Wednesday, April 11, 2012
TMM are on holiday at the moment but watching with interest and that interest has picked up to the point that they have been lifting phones and doing trades.
There has been debate and difference amongst the team as longer term macro positions of some were being parried by shorter term positional views of others. But today once again TMM are aligned because the dipstas amongst us have decided that this dip is enough and have covered any remaining short term shorts and got back in, properly committing to longs in equities again.
Why? Well to those playing and whipping up the downside there is a perfect storm brewing as the global triumvirate China, Europe and the US each experience their own negatives [a quick media dig here while we are at it, how come up-moves in equity markets are always quoted in "points" yet down moves measured in "Billions of dollars wiped off the value of"?] But to Team Macro Man it feels rather than being a perfect storm this is 2 wobbles and a hope.
Wobble 1 - We continue to feel that Europe 2012 is NOT Europe 2011. The type of Price is News bluster and "haven't seen these levels since the last time" lines flying around the chat screens was notable in its vacuousness of new news other than the price has moved because the price has moved. We agree that the austerity vs. growth, debt/GDP equation is seeing GDP killed by austerity but we do not see systemic risk to Europe as a whole. This time around, basis and funding markets have not blown out, only widening to a token degree. Simply put, whether or not one agrees that the 3yr LTRO solves all Europe's problems or not, it would be churlish to deny that it has drastically improved bank funding conditions and, absent of forced bank deleveraging, it is kind of hard to expect Europe to "go systemic" once more. So though this is a bigger story further down the line, despite the seasonality of April Euro kickings, we don't think now is the right time.
Wobble 2 - US NFPs One number does not a trend a trend make, and especially one with such a large standard deviation. What can be said, however, is that considering a smoother three month average, that the labour market is a bit less vigorous than previously thought but certainly showing improvement - coincidently, agreeing with Chairman Bernanke. While this certainly does not imply that QE3 is back on the table, it does - arguably - put markets in something of a sweet spot provided that the data does not materially worsen: data consistent with 2% or higher growth is likely to be positive for risk assets, while a move above 3% would risk unanchoring the bond market. To scare TMM, ISM would need to head back to about 51, something that is unlikely when the orders/inventories gap is still supportive of the inventory cycle and when the inventory/sales ratio has not yet begun to rise. When this happened in May 2010 and 2011 it was time to sell.
The Hope - China again. We have laid out our thoughts on China over the past few weeks to a fair amount of ridicule and chastisement but we will stick by our guns. The latest Bo Xi news is not a concern of ours, and if anything the apparent connection to the death of a British expat arguably shows that China is becoming less corrupt in its dealings: while innocent until proven guilty, this is clearly better than being swept under the carpet. We also don't feel that the move to allow CNH capital to move onshore is a sign of desperation, but more one of efficient use of funds - it is simply another step along the line to full capital account convertibility. The Trade data and its slowdown in imports does not mean a collapse of internal economy either. Confusion over data on China reigns and as FTAlphaville has observed, can be used to support any argument but we feel we have done our own homework in polishing the fog from our data specs and are content with our interpretation and would encourage readers to go and look at the regional breakdown of both imports and exports (hint: it's Europe, not Oz/SA etc). China is not crashing.
So with our concerns so out of alignment with the noise we hear around us, we are now united in our hope for the markets to head on back northward and given the positioning and hope behind this dip occurring any discernable base and rally is going to be jumped on hard as no one wants to miss the train again.
We will be back next week.