbagbo is threatening to wipe out bondholders of $2.3 billion in debt (Corporate Ticker: NUTZ) unless he becomes formally recognized, we made the following bold prediction: "we are sure that Blythe Masters and her team were recently in
Yamoussoukro discussing the most effective way to corner the cocoa
market (paper Cocoa ETF?), thus getting the price of the sweet powder up
by a few trillion percent (in exchange for a nice 25% of all upside
going to Jamie Dimon's firm of course)." Sure enough, when it comes to our track record of macabre predictions we continue to be near 100%. The FT has just reported that Alassane Ouattara, Laurent Gbagbo's opponent in the presidential election (and the man formally acknowledged by the UN as the country's president) has just imposed a one-month export ban of cocoa, ostensibly in an attempt to oust Laurent Gbagbo. In other words, the international community has to choose: bond recoveries or chocolate. That said, we are certain that it is none other than noted commodity market cornering expert JPM that can claim league table advisory credit for what according to the FT will be a 10% jump in the price of cocoa on opening Monday. The immediate retaliation by Gbagbo will most certainly be to force a technical default on the country's bonds which are already in their grace period, and start a localized mini liquidity (and solvency) crisis in Africa... As if the developed world did not have enough of those as is. And in the meantime, we sense a great disturbance in the inflationary Force, as if millions of fatty voices suddenly cried out in terror, and were suddenly silenced: prepare for the next round of food inflation worldwide.

In lieu of a credible macroeconomic data reporting infrastructure in America, increasingly more people are forced to resort to secondary trend indicators, most of which have zero economic "credibility" within the mainstream, yet which provide just as good a perspective of what may be happening behind the scenes in this once great country. A good example was a recent Gallup poll, which contrary to all expectations based on a now completley irrelvant and thoroughly discredited ADP number, which led some br(j)okers such as the Barclays Insane Predictions Team to speculate a 580,000 NFP number was in the books, indicated that the jobless situation barely improved in December. Sure enough, this was promptly confirmed by the January 7 NFP number. And so, in looking for a variety of other "off the grid" economic indicators we read a recent report by Nicholas Colas, which proves to us that we are not the only 'nerdy' entity out there increasingly searching for metrics that have some rooting in reality, and not in the FASB-BLS-Census Bureau joint ventured never-never land. And while we recreate the key points from the report, the one item that should be highlighted is that, as we have suspected for a while, the social undertow of fear, skepticism and anger is coming to a boil, as Google queries of the "Buy A Gun" search querry have just hit an all time high. How much of this is due to the recent events from Tucson, AZ is unclear. What is clear is that the trend is most certainly not your friend (unless you are of course the CEO of Smith and Wesson).

"Print is the sharpest and strongest weapon of our party."--Joseph Stalin

Since the Fed has now purchased $320 billion in Treasurys since QE Lite (more than in all of QE1 combined) and $244 billion since QE 2, and the latest, but certainly not last, round of quantitative easing is more than a third done, it is once again time to provide a summary recap of what the Fed has purchased to date, as well as an advance frontrunning preview of both Monday's immediate POMO as well as of all POMO operations in the near future. Also, since the Fed no longer even cares about the optics of direct monetization as we disclosed first last week when we pointed out that Sack-Frost had monetized half of the Primary Dealer takedown from the just completed 3 year auction, the game is obviously starting to get quite dirty, and the FRBNY boys are fully convinced they can do whatever they want with impunity. Obviously, with all of a subservient puppet Congress bought off, they are absolutely right.