Risk appetite rose strongly yet again on mixed economic data from the US and its effect on bond yields, which dropped afresh after at first trying to sell-off on strong regional manufacturing surveys. Equities seem to feel that the glass is one-third full rather than two-thirds empty after today's set of data, which showed regional manufacturing surveys continuing to surge while the initial claims number in seven weeks and saw a disappointing industrial production number. We have complained in the past about risk celebrating poor economic data simply because of rate implications. At some point, the silliness has to stop. And in fact, as noon approaches in the NY trading session, the spike to new highs for the cycle in in the S&P looked in danger of a reversal.
The ridiculously strong Chinese growth number was met with some enthusiasm for risk as well, but the key Aussie-correlated stock BHP Billiton jumped higher on the open only to end the day at its low price for the session, suggesting a market somewhat immune to positive Chinese growth news. But this data is yet another indicator of the pressure on the Chinese to cool their economy.
European spreads and EURGBP
Greek debt spreads were wide again early, but had come sharply tighter by the end of the European session, with Portuguese spreads doing the same (noise level on Portugal being the next domino are increasing of late.) The Euro crosses were generally lower after traders were unimpressed with EURUSD's close above the 55-day moving average. EURGBP is seeing a dramatic swoon back towards 0.8750 after the throwback test higher of the 55/200 day moving average. Pound strength was driven by new polls showing a strong lead by Conservatives for critical swing seats. The key for that pair as the election approaches is the recent low at 0.8700 and the rising line of consolidation not far below this area.
Greek debt spreads were wide again early, but had come sharply tighter by the end of the European session, with Portuguese spreads doing the same (noise level on Portugal being the next domino are increasing of late.) The Euro crosses were generally lower after traders were unimpressed with EURUSD's close above the 55-day moving average. EURGBP is seeing a dramatic swoon back towards 0.8750 after the throwback test higher of the 55/200 day moving average. Pound strength was driven by new polls showing a strong lead by Conservatives for critical swing seats. The key for that pair as the election approaches is the recent low at 0.8700 and the rising line of consolidation not far below this area.
Chart: USDCAD
USDCAD is criss-crossing parity after the Loonie ran sharply to the strong side in recent weeks on the BoC rattling its cage on the end of accommodative rates (first hike likely set for July) and after oil rallied to above 85 dollars per barrel. But from here on out, it would seem that the CAD needs the perfect combination of factors (more of the same in an already technically stretched and heavily positioned market) for the downside to continue. It's tough to judge the significance of the lack of follow-through when the currency pair is trading around such an obviously important psychological level at parity, but the momentum is beginning to run out for the pair. The first real threat to the downtrend, however, doesn't arrive until the pair closes solidly north of the 1.0060 area and then the 1.0225 previous major market low. An equity and oil price correction would be coincident/triggering indicators for such a development. The next BoC meeting is up next Tuesday.
USDCAD is criss-crossing parity after the Loonie ran sharply to the strong side in recent weeks on the BoC rattling its cage on the end of accommodative rates (first hike likely set for July) and after oil rallied to above 85 dollars per barrel. But from here on out, it would seem that the CAD needs the perfect combination of factors (more of the same in an already technically stretched and heavily positioned market) for the downside to continue. It's tough to judge the significance of the lack of follow-through when the currency pair is trading around such an obviously important psychological level at parity, but the momentum is beginning to run out for the pair. The first real threat to the downtrend, however, doesn't arrive until the pair closes solidly north of the 1.0060 area and then the 1.0225 previous major market low. An equity and oil price correction would be coincident/triggering indicators for such a development. The next BoC meeting is up next Tuesday.
US Consumption - not really on the mend?
In light of yesterday's strong US Retail Sales numbers, David Rosenberg of Gluskin-Sheff has pointed out in an interview yesterday that one powerful contributor to still reasonably positive consumption numbers of late in the US is the "strategic default" in which US homeowners are purposefully defaulting on their mortgages due to hopelessly under-water mortgages, thus freeing up funds for day to day needs and other purchases in general that show up in the retail sales numbers. This is not exactly a positive source of "organic growth", as Mr. Rosenberg points out. Stagnant wages and unemployment levels certainly aren't the source of any boost, either. Where is the incremental demand increase going to come from a year out from here?
In light of yesterday's strong US Retail Sales numbers, David Rosenberg of Gluskin-Sheff has pointed out in an interview yesterday that one powerful contributor to still reasonably positive consumption numbers of late in the US is the "strategic default" in which US homeowners are purposefully defaulting on their mortgages due to hopelessly under-water mortgages, thus freeing up funds for day to day needs and other purchases in general that show up in the retail sales numbers. This is not exactly a positive source of "organic growth", as Mr. Rosenberg points out. Stagnant wages and unemployment levels certainly aren't the source of any boost, either. Where is the incremental demand increase going to come from a year out from here?
Looking ahead
The US NAHB is out shortly and has double dipped as we head into the last couple of months of the extended tax incentives for homebuyers. This is one of the more leading indicators on US housing, and continues to suggest a rather moribund housing market, with the risk that the index drops even further for several months after the tax incentives expire at the end of April. Equity extraction from housing is dead, banks aren't lending and consumers are increasing their savings while being paid less as oil prices rise. Is this a recipe for a consumption revival? Once US public stimulus begins winding down in the second half of this year, the growth numbers are likely to disappoint.
The US NAHB is out shortly and has double dipped as we head into the last couple of months of the extended tax incentives for homebuyers. This is one of the more leading indicators on US housing, and continues to suggest a rather moribund housing market, with the risk that the index drops even further for several months after the tax incentives expire at the end of April. Equity extraction from housing is dead, banks aren't lending and consumers are increasing their savings while being paid less as oil prices rise. Is this a recipe for a consumption revival? Once US public stimulus begins winding down in the second half of this year, the growth numbers are likely to disappoint.
A bit more in the here and now, the next points on the economic calendar include a speech from the SNB's Jordan a bit later, another few Fed appearances, and then New Zealand house sales and house prices. Tomorrow we close out the week with US March Housing Starts and Building Permits and the preliminary April University of Michigan Confidence data.
Be careful out there.
Economic Data Highlights
- Norway Mar. Trade Balance out at 29B vs. 32.4B in Feb.
- Sweden AMV Unemployment Rate out at 5.2% vs. 5.4% expected and 5.5% in Feb.
- US Weekly Initial Jobless Claims rose to 484k vs. 440 expected and 460k last week
- US Weekly Continuing Claims out at 4639k vs. 4580k expected and 4566k last week
- US Apr. Empire Manufacturing out at 31.86 vs. 24 expected and 33.86 in Apr.
- US Feb. Net Long term TIC Flows out at +$47.1B vs. +$29.7B expected and +$15B in Jan.
- US Feb. Total Net TIC Flows out at +$9.0B vs. -$10.2B in Jan. (latter number was revised +$23.2B from original release)
- US Mar. Industrial Production out at +0.1% MoM vs. +0.7% expected
- US Mar. Capacity Utilization out at 73.2% vs. 73.3% expected and 73.0% in Feb.
- US Apr. Philadelphia Fed out at 20.2 vs. 20.0 expected nd 18.9 in Mar.
Economic Calendar Highlights
- US Apr. NAHB Housing Market Index (1700)
- Switzerland SNB's Jordan to Speak (1730)
- US Fed's Lockhart to Speak (1740)
- US Economic Adviser Paul Volcker to Speak (1900)
- US Fed's Lacker to Speak (!915)
- New Zealand Mar. REINZ House Sales and Housing Price Index (2200)
- US Fed's Yellen to Speak (0115)
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