Data Dependency Feels Bad, And Then It Feels Good, And Then It Feels Bad, And…

“This week’s sell off might have been because too many investors believed bond yields would only go down; crowded positioning left the market vulnerable to small shifts in sentiment.”  Interesting to consider that “when fears about a eurozone break-up rise, German yields generally fall;” therefore, higher yields = less worry about Greece?  Maybe not: “right now (read: Thursday) the market is in a state of shock…A lot of people are staying clear, and that makes the market less liquid, which is helping to exaggerate market moves…the moves have reversed so sharply that [European yields] are back where they were before the stimulus was announced…’In one week we had a total unwinding of all QE-related trades.’”  Speaking of liquidity, Mohamed El-Erian says “tighter regulations and less patient shareholders have restricted the ability of broker-dealers to deploy their balance sheets counter-cyclically.  As such, they have limited appetite when it comes to accumulating inventory in the event that a large chunk of the investor base decides to go the other way.  The result has been a series of sudden out-sized price moves in quite a range of markets, from sovereign bonds to foreign exchange, emerging markets, and high-yield corporates.”  So as you can probably tell, things got a bit panicky this week; we even had a moment with Janet Yellen calling stocks overvalued and prices stretched and all that (very déjà vu).  To be fair, the panic was coming from bond markets, which have this strange ability to convince people of more things than the stock market.  But all of that is going away fast: the April jobs report came out this morning and investors are all like, “oohh…reassuring.”  🙂  “Payrolls rose 223,000 in April, following a 85,000 gain in March…The unemployment rate slid further to 5.4 per cent…more Americans entered the labour force, pushing up the participation rate to 62.8 per cent from 62.7 per cent the previous month.”  “The standard story that economists have been telling is that this is just another messy winter with worse-than-usual weather…But there’s a ‘show me’ dimension to that conclusion…So what the new jobs numbers offer is relief that the crummy first-quarter data was indeed an aberration, not a new trend.  At the same time, they are soft enough that they include no real evidence of an acceleration into a new, stepped-up rate of growth” (read: acceleration into Fed tightening).  Here are the charts.  Also, German bund yields have dropped back down to 0.53bps, and you shouldn’t feel bad if you missed out on the Gross Short of a Lifetime because apparently Bill Gross missed it as well.


China: Pinky Swears No QE


WM: Risk ≠ Volatility, Maybe


WM: Case For Indexing In Bonds Is Far Less Clear Than It Is For Stocks


What: The “Cylon Detection” System Finds 10 To 20 Spoofers A Day, On Average


WaitWhat: You Know That All Startup Founders Dropped Out Of College And Hate English, Right?


oliver twistEat Up

“The performance of the US stock market is quite impressive considering that there isn’t much of a spring in the latest batch of economic indicators.  The winter’s ice patch is looking more and more like the spring’s soft patch.”  “It is one of the market’s paradoxes that soft economic growth can be a fine climate for stocks.  As long as the economy is advancing, corporations can increase sales and profits.  But in a soft advance, interest rates stay low, keeping costs down.  The uncertain economy keeps Federal Reserve monetary policy easy, one of the main bulwarks of a bull market…Severe bear markets usually occur when the Fed is raising interest rates sharply to cool off inflation…low inflation and low rates increase the present value of future corporate earnings.”  Meanwhile, the Wall Street Journal says “core inflation readings would be even weaker but for the pace of gains in the BEA’s measure of housing costs, which counts toward about one-fifth of its core price index.  This was up 2.9% from a year earlier in February.  Absent that, core inflation would have been running at just 1%.  Housing counts for an even bigger chunk of the Labor Department’s consumer-price index, which is a big reason why its core measure has been running ahead of the BEA’s…The rental vacancy rate fell to 7% in the fourth quarter from 8.2% a year earlier…the lowest level since 1993.”  Meanwhile, “Japanese life insurers — some of the world’s largest institutional investors — plan to keep pouring money into U.S. debt this year as the list of countries able to meet their thirst for yield shrinks…Even though the roughly 2% current yield on 10-year U.S. Treasurys is a far cry from yields of 5% or better before the global financial crisis, it is still light-years better than the current 0.16% yield for German bunds with the same maturity or the 0.29% yield for 10-year Japanese government bonds…’Considering current yield levels, liquidity, hedging of currency exposure, the U.S. is likely the primary destination.’”  So inflation and rates are low, which means there’s a lot of “stocks are expensive, BUT” going on at the moment: “stocks are expensive but while rates stay low, and earnings avoid a serious collapse, money flows into them.  A strong catalyst — really bad earnings, a bad geopolitical event, or a surprise from the Fed — is needed before the market can jolt out of its steady ascent.”  Speaking of surprises, the “Make my day, Janet Yellen” crowd is eating their last free lunch: “what the market never worried about was whether the statement would include the most dreaded news: a rate hike, and because of that, every meeting was something of a free lunch for the market.  That is the case this week, too.  The Fed’s signals have been very clear: there won’t be a rate hike at the April meeting.  However, this is the last meeting at which that certainly presides.  After this, higher rates are firmly on the table.”



“There are two main routes through which the slowdown could develop into something much worse…investment could slow sharply…[and] there could be a rise in household savings in response to concerns about falling household wealth, which is what happened during the US housing crash.  Given the bubble-like surge in equity prices, this may seem improbable, but it would become more likely if the equity surge ends in a crash.  The second route, also reminiscent of events in the US in the last decade, would be a financial crash led by stressed loans to the real estate or manufacturing sectors.”  Meanwhile, “Chinese companies are increasingly tapping the equity market for funds to pay down liabilities and invest in growth.  They’ve announced $82 billion of secondary stock offerings in 2015, a figure UBS Group AG predicts will increase to a record $161 billion by December.”  Also, “authorities have pledged to move toward a so-called ‘registration system’ where markets, rather than regulators, determine most aspects of an offering, including pricing and timing.”


WM: Consensus Expectations

Also, Why International Diversification Matters.


Greece: He Who Shall Not Be Named Shall Not Be In Negotiations


What: Socialist Muslim Slash Deflationary Force

Chin-Kee and black swans world viewTail Risks, Equity Premiums And Orientalism

“Has the world sunk into ‘secular stagnation’, with a long future of much lower per capita income growth driven significantly by a chronic deficiency in global demand?  Or does weak post-Crisis growth reflect the post-financial crisis phase of a debt supercycle where, after deleveraging and borrowing headwinds subside, expected growth trends might prove higher than simple extrapolations of recent performance might suggest?”  Ken Rogoff is going with number 2.  “Unlike secular stagnation, the debt supercycle is not forever,” which is basically Ken’s favorite rule of thumb.  The whole article is worth a read, but I’d like to highlight an interesting section on tail risk: “small changes in the market perception of tail risks can lead both to significantly lower real risk-free interest rates and a higher equity premium…Indeed, it is not hard to believe that the average global investor changed their general assessment of all types of tail risks after the global financial crisis.  The fact that emerging market investors are playing a steadily increasing role in global portfolios also plausibly raises generalised risk perceptions, since of course many of these investors inhabit regions that are still inherently riskier than advanced countries.”  Speaking of inherently risky investors: Crazy Facts About China’s Stock Market That Will Make You Think Twice Before Investing.  “About two-thirds of new [Chinese] equity investors left school before the age of 15…six percent of new equity investors are illiterate…The Chinese are the world’s most optimistic investors…However, it’s a matter of debate whether the roaring bull is a sign of fundamental strength, or speculation frenzy fueled by enthusiastic mom-and-pop savers and high-school dropouts.”  Sure it is.  Meanwhile, Hank Paulson debunks 5 myths about China: “I often get asked if China is going to eat our lunch or surpass us…I always say that you can exaggerate China’s strength just as much as you can underestimate its potential…It will get more complicated because China is a formidable competitor in addition to being a partner, but it’s in our interest to work with them.”  “The Orient [has] a kind of extrareal, phenomenologically reduced status that puts them out of reach of everyone except the Western expert.  From the beginning of Western speculation about the Orient, the one thing the Orient could not do was to represent itself.  Evidence of the Orient was credible only after it had passed through and been made firm by the refining fire of the Orientalist’s work.”  Back to Ken: “Of course, a rise in tail risks will also initially cause asset prices to drop (as they did in the financial crisis), but then subsequently they will offer a higher rate of return to compensate for risk.  All in all, a rise in tail risks seems quite plausible, even if massive central bank intervention sometimes masks the effect in market volatility measures.”  Meanwhile, We Traveled Across China And Returned Terrified For The Economy.   SOE You’ve Actually Defaulted?   And, China Goes Gaga Over Pole Dancing.


Energy: China Is Crushing The Renewable Energy Race


USA: S&P 500 Has Been “Home On The Rangebound” Recently


USA: Re: Earthquakes And Fracking, “Abundance Of Smoking Guns In This Case”


Gross: Trying To Pull A Soros On German Bunds


What: Guy Trading At Home Caused The Flash Crash


Stories, Markets, Luck And You

“China’s central bank reduced the amount of reserves commercial banks are required to hold, freeing up about $200 billion for lending in the latest easing measure.”  The “larger-than usual reduction…is the second cut in banks’ reserve requirement in less than three months and comes after the economy decelerated to 7%…’The question is whether the PBOC is a little slow on easing.  They’re fighting the last battle, like generals do.’”  Speaking of generals, “perhaps Mr. Tsipris will step back from the brink, ditch his party’s hard-line left-wing and recast his coalition with moderate pro-Europeans willing to back reforms, thereby securing a last-gasp deal to avert disaster…The more likely scenario is that Greece defaults.”  “News from Greece and China disrupted U.S. markets on Friday, but the deeper problem was closer to home.  First-quarter U.S. corporate revenue, now beginning to be reported, is coming in even lower than analysts’ sharply reduced forecasts had indicated…’It is making investors cautious, maybe a little bit confused.’”  Meanwhile, “we like stories, we like to summarize, and we like to simplify, i.e., to reduce the dimension of matters…the [narrative fallacy] is associated with our vulnerability to overinterpretation and our predilection for compact stories over raw truths.”  Also, “the biggest threat to your portfolio is you.  China is not threatening your portfolio, nor is the price of oil or the level of the Fed Funds rate.  What’s threatening your portfolio is the way in which you may react to any of these items, plain and simple…No one will see the thing coming that derails the economy or the market next time around.  It certainly won’t be something that’s on the front page of the newspaper like Greece or interest rates…If we cannot even identify the reason for why a market tops or crashes on a given day with the benefit of looking back, what makes any of us think we can do so in real-time or in advance?  More importantly, doesn’t it make more sense to recognize the durability of the capital markets in the face of all these threats rather than try to play hopscotch with our retirement assets each time a new one arises?”  “In the financial markets, where so many investors are highly skilled (…), their actions cancel each other out as they quickly bid up the prices of any bargains — paradoxically making luck the main factor that distinguishes one investor from another.  And a streak of being right can make anyone forget how important luck is in determining the outcome…Guarding against the illusion of control takes constant vigilance.  The longer you’ve been right, the harder it gets.”


USA: Dr. Ed Lays Out The Evidence For Wage Pressure


USA: Deutsche Bank Says Defaults Are Very Low Compared To Historical Standards


China: $46 Billion Rail/Road To Wealthy Consumers In Europe


USA: Financial Situation “Getting Better” For Over Half Of Americans Surveyed By Gallup

Meanwhile, half are in, half are out, and half of those “because they simply don’t have the money.”


What: Jon Corzine Is “Gratified That Others Might Want To Invest With Him”


Global Prices And Political Boundaries

The “dollar-related drop in import prices is one of the things weighing on U.S. consumer prices, and one of the reasons inflation is running well below the Fed’s 2% target.”  This has led some to believe that the Fed will wait to see a turnaround in the dollar or, perhaps, stable import prices before raising rates.  “That won’t happen right away.  This is because purchases overseas are often contracted in dollars months ahead of time, so much of the dollar’s rally this year has yet to register in import prices.  The dollar’s effect on the prices consumers pay takes longer to show up, as much as a year….So even if recent signs that the dollar is leveling off hold, the pressure that its recent strength is exerting on prices will still very much be in evidence at the start of the summer.”  Meanwhile, “U.S. import prices fell in March as rising petroleum costs were offset by declining prices for other goods…Import prices dropped 0.3 percent last month after a downwardly revised 0.2 percent gain in February.”  Also, “China’s consumer price index maintained a sluggish year-on-year pace of 1.4 per cent in March, the same rate as in February, according to the government’s official figures…The producer price index, often regarded as a leading indicator for consumer prices, has been mired in deflation thanks to sliding domestic demand and chronic overcapacity…Producer prices deflated for a 37th consecutive month in March, falling 4.6 per cent, versus a 4.8 per cent fall in February…’The current bout of goods deflation in China and South Korea is the longest in postwar East Asia outside of Japan in the 1990s.”  Meanwhile, the Treasury Department says “South Korean authorities appear to have intervened in December and January to keep their currency from appreciating…South Korea’s trade surplus with the U.S. totaled $14 billion in the second half of 2014, larger than the $9.6 billion surplus from the same period a year ago.”


Great Hope News For All Economies

“When it comes to stocks, America is the big loser this year.  The S&P 500 is up just 1.6 percent through Thursday’s close, making it the worst among major market indexes for 2015…In Europe, the U.K.’s FTSE 100 is up 6 percent, France’s CAC 40 has climbed 22 percent, Germany’s DAX is up 24 percent and Russia’s RTS is up 27 percent.”  James Mackintosh says “these are weird indices which mix companies from across borders traded in different currencies…four of the five biggest contributors to the Stoxx 600’s rise this year have been from outside the eurozone, in Switzerland or Denmark.  Another two of the top 10 contributors are British, Glaxo and BP.  All have been helped by the plunging euro, as they are not traded in euros.”  Meanwhile, “Hong Kong is set to overtake Japan as the world’s third-largest stock market…Japan is poised to drop to No. 4 even as the nation’s shares almost double under Prime Minister Shinzo Abe…’the Japanese market is actually rising on hopes that monetary easing will help us escape deflation.  And if Chinese stocks are rallying on expectations the government will prop up the economy, that’s great news for all economies.’”


Hot Potatoes

Goldman Sachs says “passive ETFs aren’t being used passively by buy-and-hold investors.”  “One lingering knock against ETFs is that — in spite of their potential benefits of low cost, tax efficiency and diversification — their widespread use is turning ordinary long-term investors [into] fast-trading, global-macro focused buy-and-sell junkies.”  Furthermore, “the prevalence of ETFs seems to be influencing price moves…Correlations between stocks and sectors [have] been increasing since the 2008 financial crisis.”  Meanwhile, annualized turnover on the New York Stock Exchange “is down to 63% from a high of 110% in 2010;” however, “including trades on all marketplaces, the annual turnover rate in U.S. stocks is running at 307%…And that figure doesn’t include [ETFs], which get flung around like hot potatoes.  According to John Bogle, founder of the Vanguard Group, the 20 largest ETFs were traded last year at an average turnover rate of 1,244%.”


WM: 8-10% Average Return Is A Decent Goal That You Won’t Ever Actually See


What: Scott Stringer Thinks Scott Stringer May Have Misled Some Folks

ball of yarn globe

“It’s All China, Directly And Indirectly”

Cardiff Garcia is dancing around the inverted yield curve bond market conundrum: “The supply dynamics of advanced-economy sovereign debt, with net issuance available to the public set to turn sharply negative this year and next…suggest that longer-dated US Treasury yields will be under pressure yet again because of foreign demand…Once the Fed begins to hike the policy rate later this year, there is a chance that longer yields will not follow them higher.”  Some history: “The global macroeconomic imbalances that contributed to the mid-2000s conundrum were the result of deliberate policy decisions made by China and the other reserve accumulators, plus the oil-exporting countries, all of which led to a massive and unnatural influx of capital to the US.  This time around, the marginal excess savings growth is coming from Europe, while the earlier perpetrators of the imbalances have helpfully changed their behaviour.”  “‘What is going on is a great unravelling of the market conditions of the past 15 years’…Underlying such sober projections is a sense that an inflection point has been reached with the end of the commodity ‘supercycle’ and the advent of low oil prices…the main expression of this reversal is the implosion of the ‘China carry trade’, in which Chinese investors borrowed at low rates of interest abroad to pump back into Chinese property and a range of shadowy financial products…Slowing Chinese GDP growth, coupled with a slowdown in construction, is triggering a large bout of capital flight…[And] despite a solid current account surplus, capital outflows over the past six months have drained reserves from China’s vast forex chest.”  Meanwhile, “China has continued to move ahead gradually with a host of reforms…Among the more notable policies meant to rein in previous imbalances is the recently announced swap and restructuring of as much as 60 percent of outstanding debt in local government financing vehicles, or LGFVs, into guaranteed municipal bonds or taking the debt onto the formal budget.”  Also, “Chinese leaders are trying to persuade the International Monetary Fund to label the yuan as a reserve currency…finance officials from Germany and Australia this week said their governments are throwing their weight behind Beijing’s request…The amount of China’s trade that was paid for in yuan…has risen from 0.02% in 2009 to nearly 25% last year.”  “Of course, actual Chinese intentions are pretty hard to discern, but they matter a great deal.  Indeed, even if such global governance arrangements seem rather mundane in comparison to the war du jour in the Middle East, the question whether China can and will accept existing global governance arrangements may be the most consequential long-term issue in 21st century international relations.  It will largely determine whether China’s rise is peaceful or whether it upends the international order.  So we will plan to have a few more blog posts on this in the coming decades.”


FX: HSBC Calls For Dollar Bubble Pop

McDonald’s Is Raising Pay By 10%

banksy ones zeros

Oh The Humanity

The new cyborg participant in the marketplace is less human than the traditional investor, and capable of being faster, better informed, and more rational…complex algorithms are not subject to the cognitive flaws, emotional sways, and mental strains that plague the human participants of the marketplace.”  Meanwhile, Financial Advisers Seek To Inject A More Human Element: “Your ideal self and your financial self are often at war…Understanding priorities, setting up goals and then tracking both to make sure they’re in alignment…people are not better off if they do slightly better than the S&P 500 and make stupid life choices.”  Meanwhile, asking for financial advice help is the first step to recovery.



“From 2011 until 2013, dense counties at the center of large metropolitan areas in the U.S. saw faster population growth than the exurbs (“paved subdivisions on what was once rural land”), a fact cheered by city-lovers as a sign that urban living was on the rise again.  The updated Census county population estimates released Thursday, though, show that the exurbs are now again growing faster than urban places.”  That being said, “Americans are still moving at much lower rates than usual.”  Meanwhile, “the number of jobs within typical commuting distance to residents of major metro areas fell by 7 percent between 2002 and 2012…jobs both moved to the suburbs and spread out more.”  Furthermore, “between 2000 and 2010, the share of jobs located within three miles of downtown cities declined in 91 out of the 100 largest metro areas.  Meanwhile, the share of jobs located 10 or more miles away from those city centers grew in 85 out of 100 metro areas.”


Marks: Re: Liquidity


China: Lure Of Large Container Ships Fuels Canal Boom In Central America (Alt)


USA: The Economist Still Thinks The Manufacturing Renaissance Is A No Go

They are doubling down on this news: nondefense orders fell 1.4% in February.


Global: Morgan Housel’s 8 Stories Worth Paying Attention To


EM: How Might The Fragile Five Do In Another Tantrum?

EU: Greek Banks Have Lost Roughly 15% In Deposits Since November

david cameron tweet

Monetary Easing Ain’t Just For Europe And Japan

“Like clockwork, every time we have seen a weak data point in the U.S. (which has been often in 2015), another central bank comes out with a rate cut and markets rejoice…There have now been at least 25 Central Bank easing announcements in 2015.  This amounts to roughly one announcement every other trading day this year…The U.S. is passing the baton, we are told, and this endless global easing is a rising tide that lifts all economies.”  Meanwhile, John Williams doesn’t think he’ll be taking August off.  Also, Stanley Fischer says “a smooth path upward in the federal funds rate will almost certainly not be realized.”  Merrill Lynch doesn’t think you believe any of this stuff.


Crouching Tiger

Markit’s “composite purchasing managers index — a measure of activity in the manufacturing and services sectors — rose to 46-month high of 54.1 in March (alt) from 53.3 in February…The surveys indicated the pickup in activity is likely to be sustained, with new orders rising at the fastest pace in almost four years…Germany led the eurozone’s modest pickup in the final three months of 2014…the French economy slowed.  The eurozone economy grew at a quarter-on-quarter rate of 0.3% in [Q4], up from 0.2% in [Q3].”  Meanwhile, you can hear David Cameron mumbling “We got em right where we want em…”  Meanwhile, China is all about the democratic process (alt): “China has offered to forgo veto power at a new Beijing-led development bank…the offer proved critical in getting the U.K., France, Germany and Italy to join Beijing’s Asian Infrastructure Investment Bank…Beijing is making a sharp departure from the long-standing practice at U.S.-backed international lenders such as [the IMF, where] the U.S. has a lock on some big decisions…the Obama administration has been unable to get Congress to pass additional funding for the IMF [which gives] China an opening to recruit members to its new bank…The new bank is on track to reach its target of $100 billion in registered capital, up from the $50 billion initially announced.”  Meanwhile, China is absolutely insane: terrifying-cement-cubes-in-Chicago edition.


WM: Reminder: Old Age Doesn’t Kill Bull Markets

Also, “A long expansion is a persuasive argument for buying stocks even though forward P/Es are historically high.”


USA: Unicorn Farmers Would Like To Sell Overfed Unicorns To The Butcher; Unicorns Less Excited

Meanwhile, Twitter is looking to recapture some of its glory days.


WM: Embrace Ambivalence, But Don’t Go Extinct

Meanwhile, the world’s fifth-largest food supplier is almost out of water.

Music Director Riccardo Muti and the Chicago Symphony Orchestra 2011 European Tour

Music To Draghi’s Ears

“In the negative-yield vortex that is the European bond market, investors are discovering just what lengths they’re willing to go to generate returns…even the most risk-averse investors are taking chances on assets and regions that few would have considered just months ago.”  Mmm, sweet melody, do continue.  “‘When you are paying some governments to own their bonds, 4 percent actually looks very decent’…European enthusiasm for higher-yielding assets has helped U.S. borrowers sell 3.28 billion euros of junk bonds in 2015, the busiest start to a year since the currency started in 1999.” …this symphony is a little heavy on the brass — “Unlike the Fed’s three waves of quantitative easing, the ECB’s version is coming as European governments are trimming budgets.  That means they issue fewer bonds, and European investors have more reason to look abroad for returns instead of paying dearly for relatively scarce assets at home or having cash in euros that they might need to pay to hold on to.  ‘There are more and more euros being printed, but these are hot-potato euros.’”  Also, “the euro’s turbocharger has been removed”: central banks around the world have slowed their accumulation of dollars and euros and are relaxing their control over their currency (i.e. float the currency).  Meanwhile, “a weak euro and signs of an economic recovery have spurred China to step up its push into Europe.  Analysts at Deloitte say depressed asset prices in the euro zone have created ‘vast opportunities for bargain seekers in China.’”  Well.  


Oil: US Still Gushing Oil

“US crude oil stocks rose 22% y/y to a record 458.5 million barrels during the week of March 13…refineries are working overtime to convert crude oil — which the government bans from exporting — into refined products…over the past 12 months through February, global oil supply is up 2.5% y/y, while demand is up 0.7%…North American frackers have flooded the world market with so much oil that the Saudis are aiming to shut them down with lower prices.  It’s not working so far.  The US and Canada produced 13.2mbd during February, up 4.0mbd since August 2012.  That well exceeds the Saudi’s 9.6mbd.”  Also, oil bears can smell a nuclear deal with Iran which might raise sanctions on another 1.0mbd from Iranian oil fields.  Meanwhile, Oil Rigs Shmoil Rigs (The official title of Goldman’s latest memo on oil rigs, I presume).


USA: Center For Financial Stability Sees Increase In Short-Term Credit

“The CFS defines market finance as the total stock of money-market funds, commercial paper and security repurchase, or repo, contracts held by financial institutions — credit instruments that are generated and traded outside of the regulated banking system.  The figure totaled $4.124 trillion in February, up from $4.111 trillion in January but 46% below its peak seven years ago.”


USA: Economic Surprise Index (Alt)

“The surprise index doesn’t rise or fall with the ebb and flow of the economic cycle…It measures a rolling average of how things turn out relative to forecasts…When the index is deeply negative, as it is today, that is usually a good sign for stocks.  Following the weakest 5% of observations since 2003, the S&P 500 rose by 14.4%, on average, during the following six months.


AAPL: Apple Has Roughly 170 Billion Reasons To Scare Their Future Competitors (Alt)


ICYMI: There’s A Few People Calling The Fed’s Bluff

Meanwhile, “often wrong but seldom boring” guy is done pretending.


What: America’s First Kenyan President Inspires Canadian To Run

Meanwhile, Asset Classes in the Obama Years

shadow gymnastics

You Gotta Fight For Your Right To Parity

“Over the last eight months the USD has appreciated faster on a trade-weighted basis than at any time in the last 40 years and probably over a [longer] duration…We have now matched about 2/3rds of the 1995-2002 USD rally but it took three years to get to that point in the previous rally…and now it has taken eight months.”  That being said, there are some reasons to think that maybe EURUSD parity is still a ways off: 1) “We may have moved close to the levels that some ECB Governing Council members had in mind (but could not speak publicly about), in terms of implicit Euro targets, when QE was initiated,” 2) “Our narrative around the Euro (with a focus on fixed income outflows) is starting to become very consensus,” and 3) Fed = dove.  Speaking of euro targets, Nomura has hit theirs: “The bank, which was short the euro against the dollar, is closing the trade after making a profit of 5.9% as the euro kept falling.”  Also, here’s something to consider: “At first flush, this all seems odd in the context of climbing stocks.  So far this year, the Stoxx 600 European equity index is up by about 17%…Some analysts explain this away with hedging.  ‘When euro-denominated assets rise, more euro selling is required to compensate for the higher share of euro assets in the portfolio, which in turn will drive more euro weakness’…The obvious question is when that might snap.”  Meanwhile, “US yields are torn between the gravitational pull of near zero (plus or minus) European and Japanese yields and the prospect of Fed rate hikes.”  Mohamed El-Erian expects “another round of ‘linguistic gymnastics’” from the Fed this week (press conference on Wednesday y’all), although he’d be pretty satisfied with a tumble removing the word “patient” from the statement.  Meanwhile, Can Asia Survive (Insert Thing Here)? is being used for the dollar story.


EU: Gazprom

“In the past year, Gazprom has begun a more drastic reassessment of its relations with Europe: in May it signed a $400bn contract to deliver gas to China and turned its focus to building new Asian markets for its gas…Nonetheless, Gazprom remains highly dependent on Europe, which accounts for more than 60 per cent of its revenues from gas sales.”


China: Stiffer Bank-Technology Rules Loom In China

“As China seeks to wean itself off foreign technologies, global tech companies are weighing a number of limited options: hand over proprietary information in return for market access, form joint ventures with Chinese firms, create products or services only for the Chinese market that meet Beijing’s requirements, or leave.”


WM: The Essence Of Smart Beta ETFs: “Once A Quarter, We Press A Button”

I wonder if their investors would say the same thing…


EU: Apparently Tom Is Done With Jerry


USA: Micro Apartments And The “Growing Population Of Singles”


Global: VoxEU Researchers Say Consumer Spending/Psychology At The Core Of The Business Cycle


ICYMI: Putin Was Missing For About 10 Days, Now He’s Back, Zero Hedge Is Totally Fine With It