Tuesday, August 18, 2009
Macro Man is still getting back into the swing of things, though he can confirm that real-time price action is indeed as noisy as it appeared to be on the South Carolina coast. Yesterday's weakness in risky assets has begotten a bounce thus far today; as has been the case recently, price action appears, on the face of it, to contradict the newsflow somewhat.
Yesterday's limp trade in US equities, for example, ignored further improvements in the Fed's Senior Loan Officer survey, which showed modest reductions in the tightening of credit (epitomized by the C&I survey below) and improved demand for loans in some sectors.
The spin that Macro Man saw was that this was less positive than expected....hence the lack of equity market reaction. Given that, from his perch, this result was probably about the best that could be expected, he can only conclude that, far from bullish equity sentiment being sourced in a flow-of-funds argument, it is actually based on equity punters really drinking the recovery kool-aid.
Anyhow, after yesterday's limp US trade and recent carnage in China, the stage was set for an interesting day's trade in Shanghai. There was certainly fodder for a further sell-off, via a Bloomberg story suggesting that included among the products of the stimulus package is a flourishing trade in copper speculation amongst the country's pig farmers. (Bubble, ccough, bubble.)
But as has been its wont recently, China confounded the Western expectation and put in a bounce today, helping to spur a recovery in risk assets during the European morning. So, too, has the release of data suggesting scope for a bounce in the trajectory of nominal GDP. The German ZEW, flawed as it is, surprised top the upside, with current conditions finally ticking higher.
In the UK, home of QE, meanwhile, CPI printed higher than expectations....again. While it remains below the 2% target, the undershoot is now pretty marginal (0.2%.) Interestingly, core CPI has recovered quite sharply indeed; if one believes that core CPI is an accurate herald of underlying inflation pressures (and to be fair, there is not much evidence that Merve thinks this way.....yet), well, then the BOE will have a rather interesting dilemma confronting it in a few months' time.
But that will likely be a story for another day (if not quarter or even year.) In the meantime, Macro Man expects a rather noisy period where tactical, rather than strategic, trades are likely to maximize his risk-adjusted returns.