My Diary 599 --- Keep Your Eye Open

Trading Diary (August 06 2009) --- Keep Your Eye Open

 

X-asset markets and Macro headlines

US markets follow global trend into negative territory amid mixed macro data (ISM Non-Mfg 46.4 v cons 48; ADP Employment -371k v cons -350k, Cisco Q4 sales/EPS in line), through select financial outperformance keeps S&P above 1,000. Cross asset markets, Oil up, stocks down, JPY stronger, CAD better, Gold lower, bonds weaker. I think the O/N markets were not a bang of correlation blow ups but there are a few points to take away about

1) Doubts about the economy continue to dominate concerns of investors -- ADP better, ISM service report weaker, Factory Orders better. In generally, I think the quality of the recovery hopes relies on manufacturing which looks ready to bounce, thanks to inventories, car schemes and global demand while services remain mired in consumer deleveraging, credit limitations and doubts about jobs. Moreover, the divergence of ISM vs Service ISM makes clear that the US “export” sector becomes more important and USD is critical to competition.  Thus, we need to keep an close eye on how other CBs deal with a weaker USD – intervention, rate cuts, shifting of reserves, higher commodities. 

2) Uncertainty remains high despite the better spreads in credit, the drop in volatility, the increase in risk. The range of expectations for almost all markets has never been so diverse, including EUR, oil, rates or stocks, leaving investors concerned that the present opportunities are not worth playing in the medium term. 3) Regulation and policy continues to cloud investment decisions. The debates are about health care, about cars for clunkers, about regulating financial business --- what it means for markets? The decisions of central banks remain critical to the debate over inflation risks or bubble creations with China being the prime mover but the on-going meetings with ECB, BOE still a watch for moving from accommodative to neutral. Bottom line is to be very close to the market and policy markers’ talks in the next few weeks!

Hong Kong China News

Some early negative signals from China today with SHCOMP open -2.2%, SZCOM -2 % --- 1) PBoC although restated its attitude on a moderately loose monetary policy, mentioned in its latest report that more fine-tuning tools may be adopted -- 5-year bonds later as a 'fine-tune' liquidity; 2) People's Daily got an article saying more asset bubbles may emerge above SHCOMP 3400 levels; 3) Talks of more IPOs to come including those international names - yesterday got the rumors of the return of several red-chips. 

Overseas Markets Review

Global equities slipped 0.5% last night, but are still higher 0.9% WTD thanks to +1.7% gains in US and 1.0% in EMS . Meanwhile, stocks are flat in EU since Friday and h-1.0% in Japan . Globally, equities have surged 13% over the past four weeks. Elsewhere, 1MWTI oil firmed at $71.97/bbl, +$2.52 this week to the highest price since June 12. JPMorgan industrial metals price index has boomed 9% this week and is now up 32% over the past four weeks. 2yr USTs yield +1bp to 1.21%, and 10yr climbed 6bp to 3.75%. Both yields are up considerably this week: 2s by 10bp and 10s by 27bp. Currency wise, EUR closed at $1.440—up 1% this week. Meanwhile, JPY has weakened 0.3% this week to 95.0.