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Weekly Recap, And Upcoming Calendar - Light Domestic Econ Data With All Eyes On POMO, Europe And China
Week in Review
After an intense set of macro events over the last few weeks, last week’s macro calendar was notably lighter. The key sources of macro surprises came from EM inflation posting higher prints. China followed the trend and exhibited higher than expected headline inflation prints due to higher food prices. We have discussed the impact of higher food prices on EM inflation quite extensively this past year and we continue to watch the massive spike in traded international food prices with great interest and caution. In response China hiked the reserve requirement ratio again last week signalling more tightening ahead. Related to possible additional administrative measures, over the weekend press reports emerged that a number of large banks have reached annual lending quotas. So far the response of risky assets to this policy shift was negative. Outside China, the Band of Korea will meet on Tuesday, where we expect a hike by 25bp (consensus is for unchanged).
The ongoing tensions in Eurozone bond markets brought the market’s attention back to the looming problems in the European periphery, this time around with spreads in Ireland and Portugal widening and liquidity conditions deteriorating rapidly. The market is now assessing the probability that a country accesses the EFSF in the near future. Under these circumstances and with the positive surprises in US data fresh in mind, the market pushed the EUR off the highs, down from almost 1.41 to lows around 1.36. The upcoming Eurogroup and Econfin meetings on Tuesday and Wednesday will be key to watch.
The long awaited G20 meeting finally came with a disappointing statement even compared to our own expectation for very slow and gradual progress in global economic coordination. The prospect of capital controls emerging post the G20 meeting, added to the overall uncertainty underpinning a volatile week for risky assets. After weeks of rumours and speculation, the Bank of Korea could possibly announce some capital account measures at the policy meeting on Tuesday.
Week Ahead
Further Upside Surprises in US Data?
The week ahead is reasonably light in terms of data. In the US the key releases to watch include retail sales, IP and the Philly Fed. On balance we expect better prints compared to consensus. This is likely to maintain the momentum of positive US surprises. As European tremors escalate the ongoing positive momentum in US data is unlikely to be EUR friendly in the near term.
The Philly Fed will also give us a forward looking signal with respect to broader PMI trends in the US...
Next week will include a number of interesting events for monetary policy. The Bank of Korea will likely raise rates by 25bps, as mentioned above, which should help our short INR/KRW trade. Chile will continue normalizing rates by 25bps per meeting, while Philippines’ and Colombia’s central banks will likely stay pat. In the UK the minutes of the last MPC meeting will be interesting to watch in case there is a shift in the overall dovish tone.
More importantly, there will be a POMO every single day of the upcoming week, which will add ~$30 billion to the Fed's total UST/TIPS holdings. Traders will be nervous to confirm whether the new POMO regime will be a dud after Friday's inaugural POMO ended up being a disaster for POMO-bulls.
Monday 15th
US Retail Sales(Oct) We expect a 0.8% print for retail sales ex autos relative to consensus expectations of 0.4%.
US Empire Survey (Nov) Consensus expects at marginal drop to 14 from 15.7 last month.
Tuesday 16th
Korea Monetary Policy Meeting. We think the BOK will likely raise rates by 25bps, while the market expects rates to stay flat at 2.25%.
US Industrial Production (Oct) We expect that IP grew 0.5% mom in October while consensus expects a 0.3% print.
US TIC Portfolio flows (Sep) After a bumper inflow in August and with growing expectations in September of QE2, overall inflows could again be very strong. However, if the pattern of previous months holds, there will be fairly little net US inflow outside Treasuries.
Chile Monetary Policy Meeting The central bank in Chile continues on its policy rate normalization path. We expect them to maintain a 25bps pace of tightening bringing rates to 3%, in line with consensus.
Wednesday 17th
US CPI (Oct) Headline inflation is bound to rise by 0.29% mom (consensus is 0.3% as well). But core inflation trends should remain anaemic (0.06%mom).
US Jobless Claims After the drop to the bottom of the multi-month range last week, there could be more focus on this data release than usual.
UK Minutes of MPC Meeting The consensus expectation is for an 8-1 vote in favour of unchanged policy. What will be more important to watch, is the general tone of the minutes and, in particular, we will be watching whether the sentence depicting the dovish bias of the Committee – “some members felt the likelihood that further monetary stimulus would become necessary had risen in recent months” – is retained.
Thursday 18th
US Philly Fed (Nov) The Philly Fed survey will likely come out at an index level of 6,[->] according to our forecasts, slightly above consensus expectations of 5. But we will be watching the momentum in the new orders to inventories ratio to make inference on growth implications. This will be an input for our GLI as well.
Philippines Monetary Policy Meeting We expect the central bank to remain on hold for the remainder of the year.
Friday 19th
Colombia Central Bank Meeting We do not expect Colombia to change rates from current levels of 3%.
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POMO-bulls bitchez!
http://www.primates.com/bonobos/population-crash.html
Flash-crashes in silver tonight?
Big snap back rally tomorrow. Nothing really bad came out over the weekend and Japan put up some strong growth numbers. Risk back on tomorrow unless something terrible comes out of Europe. But at this point anything "terrible" out of Europe will meet screams that it's already priced in.
Thank the Irish. Take your IMF loan and shove it ... A people used to happily drinking warm beer can endure greater hardships than we could imagine ...
Holy shit, Robotrader posted something showing gold up!
Must have hit the wrong button.
You won't have to worry about it much longer, Mr. Mosley. First stop, AU1K.
Get out now, please.
:D
Wow, gold @1K....glad to hear all debt monetizations have ceased, everything is marked to market and interest rates are going up....oh wait....
First stop, don't forget...
And the gold trade has nothing to do with inflation concerns or monetisations, etc. This gold trade has everything to do with gold and silver being just another risk asset that is easy to frighten people into buying. They're calling them, "bag-holders."
When they cut your legs out, don't come running to me!
:D
Risk asset? -minimal- (compared to the present equity and bond bubble)
Volatile asset? - yes (and we will likely see more correction before the next leg up)-
10 years ago people were saying what you are currently speaking of pm's. The argument is old. These frightened people that you speak of - do they include central banks? Frightened people are ones who hold onto cash and GIC's- they are not people who spend $1400 on a piece of gold.
Or you could call them gold holders, and I'll call fiat bugs paper holders.
You would really rather being holding a bunch of rectangular pieces of paper than gold? Were you dropped on your head as a child? By the way risk assets are ones with counter party risk. Gold has no counter party risk.
I apologise for my misuse of the word. Perhaps, "purely speculative trade" would have been better?
Well you can call the collapse of the US dollar speculative while the US prints money in response to any negative economic data and I'll call it a sure thing.
Oh, and I am really going to enjoy that, by the way. You and your loser friends will have to find some other back-alley to steal in.
Really
gonna
enjoy
that...
And when the government isn't there with free money to coddle your paper assets will be the true day of reckoning - or do anticipate QE will last forever?
Chart: YM
http://99ercharts.blogspot.com/2010/11/ym_14.html
http://www.zerohedge.com/forum/99er-charts
that's "good warm beer" from what i hear.
So, any news on Ireland?
The word is the street is telling the IMF people to feck off.
opex this Friday. SPY's max pain is 118; fcx at 90, xom at 67.5, GS 155..none too bullish.
Anyone else notice the lack of Black Friday madness this year relative to last year? It's literally something we can't even escape in Canada without being bombarded with ads from the border malls rattling off prices of turkey's, coats, cars and bits of lint (iphones and such).
Last two years airwaves were pummeled weeks before. This year...did it even happen?
Black Friday is Nov 26 in US. Airwaves are full of in-your-face promo and deals (already started) but ramping up this week.
Thx. I was wondering what the hell was going on. Keep forgetting the US ThxGiving is at the end of Nov. I'll go dodder over here for a while...
herp a derp herp a derp herp a derp
"All eyes on POMO, etc..." Except for mine, sorry, I was looking at porn just now.... but I'm back.
I'll go out on a limb and say that the market will be up another 5% before the end of the year.
After the new congress is sworn in, the market will start to tighten up and roll over by March, as 1st qtr earnings disappoint and more PIIGs in the former Europe-land countries crash.
The Celts in Ireland are doomed. The Spartans in Greece are not Spartan enough and it will reignite. The government in France will dissolve amidst demonstrations. Germany will look toward greater political ties with Russian to avoid picking up the tab for their overindulged European cousins who can longer afford to buy their cars anyway. Japan will not be doing any better and they will continue to be kicked to the curb by everyone -- three Prime Ministers in 1 year is not a good sign anyway.
There will be no safe havens except for commodities. The overall stock markets will turn fast once they start to turn. There is no solid good news out there as far as the eye can see.
Back to more porn....
gwar, you working the graveyard shift over at the sec?
and don't forget to buy an ounce of silver
Did y'all decide on a day yet? Last I heard, you were all going to do it on 07 December.
I did notice something fairly odd on Friday after the POMO. The DOW anticipated the rocket after the injection but the SPX specifically refused to bite. After POMO, the Naz and DOW ramped up but failed.
Why? Because the SPX did not move!
Why? Because the Fed has stopped buying SPX futures, that's why!
This time, it's for real.
:D
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why was fridays POMO a dud?
It was expected that teh Federal Reserve would "supplement" the POMO with purchases of SPX futures. They didn't and all panic ensued.
I expect much the same reaction today.
ghd outlet is not required at ZH
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