The week that was in markets and economies

February 13, 2012

Economic Data Vault

The last week was really interesting – here is a quick summation of what we reckon was important.

Australia
It all starts and finishes with the Reserve Bank – 24 of 27 analysts surveyed by Bloomberg thought the RBA was going to cut rates. We thought so too, but the RBA seemed to content itself with the thought that things hadn’t got any worse since December and that unless the Australian growth profile “weakened materially” there would be no more rate cuts.

Here is a link to what I thought but he market reaction was interesting a you can see in the attached chart from Bloomberg of the Australian markets expectations of the magnitude of movements in the cash rate over the next 12 months.

20120212-220307.jpg

The really interesting thing about this chart is sharp turn around in sentiment that came about from the RBA’s decision and Governor’s Statement. Prior to the announcement last Tuesday the market was looking for around 90/100 basis points of cuts in the next 12 months. It would be fair to guess that had the RBA cut 25 basis points last week this would naturally have reduced by that amount and the new level would be for expectations of around 65/75 basis points of cuts.

But as you can see in the chart above the no move has moved market pricing more, that is the market is expecting less cuts. As I wrote last week the RBA’s reinvigorated love affair with mining and investment was on display for all to see and the hurdle rate for the next cut – even after the quarterly Statement on Monetary Policy reaffirmed the easing bias – is now much higher.

International

Borrowing from the Big Picture Blog here is the Succinct summation of week’s events: by Peter Brockvar

Positives:

1) Initial Jobless Claims fall to 358k, 12k less than expected and the 4 week average drops to 366k, the least since May ’08
2) Job Openings in monthly BLS data rise to match the highest since Sept ’08
3) MBA said avg 30 yr mortgage rate falls to new low of 4.05% and refi’s jump 9.4%
4) German Factory Orders in Dec rise a bit more than expected
5) China’s PPI moderates to a gain of just .7% y/o/y, the slowest rate since Nov ’09
6) Indonesia unexpectedly cuts rates to 5.75% while RBA and SK sit pat

Negatives:

1) Greece on brink, AGAIN, unemployment rate in Nov hits 20.9% from 18.2% in Oct
2) German exports in Dec, the main driver of their economy, falls 4.3% m/o/m vs an expected decline of just 1%, German IP falls 3% vs est of flat from Nov
3) Euros being redeposited with the ECB overnight remain around 500b, matching the amount borrowed under the LTRO
4) BoE votes for more QE, brings asset purchase program up to 325b pounds. The most famous English economist, John Maynard Keynes once said this in a book of his, “Lenin is said to have declared that the best way to destroy the Capitalist System was to debaunch the currency. By continuing a process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens…while the process impoverishes many, it actually enriches some…Lenin was certainly right…The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose,”
5) US inflation expectations in TIPS continue to drift higher
6) Feb UoM confidence moderates 2.5 pts after Jan jump of 5,
7) Avg gallon of gasoline at the pump rises to most since Sept.

Markets

I’ve been writing for a few weeks now that I thought this risk asset/market rally was mature and we saw signs toward the end of last week that this was certainly the case. Looking quickly at the Aussie Dollar you can see on the chart from Bloomberg that the last month’s uptrend is broken and it will now be looking for support.

20120212-222501.jpg

I’ll do a full report tomorrow but for now the Aussie and other risk asset bellwhethers need a consolidation – either time ( go nowhere for a while ) or price ( fall and find support ).

Time will tell.

http://www.twitter.com/gregorymckenna

Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation

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