Howzat for a Month!

The afternoon session has been far more eventful today than the morning one. When a cricket match is faster paced than the market, you know things are slow, but that is what we had for the first few hours today. Now that sort of stuff just isn’t becoming of a market which is up c8.5% this month and c17% from the Mon 13th lows! Volumes themselves were pretty healthy mind you, tracking around 100% of the 20 day average but interest levels were not as the focus was always going to be on the afternoon’s GDP number.

And this wasn’t an ordinary GDP number either, as it was going to include a benchmark revision of the national income and product accounts. So basically, they were changing some of the definitions and methods etc. As was expected, these led to revisions down in previous numbers. The savings rate advanced and in general, it complicated the market’s reading of a headline good print on the Q2 number. Inventories printed -$140bn and should provide scope for the H2 growth pickup as the pace of inventory decline lessens and then restocking occurs.

Deflation though seems to be the theme of the data with Eurozone CPI coming in lower, as did the US GDP price index, core PCE and personal consumption with savings increasing. All this has led to the $ selling off in spite of equities having a mini waver. Bonds have caught a bid too on the back of this with the short end in particular rallying hard.
It’s left everything feeling a bit muddled and correlations breaking down and after what’s been an impressive and exhausting month for markets and participants respectively, it wouldn’t surprise me if people want to prolong making their decisions until after the weekend, instead maybe just engaging in a bit of book tidying this afternoon.

Next week sees another glut of earnings and promises to be no less punishing on the info intake front…and if yesterday’s little stat is anything to go by, we could see the end of the rally. Or if you want something with a bit more track record, Bob Janjuah of RBS has a cautionary piece out, reiterating that the next month or so will be where the wheels could fall off. He’s called things well, to say the least. Now that would really shake things up a bit. In the meantime, back to the cricket…

Ps for anyone in the US, England are playing Australia in cricket today (and until the end of time, it seems)

Can Lightning Strike Twice?

The market continues to grind higher, and why not? The Beige Book talked of a slowing pace of decline being reported by most of the 12 regional Feds, although there were no real nuggets to get too excited about. Nevertheless, that set the tone and then China came out and reassured the market of its monetary looseness. Odd that world markets don’t care when China goes down, but when it goes up, they take a fillip from it. Earnings on balance have been better today, German unemployment came in ahead, UK house prices are up 3 months in a row and the US jobless number was at least benign relative to expectations.

It’s the commodity complex that is leading the way with oil back up towards the 65 level and the resource stocks up the best part of 6%. The reaction from the resource currencies is more muted however. The Aussie and Loonie are a bit firmer but the Kiwi is suffering on the back of commentary from RBNZ Governor. Rates were unchanged as expected but he did say that “forecast recovery is based on further easing in financial conditions.” The money supply also came in considerably less than the previous month at 2.7% vs 5.6%.

So 1000 on the S&P looks like a sure thing right? I wouldn’t bet against it. Before it is cast in stone however, I did hear a little pearler of a stat earlier on. Now I haven’t verified it but it came from my better half, so it must be true or at a minimum, it certainly isn’t worth my while or welfare to cast doubt...so this is it: the 1929-1930 equity rally lasted 147 days and was 46% trough to peak. The rally off the March 6th low this year has been…wait for it…145 days and is 46% trough to peak. Freaky eh? So are the final days of this rally upon us? Unlikely? Probably, although contrary to popular belief, lightning does often strike twice...

Caveat Emptor...Not

Just buy it. Close your eyes and buy it. Not an investment strategy that would hold up under much scrutiny admittedly, but then when you’re bringing in the $$$$$$$$, no one asks questions. The Bears and Sino-sceptics were surely getting very excited as China took a dirtnap on talk of CCB and ICBC lassoing the rampant bull that is lending and reining it in. Admonishing utterances of “I told you so” and “I knew it,” were fleeting however as the rest of the world paid attention for all of about 5 minutes before the market realised it had been sliding for far too long (1 day) and decided to about turn.

To be fair, we’ve had some better figures today in the form of Bayer, Peugeot, Nissan, Santander, Assa Abloy and now Daimler. There’s talk Natixis may have better numbers too, and also that they may have some side fund to place their toxic assets, which will of course, solve everything for them. We did also see UK mortgage approvals up although the deflationistas claimed another notch as M4 fell in June and German CPI came in lower. Nevertheless, the China move should have been big news to the market, right?? The China story has been the wind (gale force in nature) beneath the wings of the market, and within that the pickup in domestic lending has played a crucial role (even if most is going to government sponsored projects). So when this thesis is questioned, surely markets should have reacted more punishingly? I refer you to Line 1 above.

One group that still isn’t buying is that of company insiders. PragCap today highlights that recent weeks have seen just $26m of insider buying, and actually, given one buyer accounted for $16.5m, the clean number is a paltry $9.5m. The sell side tells another story however, with $300m on sales. That’s one serious buy: sell ratio on a “clean” basis…and given that how anything that can be stripped out, is stripped out these days, that’s probably an appropriate way to look at things.

But then all that’s been going on for a long time now and the market keeps going up, and I hear instos are buying today…and on decent volume. There’s a big wall of money to come remember, so just buy it, close your eyes and buy it…

Caveat Vendor

The market has been heading lower most of today. Perhaps after so many up days in a row, there was just a touch too much negative news today for even this grinding Bull to sustain. Questions over the quality of DBK earnings, the Ubisoft warning, profit taking in BP, negative chat about BG’s Corcovado well being dry (subsequently denied by the co.), light numbers from US Steel and further ruminations surrounding a Latvian devaluation have conspired to push us lower.

On top of that, we’re teetering on the edge the two week uptrend in the market breaking down (although remember the recent head and shoulders that wasn’t)

and, although only anecdotal, from those I’ve spoken to on the sell side, their flow has been net for sale. While this is not hugely interesting, what is interesting is that their order flow has been heavily skewed towards institutions as opposed to hedgies. The long guys have been taking profits on some of their winners. Who knows how long this lasts and we’ve certainly seen the market snap back pretty sharpish from what looks to be the start of a sell off. Still, it all feels a bit soggy, so much so that the “good news” that house prices had only fallen 17.06% YoY (instead of the expected 17.90), has failed to buoy us.

Meanwhile the Aussie and Kiwi have continued their recent rally with both hitting 09 highs thanks to comments from RBA Gov Stevens about Australia’s relative health, sparked speculation of a rate hike. They’ve given back a bit however as the risk off trade takes a tentative, Mr. Burns like grip on the market this afternoon. Speaking of risk off, it certainly is the defensive names which are performing today; pharma, telco, utils and the food & bevs in the blue. Even DXY is up today, so far anyway.

In spite of all this, I’ve still got to think there is a decent call of caveat vendor. There’s been a lot of negative news today yet we’re still essentially flat. I can’t help thinking if a similar amount of positive news came out, we’d be a lot higher. Heck, we’ve had a couple of weeks of pretty average underlying earnings manipulated to beat undercooked analyst expectations and that’s been treated as positive. And we’ve got consumer confidence coming up now, all important in telling us where the stock market was at the time of the survey, so I can’t imagine it’ll be a negative number.

The Lesser Spotted…

Just when you thought negative bank earnings had gone the way of the Dodo (for this quarter anyway), they have arisen like a Phoenix from the ashes, courtesy of Morgan Stanley. On top of this, and confounding cynics and conspiracy theorists alike, MS have published a “Sell the Rally” strategy piece. The Chinese wall seems to be working well at 1585 Broadway.

Another resurrection, Phoenix like in form, comes in the shape of some 2007 CMBS. Last week, S&P had downgraded the rating on these bonds from AAA to BBB-, the bottom of the IG heap. Yesterday however, they backtracked on that and decided they actually are worthy of AAA status, for whatever that is worth, which probably isn’t much these days.

Volumes have been reasonably healthy today, at around 80% but the market is feeling a bit deflated. This, despite China hitting new 13 month highs and Japan, well, 2 week highs. The MS and WFC figures are overshadowing these events and indeed, the beats and guidance increases coming from the likes of Altria, Pfizer, Lilly and Boeing. Perhaps last week’s Chinese retail investor stock account opening spree has also served to caution institutional investors or maybe it’s just some profit taking.

In any event, and on the topic of things lesser spotted, it looks like we may see, shock, horror, a down day?!

Lucky No. 7

All eyes today will be on Bernanke although how much we will get remains to be seen. His WSJ piece has given a pretty clear outline of tools available, and that it will, in all probability, be a long time before they actually have to wheel them out. It wouldn’t surprise me if the lion’s share of the detail has already been released. It looks fairly benign and if we get anything tangible extra, maybe it will be from the Q&A.

The earnings beats continue and even those that don’t beat, well strip out a few exceptionals and hey presto, they’re actually better and they go up. NB better than expected doesn’t equal good but that’s another matter.

The Solars are having a very strong day today. No matter the recent Q-Cells warning, China is throwing some cash at solar projects. According to a Reuters article, they’re going to finance 50% of the cost of projects which connect to the grid and 70% of independent projects in remote and powerless regions. Interesting to note for all the talk about Chinese information being leaked and manipulated, (and I’ve certainly been sceptical in the past), this little nugget seemed to stay well under wraps as the biggest local solar player, Shenzhen TopraySolar traded down 4.8%. Just as an fyi, it is trading on 65x 2010 ests at the moment (130x 09 actual acc to bberg).

Volumes are healthy at around 90% of the 20 day average and the market feels strong, although interestingly, other risk assets are not rallying with equities and bonds have only been modestly sold. Nevertheless, who would bet against a 7th straight day of gains for the Eurostoxx? Only Bernanke can stop us now surely and given the recent market performance and the tri -mandate of the fed; price stability, full employment and making the equity market go up (the latter is the most important), I can’t imagine him saying anything that will jeopardise that.

I Owe How Much??!!

A bill for $23 quadrillion each was what a number of Visa customers were presented with thanks to a computer error. According to Freakonomics, this is greater than the sum total of wealth accumulated in history. There is hope however, in a few years time, $23 quad won’t actually be that much money if the Marc Fabers of the world are right. A month’s wages should cover it. Failing that, once the system gets back up and running, you should be able to borrow it from your local bank at a nice teaser rate.

Moving swiftly along, the market received a late day boost when the economist formerly known as Dr. Doom was momentarily rebranded as Dr. Boom. The recession will be over by the end of the year, it was proclaimed! Roubini rapidly responded with a wrong righting release. No change to forecast here, yes I believe it will be over by year end but I’ve always said it would last c24 months and we’re now 19 months in, was the basic message. You don’t have to be a prize winning economist to work out the rest. Here’s the link if you want to read the whole thing.

The beats continue to come thick and fast, IBM and Google overnight. No revenue beats mind you. And with Citi, GE and BAC later on today it will be interesting to see the market reaction, especially as C estimates have come down by about 50% in the last few weeks from -22 to -33, while GE have been flatlining and BAC have moved up sharply from 10c to 18c. There’s been a reasonable amount of airtime given to the idea that the reason forecasts are coming in ahead is simply because estimates have been taken down too far and the cost cutting has been moving along strongly. Today’s figures may give some more food for thought on that issue. As I write GE come in ahead…a mere 2c though, pfff, most companies wouldn’t cross the street for a 2c beat in this quarter. Oh, GE revs are light too…

And the Beat Goes On…

The market barely batted an eyelid at the news that a CIT bailout was unlikely. I wonder what the reaction would have been if we’d heard that last week? We did have a slightly muted open however as we prepped for some big earnings announcements. Now Nokia numbers may not be such a market moving event as it used to be but it is still heavily watched, and I would wager this time especially so, given the tech leadership we’ve seen (ignore Dell, we don’t like to look at poor figures). Anyway, on the off chance you haven’t received 487 Bloombergs on detailing every aspect of the numbers, here’s the skinny: they weren’t enough; light on sales, margins and outlook and the stock is taking a bath on the back of it.

The Kiwi, as noted yesterday, survived dual tsunami (that is the correct plural). Well one of them didn’t materialise but it did have to deal with another one today in the form of a Fitch long term credit rating downgrade. NZD took it in its stride however, falling 1.5% before the risk on trade bore out again courtesy of a much bigger beat from JPM. Interesting to note just last month, consensus estimates from JPM were c28c.

A couple of things caught my eye today. Firstly, Pragmatic Capitalist is running a piece asking whether this move we’ve seen, and what a move, is a short covering rally. The basic conclusion is yes it was/is as the most shorted names have outperformed while the Nasdaq is up less than SPX and Russell 2000 ie beta hasn’t been the driver here…this is the link if you care.

Secondly, and this relates to the mighty house of GS. Now it’s easy to get into GS bashing/begrudging especially with so much of it in the media at the moment. Indeed some of it sounds compelling, ie when you have a former Assistant Secretary of the Treasury say that Geithner “works for Goldman Sachs” (see the last 15 seconds or so, pretty unbelievable), or when you look at the speed the FBI moved on the Aleynikov saga. The code he took could be used to manipulate markets, so erm, take it off him and leave it with GS?? Anyway, some of it is less compelling, such as the Matt Taibbi stuff in Rolling Stone which is sensationalist to say the least. With the GS figures the other day came a new high in their VaR @ $245m. ZeroHedge asks how can they have so many $100m+ profit days on a VaR of $245m? Perhaps the answer lies in the fact they have an exemption from traditional VaR models. Which begs the question, why do they have such an exemption? Now I’m not a risk manager, so there could be a very reasonable explanation which I wouldn’t be aware of. It just stood out as odd to the cynic in me. Anyway, enough of that, onwards and upwards as the beat goes on…

Disjointed Thoughts for Wednesday

Earnings have unsurprisingly been better so far. Admittedly it’s early days but they’re running around the same % beats as Q1, c65%, with 23/36 companies in the S&P coming in better. The theme of top line worse, bottom line better continues, see CSX in the US and Philips/SKF/Acergy here in Euroland as examples. Intel, however has really buoyed the market. This was better a better report top and bottom line and on the guidance front. As you’d expect, tech is leading the charge this am. The Macquarie upgrade of Samsung helped things too and the Kospi put in its strongest showing since 10th June, up 2.7%. Even the Baltic Dry printed up, in what was its maiden foray into the blue for the month of July.

Risk assets are well bid across the spectrum and even NZD, which, it was thought would fall foul of the Uridashi tsunami, not only rallied in spite of it, but also in spite of talk of a an actual tsunami; failing to break 0 .64 for more than a nanosecond.

So it’s Risk On again now, courtesy of a Meredith Whitney bullish intrasector/bearish sector call on Monday (the market focuses to what it wants to, I guess) and some earnings beats (ditto). Although if we had a few more genuinely better numbers a la Intel, the market really could get excited. It’s been shaken into life for sure today with volumes around the 75% level on the day

Economics wise, we’ve had some UK data today, showing the unemployment rate worse than expectations at 7.6% although the claimant count was better. Earnings and wage cost continued trending downwards too providing further evidence of deflationary effects. The US CPI has come in slightly higher at the core level with apparel leading the way, although overall, not much to report there.

One thing which did catch my eye was that WFC had sold $600m of subprime loans @ 35c on the dollar. It sounded low to me, certainly given the credit rally we’ve seen although looking at ABX, the sub bonds look like they trade c20-30 so maybe not. Still it all seems to have passed off without much noise and the key is where they had them marked. I would think though, that if $600m of subprime was sold anywhere near the marks they have, then the market would have been treated to quite a bit of WFC trumpet blowing. Just a thought…

Plenty of Time for Bull

The market felt sick this morning. Asia fell heavily as Japan decided on an Aug 30 election and the ECFA talks sound like they’re going to be delayed. News of CIT potentially losing FDIC guarantees certainly didn’t help matters either. A number of the bigger banks came out saying they won’t accept California IOUs any longer and Lloyds informed us they were going to write down even more of the bad stuff. So overall, the news flow was less than positive. Even the talk last week of the Indian potash tender being settled c$600-$650 was quashed as Silvinit settled at $460. It did seem odd to have such high prices bandied about last week when last thing we had heard from the fertiliser companies was that demand was down significantly.

Nevertheless, this is nothing that some better figures from Philips (sales light, earnings better. Won’t be the last time we see that) and an upgrade from an influential banks analyst, can’t reverse. She’s been getting almost as much airtime on CNBC as David Faber’s new book…and it’s certainly doing the trick with Spoos and Estoxx up 2 and 3% from the lows respectively. Now, call me cynical, but I’m not sure Meredith Whitney would have has such an extensive opportunity to talk through her rationale had the note been downgrading the mighty house of GS. To be fair though, as of this AM, we’d been down in Europe, in 7 or the last 8 sessions so perhaps it’s not surprising to see a bounce, it just didn’t feel like it pre open.

And volumes just keep getting lighter and lighter. 48% says the UBS Voluminator today…and that’s 48% of not very much. One correlation constant is the inverse relationship between light volumes and heavy eyelids of market participants…and today shows no sign of being an exception. In fact, it almost looks like someone is resting their weary head on the buy button.

A Week to Forget?

Well, it certainly hasn’t been the most interesting of weeks, light on economics, light on earnings and markets still hungover from the worse payrolls data last week. Volumes have been less than heavy too, clocking in today at c50% of their 20 day average. Of course, the longer this drags on, the lower that actual average number is. But this week may be memorable for something, it’s the first time in a long time that we’ve seen some real follow through to the risk off trade. Equities have sold off and hover near the lows of the week. The Yen rallied hard, as did govvies, the dollar has bounced (ok it sold off yesterday but is rallying back today. ) and oil has taken a pretty serious dirtnap back into the 50s. Lucky for PVM they cut that position when they did!

Crucially, the market is reassessing the weight it attaches to the “good news.” The ISM bounce was sold and the better jobless number was eclipsed by the worse continuing claims. Admittedly with earnings kicking off in earnest next, it wouldn’t be the most prudent play in the world to be betting big one way or the other this week and investors seem to be erring on the side of caution into the start of the season. So what will earnings hold in store for the market? Remembering last quarter that while 2 out of 3 companies beat, these beats were largely due to cost cutting and in fact, 2 out of 3 missed on the revenue lines, the market may be sceptical if the same trick is repeated. Well, cost cutting is unsustainable so if revenues don’t pick up soon…there will have to be questions asked. Given the glut of stock issuance of late, and the heady amounts of insider selling, 22:1, I’m not overly optimistic. Well, not on the quality side of things anyway. There’s probably more room to cut costs and expectations are low too so positioning could well have a big impact on the market reaction, especially in light volumes. Perhaps Q3 is where the lack of top line will really come home to roost, if conditions continue in the same vein.

The BOE provided no surprise on the rate side yesterday although it caught GBP and bonds off guard it decided not to extend its QE program. The lighter UK PPI numbers this am however have reversed the moves somewhat as inflationistas re-evaluate.

There was a lot of press, if not a lot of detail given to the huge bounce in Chinese auto sales yesterday, up 48%. And the import number released this am not as bad as anticipated. Exports were worse though and the actual trade balance(surplus) quite a lot worse at $8.25bn vs $15.53bn so it will be interesting to see which the market actually focuses on given the former (stockpiling or real demand?) has been part of the China bull case although latter of course is what actually feeds into the GDP equation.

Outside of that, it’s another quiet day in a week to forget…or remember. Whichever way, we’ll have to wait and see how it pans out.

Déjà Vu...and It Wasn't Pretty

It seems that across all markets, we’ve been here before. Retracing previous levels in equities, fx, bonds and commodities. This is not unusual or worrying as the market rally reverses somewhat. What is worrying I believe is the recent trend of revisiting previous practices, in hope they will rescue those in trouble.

Now, the world, its wife and extended family know that the credit crunch was caused by asset price (house) inflation, overleverage and an underappreciation/lack of understanding of the risks involved in CDOs and CDS. The ratings agencies played a big part too of course, but if Joe Schmo on mainstreet was asked to list the causes, the agencies probably wouldn’t make an appearance. Anyway, no one should know the hazards of overleverage of the undercapitalised better than the lenders themselves. So it was surprising last week to see the return of the 125% mortgage in the USA through Fannie and Freddie. There’s a good article here about the trouble those in negative equity could get into by swapping into one of these loans, especially as in the US, they’ll be moving from non-recourse to a recourse loan.

Now the UK has joined the party with Nationwide offering 125% mortgages those in negative equity! 3 year fixed at 6.73% on 95% and then 7.23% on the remaining 30%. Nice! What this all seems to presuppose is that house prices are at very low levels. Oversold perhaps? The result of panic selling? Here’s a chart from Nationwide showing house prices adjusted for inflation (see attached file). They’ve fallen for sure, but are only back on trend. Given this is the biggest financial shock since the Great Depression, is it credible to believe they stay on trend or even bounce from here? Certainly back in 91-92 they fell below that and in line with typical recessions took about 6 years to bottom from their 1989 peak.
Looking also at first time buyer/house price, according to Nationwide, (you can look at all this stuff here) the average is 3.3. This is from a series going back to 1983 which I think is probably a pretty good time to start given you’re looking at the start of the credit mentality around then. At peak, through 2007, it was at 5.4 and at present it is at 4.2. We’re also only 2 years out from peak prices. So what if, and it’s not a big if, house prices don’t go up anytime soon? These takers of the 125% mortgages are going to have locked in the negative equity, borrowed their original mortgage and the locked in loss on top of that and moved onto a more punitive rate. It wasn’t pretty before and it won’t be pretty this time.

Perhaps even more jaw dropping is that MS, and you’ve got to admire the gumption, is going back to the tried and erstwhile trusted alchemy of turning toxic assets into a sure thing. They’re repackaging downgraded CDOs into…AAAs!! I can’t help thinking that it wasn’t pretty before and it won’t be pretty this time.

BOINNNG

The Spoos flirted with the 200 day MAV (and not 2000 day as I erroneously typed yesterday) but it bounced, causing the itchy trigger fingers to hold off. The better ISM number prompted a rallyette which was quickly faded. This is a consistent theme of late, sell the bad news hard and sell the better news on a rally too. People still seem to be looking over their shoulders however to see who is willing to really sell this market down and without real conviction we bounce and fall and bounce again.

In a freak event yesterday, the Shanghai Composite fell!! Not only did it fall, it had its worse drop since 12 June and second worst since 21 May. It posted a whopping 1.13% fall. Now that may not sound like a lot, and it’s not, but when the market has only gone like this of late...

it’s newsworthy; especially when there is no other news about. I found it odd too that China was down on the day the RBA leaves rates unchanged @ 3% and is more sanguine on the Australian economy, noting in particular the stronger growth in China which is impacting Australasia. For the record, 12 June saw 1.91% and 1.54% falls respectively. Monday’s other Asian outlier Korea stayed up today though, thanks to another 2.5% performance from Samsung on a BNP upgrade to Buy from Hold.

If you do think we’re going to continue downward, here are some stats published by David Rosenberg yesterday. The conclusions are not earth shattering; during a retest, the defensives, govvies and greenback tend to be the best performers and the laggards are the ones that led the rebound, but there is some food for thought re length and levels etc…

*The average length of the testing phase is 53 calendar days and 38 business days (versus 45 calendar days and 33 business days for the interim bear market rallies).
*On average, the S&P 500 undergoes a correction of more than 20%.
*Market volatility more than doubles, on average.
*Bonds rally, with the 10-year Treasury note yield down nearly 15 basis points, on average.
*Commodity prices decline an average of 15%, again as cyclical trades unwind.
*Corporate spreads (Baa) widen an average of more than 60 basis points; it is very important to be focused on high-quality paper during these market testing periods as high-yield spreads widen, on average, by more than 300 basis points (and keep in mind the vast outperformance, which is typical during bear market rallies).

When Risk Assets Go Bad

Today sees another reasonably sized risk off. The Indian budget has caused a stir with the deficit due to grow to 6.8% of GDP by 2010 having previously been estimated at 5.5%. Is this the cause for the global sell off? I can’t really see much else out there that could be held responsible and given the market was buoyed significantly on 18th May post the Indian elections and subsequent 17% Sensex rally, it’s not unreasonable to believe it is. Especially as the BRICS are going to lead us out of this, right? So any falter there should have knock on effects.

Markets have been increasingly poised for this sell off too, technicians talking head and shoulders and a the SPX due to test its 200 day MAV c888, so it felt like it wouldn’t take much to move us lower and this has proved to be the case. The outliers to this sell off are China, for whatever reason, and Korea. Forget the missiles launched over the weekend, no one cares about that; Samsung reported positively and it’s 12% of the Kospi and 16% of the Kospi 200. The commodity complex has a carrion stench about it, with oil off 4%, the Kiwi, Loonie and Aussie all being sold and the resource stocks outdoing the lot of them in the race for retrenchment. Within the overall risk off trade, UK assets look particularly vulnerable to me. I’d been of the opinion that the UK could be in a relatively better situation relative to Europe and the US. The recent data has been poor though as I’ve commented on before and I’ve had to re-evaluate that. It looks like the market is too with Cable taking a decent beating and the action seems very much to be sell the rallies. Word on the street is that a UK corporate had a decent amount to buy this AM, providing a tourniquet for the time being. Similarly, EURGBP has rallied in the last week with dips being bought.

As the data continues to confound the Bulls and the NFPs being; shock, horror, not just worse, but worse than the previous month, we starting to see people actively look to get shorter. More and more focus too is being put on the detail of these numbers, highlighting the fewer hours worked, the lower wages and higher savings rate. As previously said, I believed the real sellers were lower down and this seems to be panning out somewhat. Second guessing the market has been a very costly affair for the Bears and confirmation of a trend is what it’s going to take to get them firmly back in the seat.

Drumroll Please...

Well, today provides the crescendo of the week’s excitement (this is relative, I appreciate) and all eyes will be on the NFPs. Before that though, we have the ECB decision to contend with, although it is expected they will keep rates unchanged, but then so was it expected with the Riksbank and they chimed in with a 25bp cut and extended loan facitilities. Another Central Bank talking down any imminent rate hikes after the Fed did similar last month. It would be hard to envisage Trichet et al with their traditionally hawkish bias, do anything other than hold at 1% however. They’ve been digging their heels in the whole way down and won’t change their tack now.

The UK data continues to come in worse with the PMI construction number light at 44.5 vs estimates of 46 and Sterling continues to be sold on the back of it. EURGBP having broken through the 86 level which had provided resistance in the last few weeks. Resource currencies ex CAD are falling today and NZD in particular has fallen heavily (admittedly after being on a one way ticket to the moon for the past 4 months). According to MacroMan, there are cNZD4bn of Uridashi bonds (bonds denominated in higher yielding currencies, typically NZD & AUD, sold to Japanese retail buyers) maturing at the end of the month and the majority apparently are not likely to be rolled.

Oil has taken a dirtnap since yesterday’s lofty $72 levels. There’s much speculation about the price action over the last couple of days. I would say a) the $ rally and then fade, b) the market rally and then fade and hence risk rally and fade (and we know these are all the same trades) c) come on, oil yo-yos all over the place, it’s the way it trades. Anyway if none of those are good enough, there’s a story that a big London oil brokerage has sacked a trader for building a position equivalent to 9m barrels (Saudi can produce 11m bpd at max capacity I’m told). Apparently he started building this in the early hours of Tuesday morning and it was discovered and began to be unwound as soon as it was discovered at open on business on Tuesday morn. Maybe this story is true but oil did move with the $ and the equity market too during this period so it would just have exaggerated the moves I would think.

Moving not so smoothly on to the Greenback, there were some conflicting statements from China on the $ yesterday. They keep on changing their mind, don’t they? No, they don’t. Its two different sources. The Central Bank advocates a stronger Renminbi and has come out advocating the establishment of a new reserve currency. The Government however, wants the $ to be strong, hence making Chinese exports cheap. This is something which seems to get lost in the ether when these things are reported. The market paid more attention to the comments from the Foreign Ministry anyway hence the $ rally today.

Lastly, I mentioned a few weeks back about hearing some guy on CNBC who was talking about some UK banks offering 90% mortgages again and how this was a good thing. That is a bad thing surely and displays little if any grasp of what got us into this situation in the first place. This however takes this biscuit…the GSEs offering 125% mortgages!! This time it’ll be different though, right??

U Shaped Recovery…

Well, from Tuesday’s post prandial plunge anyway. It never ceases to amaze me the credence the market affords Consumer Confidence numbers, and yesterday was another example of that. It’s a survey of 5000 households, a decent chunk of whom, don’t actually respond and in general it simply moves with the stock market. Now maybe, given the week that’s in it, with Non Farms tomorrow, the market focused on the negative responses to the employment questions in the Confidence survey and extrapolated that into what could be come Thursday?

It didn’t last long however and in less than 24 hours, we’re back at pre CC levels, thanks largely to a decent performance in China (better PMI) and Korea (another bounce in exports). The Tankan in Japan came in slightly lighter and saw NKY sell off 1.5% to end small down on the day.

This is the nature of the market at the moment however; with such light volumes (75% today) and equally light conviction levels, the Tape is easily pushed around. I don’t believe it deserved to fall as it did post the figures yesterday and given the numbers since have been ok, both in Asia and here in Europe with German and UK PMI coming in ahead of expectations too (although still below 50, hence contracting), it doesn’t surprise me to see the market has rallied back. Interesting to see the miners better on the China data (as you would expect) yet commodity currencies have fallen. Well NZD and AUD have, CAD has rallied small. Australian retail sales were even up too, 1% vs 0.5% est. Not so much the building approvals though, -12.5% mom vs 3% est so that’s probably taking the shine off AUD.

Anyway, with the highlight of the week, the NFPs, coming tomorrow and the prelude, today, in the form of the ADP, the U shape of the past 24 hours, could very easily morph into a J, a W or a Y come tomorrow.