It's tempting to believe that we're in the all clear until the New Year, but a couple of niggling divergences and other factors make us not so sure. Certainly, Asia is the focus as we head into the weekend.
House Democrats to stand in Obama's way on tax deal?
House Democrats are hopping made at Obama for turning his back on them and giving the Republicans a victory with the across the board tax cut extension and appear ready to make a big enough stand that the deal will not come to the floor as it is, to paraphrase a quote from a politico.com article. This may be the key news item today that has spooked risk.
House Democrats are hopping made at Obama for turning his back on them and giving the Republicans a victory with the across the board tax cut extension and appear ready to make a big enough stand that the deal will not come to the floor as it is, to paraphrase a quote from a politico.com article. This may be the key news item today that has spooked risk.
US T-bond auction
The US T-bond auction was relatively healthy, and showed further improvement from yesterday's 10-year auction results. The id to cover raio was higher than at the last three 30-year auctions and the indirect bidding, which includes foreign central banks, represented some 49.5% of demand, the highest percentage since the treasury restarted 30-year auctions in 2006. The bid-to-cover ratio at today's auction was better than at any of the last three auctions at 2.74. Somewhat surprisingly, the market didn't react at all to the auction results, which either represents apathy or the risk of a further sell-off. USDJPY found support on the day in the wake of the auction.
The US T-bond auction was relatively healthy, and showed further improvement from yesterday's 10-year auction results. The id to cover raio was higher than at the last three 30-year auctions and the indirect bidding, which includes foreign central banks, represented some 49.5% of demand, the highest percentage since the treasury restarted 30-year auctions in 2006. The bid-to-cover ratio at today's auction was better than at any of the last three auctions at 2.74. Somewhat surprisingly, the market didn't react at all to the auction results, which either represents apathy or the risk of a further sell-off. USDJPY found support on the day in the wake of the auction.
Irish bailout vote
The Irish parliamentary vote on the IMF/EU bailout is set for next week, with debate starting on Tuesday. We were confused by the recent schedule announcement of the vote and thought it had already taken place, but this is not yet the case. The latest news is relatively unchanged on the expected thin majority in favor of passage. The EUR swooned briefly today after the Irish Labour opposition said it would vote against the bailout, but this was largely know in advance.
The Irish parliamentary vote on the IMF/EU bailout is set for next week, with debate starting on Tuesday. We were confused by the recent schedule announcement of the vote and thought it had already taken place, but this is not yet the case. The latest news is relatively unchanged on the expected thin majority in favor of passage. The EUR swooned briefly today after the Irish Labour opposition said it would vote against the bailout, but this was largely know in advance.
Looking ahead
The market still looks uncertain here as the push to new highs in the US equity markets failed once again to hold. The market may be awaiting the PBOC news tomorrow or over the weekend. To hike or not to hike is the question. And on that note - below we offer a chart that shows the curious divergence in the performance of the world's equity markets, with the S&P500 fiddling with new highs for the cycle, while the EM markets are making what looks like the right shoulder of a head and shoulders formation (unless they also catches the rally impulse) and the Hang Seng looking even more dour lately. We find it very interesting that the Hang Seng led the S&P500 at the last two major market turns - in April from bull to mini-bear market and in July - when the US market was plunging to new lows for the cycle while the Hang Seng was still well off its May low. Interesting stuff. Let's see if this underperformance is just temporary fear related to the Chinese crackdown on inflation or whether Asia has the world lead at the moment on the direction in risk.
The market still looks uncertain here as the push to new highs in the US equity markets failed once again to hold. The market may be awaiting the PBOC news tomorrow or over the weekend. To hike or not to hike is the question. And on that note - below we offer a chart that shows the curious divergence in the performance of the world's equity markets, with the S&P500 fiddling with new highs for the cycle, while the EM markets are making what looks like the right shoulder of a head and shoulders formation (unless they also catches the rally impulse) and the Hang Seng looking even more dour lately. We find it very interesting that the Hang Seng led the S&P500 at the last two major market turns - in April from bull to mini-bear market and in July - when the US market was plunging to new lows for the cycle while the Hang Seng was still well off its May low. Interesting stuff. Let's see if this underperformance is just temporary fear related to the Chinese crackdown on inflation or whether Asia has the world lead at the moment on the direction in risk.
Chart: S&P500 vs. EM and Hang Seng
We put the S&P500 on another axis to simply bring out the fact that it is at a new index high for the cycle, even if overall it has slightly underperformed the other two indices since August 1. Data source is Bloomberg.
We put the S&P500 on another axis to simply bring out the fact that it is at a new index high for the cycle, even if overall it has slightly underperformed the other two indices since August 1. Data source is Bloomberg.
Chart: AUDUSD
AUDUSD continues its struggle with the whether it wants to stay below the 55-day moving average, coming in around the day's close at 0.9830 today. This has been an interesting moving average for the pair for months.
AUDUSD continues its struggle with the whether it wants to stay below the 55-day moving average, coming in around the day's close at 0.9830 today. This has been an interesting moving average for the pair for months.
The latest interesting thing we've heard about this crazy rally in copper (historically AUD follows copper very closely) is that JP Morgan might be hoarding the metal in anticipation of the launch of a copper ETF. One thing is for sure: the price of copper probably doesn't have a lot to do with demand for the metal at this point in time - it has become a speculative instrument. Another point - commodities make extremely awkward financial instruments. What good does it do the world to have physical copper in warehouses rather than being bought and. See this article for more on the copper story and the "financialization of commodities" . This is a story worth following in the months to come. So when do we get the first Corn ETF and when will governments ban it on humanitarian grounds? The kind of response this could eventually provoke - not just for food items but for all commodities - from the authorities is certainly worth consideration.
Be careful out there.
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