After a few weeks of hot weather and lazy days but not so hot markets Im back to make a few comments.
During July my commentary will be very much intermittent, especially the second half of it.
For the first half the probability of updates appearing will be higher.
Regular daily updates will resume as of Monday 17 Aug.
A warning to sensitive bulls out there; This will be a bearish daily update.
Ok, here we go;
* NFP numbers; Early fall?
Please note that I normally do not read that much into NFP numbers as they are notoriously volatile and of low extrapolation value. However, this time I do sit up and notice.
True, I did call June the last bull(!) month of the summer, however, as Ive mentioned in my last update, given the extent of liquidity being pumped into the markets due to falling vols and higher backend yields, forcing realmoney to chase the market, I didnt expect the beartrend to kick in again until August. Ive been looking for the German elections to be the starting point for a renewed focus on the status of German and European banks.
Now it seems this timeschedule might move forward.
* What´s the problem then?
Well, theres a number of problems, involving China (what "Green shoots"? Its brownshoots. The 8% growth is simply not happening there, its way lower.), The US (yesterday being a case in point. Recovery might be some way off, still.) and Europe (doing "nothing", apart from waiting for China and the US to pull them out of the ditch.)
The main focus of the latest NFP numbers to me was the 7.9% quarterly decline of hours worked.
This could of course be due to improved efficiency. But weaker economic activity is likely a heavy variable included. This is not good. Quite bearish and not boding well from here.
The increased liquidity being pumped into the market (bullish), might dampen the initial effect, but as the lower economic activity is likely to weigh on long term interest rates and VIX Vols move higher, these realmoney flows into the assetmarkets will likely subside. Once again, realmoney seems to have turned out to be a counterindicator. Time to get a grip, perhaps.These people manage your pensions!
* China, Russia, Oil and inflation expectations
Pull out a graph for the last few years on Cny/Usd vs Oil/Usd, the correlation between a strengthening Cny and a higher Oil price is quite high. Once the Cny stops strengthening the Oil price does as well. Exception being the latest bout of Oil strengthening this spring.
As the Cny strenghtened, Chinese borrowed up Usd in a grand fashion. Hey, lower rates AND a stronger local currency, what more could one ask for? However, most of these borrowed Usd seems to have gone straight into speculative plays in assetmarkets, pushing these higher.
Effectively frontrunning the Chinese economy and increasing its manufacturing costs in the process. This puts a big questionmark over the Chinese stimulus packages as so far, the only "thing" going up is Chinese stockmarkets. Shipping out of Chinese ports, etc are all down.
To me, the Chinese 8% Gdp growth is nothing more than a myth, if that. It just aint happeni´n.
This in turn does not bode well for Europe, as if Europe was not in trouble enough already,,,,,
Anyway, back to the correlation;
The latest price move higher in Oil while the CNY have been doing zilch is explained by the inflation expectations currently in the market. However, in my view these are way premature and are likely to fall down soonish as inflation reports globally come in below expectations as already witnessed in Japan and South Korea. Oil looks set for a correction lower.
The RUB seems to be in for a rough period together with the rest of the CEE, the Euro, Scandies and the Baltics. The Russian stock index is trading extremely well correlated with the Oil price, but as a turboversion of it. The RUB is following in its trail. with the Russian banking system once again in dire straits and the underlying economy weakening, I am looking for further RUB trouble soonish.
*New positions and position changes
- Long Eur/Sek Calls and spot
- Long Eur/Usd puts
- Long Gbp/Usd puts
- Long Usd/Rub
- Long Usd/Mxn
- Long Usd/Try
- Long Usd/Zar
- Long Eur/Huf
- Short Nzd/Usd
- Increased long SAS airline stock
- Increased long SKF ETF (Ultrashort US financials)
- Added to long IVN Goldmines via riskreversal
Ive got plenty more to write on the current developments but short on time. Hopefully Ill be able to write more in the next few days.
Bottomline; Im looking for assetmarkets to become increasingly bumpy as we head into the secondhalf of summer. Stay alert.
As usual, good luck
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