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News flow exposing chinks in risk off rationale

Filed Under: EU Outlook, Macro Views by Nick Kennedy — Leave a comment
May 18, 2012

View: Close Short Bono, short EUR/USD, tighten DAX stop. EUR/JPY longs appealing

The market moves of the past week have been interesting, particularly the performance of Eurozone assets which once again have proven rather resilient to local pressures even as global markets sold off on the back of these very drivers.  We have a few positions looking for a worsening of things here but they are not really performing as expected, in fact Spanish 10-year bond yields are now off 17bps from the recent intra-day highs and spreads to bunds have tightened back to (a still stressed) 475bps.  While mid-term the path is to higher yields, at this point taking profits on shorts might be prudent and we close our short recommendation from May 3rd accordingly at 6.19% (+37bps).

Full report below…

Risk EUR 18 05 12

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How Greece would fare post-EUR the biggest risk for EZ project

Filed Under: Little Musings by Nick Kennedy — Leave a comment
May 9, 2012

View: A Greek exit would be the perfect test case for the remaining PIIGS

The double whammy of the election of a French socialist President and anti-austerity parties sweeping out the incumbent coalition in the Greek parliamentary polls are both clear negatives, occurring at a time when the region’s real economy in already heading back to recession.  While the implications of the French election are by no means insignificant, they are something that will take shape over a slightly longer timeframe.  Furthermore there are still legislative elections to come on June 10/17 which means the division between campaign words and governing actions will remain somewhat elevated.  So we’ll leave that at that for now and move to the faster moving situation back in the birthplace of the crisis, Greece, which has more direct market implications.

Full report below…

Greece EUR 09 05 12

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Depressed Eurozone data reinforces bearish EUR technicals

Filed Under: EU Outlook, Technical Outlook by Nick Kennedy — Leave a comment
May 2, 2012

View: EUR/GBP shorts working well, EUR/USD ‘consolidation’ comes with downside bias

As confirmed by this morning’s PMI releases things in the Eurozone are a mess.  Not only did the headline manufacturing number for the region as a whole disappoint at 45.9 vs. the 46.0 flash estimate released last week but the Spanish (43.5) and Italy (43.8) figures reinforced the notion that these economies are still weakening at a rate of knots.  It’s no surprise to see the EUR react negatively to these series, yesterday’s US ISM manufacturing release having already begun to create some momentum behind the dollar.  This is rather helpful to our FX ideas, expressed via shorts in both EUR/USD, our 1.3280 stop surviving pressure earlier in the week (for clarity all our stops are daily closes unless otherwise specified, for example hard stop would be intra-day), and short EUR/GBP view.

Full report below…

EUR USD GBP 02 05 12

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Posen reinvigorates Sterling bulls

Filed Under: Macro Views, UK Outlook by Nick Kennedy — Leave a comment
April 18, 2012

View:  EUR/GBP break has room to run, stay short sub 0.8275

It seems the raft of improved data emanating out of the UK in recent weeks is finally having an impact on the MPC, the minutes for the April 4/5th meeting showing a surprise volte face by über dove Adam Posen, who moved back with the majority in calling for the asset purchase programme to remain unchanged this month.  This left David Miles as the sole dissenter in calling for another £25bn increase from the current £325bn, although even he conceded things were finely balanced.  Of course there is that additional factor of inflation with the latest rise in energy costs in particular making the descent from last year’s peak rather more sluggish than expected, and the budget is expected to add a further 0.1% to CPI from April.  Nonetheless there does seem to be more tolerance of the downside economic risks present, recent turbulence in the Eurozone withstanding.

Full report below…

GBP 18 04 12

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One non-farm horseman doesn’t make an apocalypse

Filed Under: Macro Views, US Outlook by Nick Kennedy — Leave a comment
April 9, 2012

View: Payrolls print is not an inflection point, open short 10-yr UST @ 2.05%

While most were absent Friday enjoying the Easter break those less fortunate were subject to a rather disappointing payrolls print with the headline missing the 200k consensus forecast by some 80k jobs and revisions were broadly flat (January -9k, February +15k).  Hours worked also dropped back to 41.7 from 41.9 and earnings flat-lined, a further drag.  The unemployment rate did drop to 8.2% from 8.3% but the participation rate was also a little weaker and therefore this improvement was not enough to offset the negative reaction the headline release brought.

Full report attached…

Mar NFP 08 04 12

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German equity gains fuelled by liquidity; overlooks macro risks

Filed Under: EU Outlook, Macro Views, US Outlook by Nick Kennedy — Leave a comment
April 3, 2012

View:  DAX bounce should be used to rotate to US equities

You have to admit the equity bulls have control when a batch of very dire European PMI releases are shrugged off when a modestly higher US equivalent turns up later in the afternoon as was the case on Monday.  It is perhaps more surprising given that this was the manufacturing survey, when we all know that in the US services make up 70% of the economy and the (currently rather cold) boiler room of the European economy is those hyper-efficient German manufacturers.  Of course the market had already had a heads up following the flash European numbers but it’s hardly as if US consumption is going to come to the rescue of Europe, in fact there has been debate on how weak European demand is dragging on growth in Asia.

Full report attached:

US EU PMI 03 04 12

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Tumbling Shanghai stocks increasing heat on commodity plays

Filed Under: Asia Outlook, Macro Views, Technical Outlook by Nick Kennedy — Leave a comment
March 29, 2012

View:  Copper, AUD offer opportunities to play Chinese market weakness

Risk appetite may have improved markedly this year but it looks as if investors will need to become a little more selective going forward if a reversal of early year gains is to be avoided.  While charts continue to look very bullish in some markets (S&P500 for example) there are definitely problems elsewhere.  The most prominent deterioration we’ve seen over the past couple of weeks has been in China with the Shanghai Composite losing around 9.0% since mid-March as China bears talk up hard landing risks again, a move that more than reverses gains made since Chinese New Year.  In fact, the break of 2,264 means we should see a test of at least the 2,196/2,114 area in the coming days with the pattern of lower highs and lower lows in place since Aug’ 09 suggesting a break down through the Dec/Jan lows at 2,150 is probable.

Report attached…

China Copper AUD 29 03 12

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Fed language will continue to catch up

Filed Under: Macro Views, US Outlook by Nick Kennedy — Comments Off
March 15, 2012

View: Euro$ strip to continue to steepen, U2/U3 spread could double

While the shift in tone of the March FOMC statement may have been subtle the markets reaction has been fairly pronounced with yields shifting up across the curve.  The adjustment is not too surprising, in fact it’s what we have been saying for many weeks, namely that the US economy is improving, led by the labour market, which the Fed is slowly starting to acknowledge.  There was also some understated acceptance that there were fewer risks emanating from the external environment although these still posed ‘significant downside risks’, a tone that is overkill in our view.  Of course the 2014 language remains and the programme to reinvest maturing paper into the longer-end of the curve continues, with just one dissenter in the form of Lacker.

Full report attached……

Fed Curve 15 03 12

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Bailout terms guarantee failure; risk window should narrow

Filed Under: EU Outlook, Macro Views by Nick Kennedy — Comments Off
February 22, 2012

View: Tighten stops on DAX longs, start looking for a trigger to sell EUR/USD

Approving the Greek bailout failed to create that watershed moment that we had earlier hoped for, political bickering seeing to that.  In the end, the whole process proved another example of how deep the divisions in the Eurozone are, to the point that opposing sides are happy to elevate what are effectively irrelevant points to the level of deal breaker.  Indeed, it seems ridiculous to place so much weight on what Greece’s debt/GDP ratio might be in 2020 when the measures forced upon the country to get there will simply reinforce the downward spiral the economy is already in, ensuring the target is missed.  The fact the Troika think 120% debt/GDP level is sustainable following what would amount to a decade of austerity is even further outside the box of rational thinking.

Full report below…

EUR DAX Greece 22 02 12

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