Gold Wins As Financials And USD Deteriorate

Monday, June 4th, 2012

With Europe’s credit traders on vacation, volumes overall were muted today in Europe but average in the US. The lack of discipline that normally occurs when the credit boys leave the room helped lift sovereign credit in Europe and implicitly US equity futures (ES) into the open today, which marked the top for the day (back in the green after an ugly Sunday night) as dismal macro data dragged debt and and equity markets back down to overnight lows. Credit and equity moved in sync in general but across broad risk-assets, correlations were loose at best as Gold was very stable holding gains from Friday while Silver exhibited its high beta ebullience and Copper and Oil followed stock’s path down and back up. Treasuries leaked higher in yield with a steepening in the curve (though 10Y and 30Y outperformed 7Y as the Twist pivot maturity seemed most active). EUR strength was sustained from early morning in Europe with JPY weakness providing some support for stocks but it seemed both VWAP and the 200DMA were the key levels today and despite two stop-runs in the afternoon, we flushed down at the last minute (off near day’s highs – thanks to Egan-Jones’ UK downgrade news) to close red for ES (2nd day in a row below 200DMA). Financials (which are close to red for the year and about to cross below Healthcare and Staples) did not participate in the swings as much with JPM and MS worst today -3% (with the latter now 25% lower than the March 2009 market trough levels) and the other TBTFs around -1.9%. VIX oscillated rather like ES today – as usual but popped back above 26% to close marginally lower on the day. While correlations did drift today, stocks remain a little too full of hope still against overall risk markets but with UK closed again tomorrow, we may have to wait for Wednesday to see how Europe (and implicitly the rest of the world) feels.

S&P 500 e-mini futures had quite a day. Limping higher from a horrible overnight dip into the US open where heavy volume and large average trade size dominated and pushed the market lower as macro data disappointed. The leak lower progressed until Europe closed and then again we pushed higher on low volume stop-runs each time halted by heavy and large average trade size hitting the tape… the close brought the UK news and snapped ES back below VWAP.

YTD S&P 500 Sector performance… financials converging down to Unch, Staples, and Healthcare

and from the March 2009 market lows, financials’ performance is very dispersed… (MS -25% and WFC +206%)

Gold outperformed as the USD leaked back ‘down’ to resync from Friday’s moves. Treasuries are selling off a little but so are stocks as it would appear for now that Euro repatriaton from liquidating US assets is occurring and Gold is benefitting from more safety bod…

HYG remains an underperformer – holding below its intrinsic value – and we worry that this kind of weakness will leak back into real bonds and drive down an already illiquid market as today saw dealer net buying (buy-side net selling) for the first time in a while…

and the hump-shaped move in the Treasury curve was clear as 7Y underperformed 5s, 10s, and 30s…

as 5s7s10s butterfly bounces off record lows…

Charts: Bloomberg

Tags: 30y, Correlations, Drift, Ebullience, Egan Jones, Futures, Gold, Jpm, Macro Data, Maturity, Overnight Lows, Pivot, Rest Of The World, Risk Markets, Staples, Treasuries, Trough Levels, Ugly Sunday, Vix, Vwap
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International Market Returns from 2012 Peaks (Bespoke)

Thursday, May 10th, 2012

by Bespoke Investment Group

If there is one thing we can all agree on, it is that the last several weeks have not been enjoyable for anyone who is long equities.  The chart below summarizes when and by how much major international equity markets have declined from their 2012 peaks.  Not surprisingly, Spain was the first to peak and now leads the list of international markets highlighted with a decline of 24% from its peak.  Although its peak came more than a month later, Italy has been playing catch up with Spain and is now down 19.7% from its high.

Although US equities are down close to 5% from their highs in April, compared to the rest of the world, things looks pretty good here.  The only other country that has seen less of a decline than the US is China.  In terms of timing, while most countries saw their year to date peaks in early to mid-March, US equities held out the longest and didn’t peak until April 2nd.

Tags: China, Decline, International Equity Markets, International Markets, Investment Group, Italy, Mid March, Nbsp, Rest Of The World, Spain
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Global Manufacturing Sags Again in February: U.S. the Culprit!

Tuesday, March 6th, 2012

After rebounding from contraction in November last year the global manufacturing sector finds itself on the brink of stagnation again. The GDP-weighted manufacturing PMI that I calculate for the major economies fell to 50.8 in February from 51.5 in January, but is still higher than the 50.3 I recorded in December last year.

The U.S. ISM Manufacturing PMI’s fall to 52.4 in February from 54.1 in January contributed 0.6 points to the fall in the GDP-weighted PMI. Excluding the U.S., growth in the manufacturing sector in the rest of the world remained basically unchanged.

Although still indicating contraction at 49.0 the Markit Eurozone Manufacturing PMI shows that the manufacturing sector in the region is stabilizing.

Growth in Greater China is accelerating, with my seasonally adjusted CFLP Manufacturing PMI up to 51.9 from 51.0 in January, while the manufacturing sector in Taiwan is at long last growing again. The growth outlook in the other BRICS countries has turned for the better, with South Africa’s PMI surging to 57.9 from 43.2 in January while Brazil’s PMI rose to 51.4 from 50.6.

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Holdings****; ISM*****.

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Holdings****; ISM*****.

Tags: Amp, Brazil, BRICs, Brink, Contraction, Culprit, GDP, Greater China, Growth Outlook, Hypho, Ism Manufacturing, Kagiso, Manufacturing Sector, Markit, Plexus, Pmi, Rest Of The World, Sags, South Africa, Stagnation, Taiwan
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$10 Trillion In 2 years – ‘Over’ Abundant Liquidity And Expectations

Friday, February 24th, 2012

A funny thing happened while we all waited for the Fed to announce QE3. The rest of the world did it for them. Courtesy of Bloomberg’s excellent Economics Brief, and the n’th time, here is what a multi-trillion dollar liquidity expansion looks like even with the Fed running silent. And this is also what $10 trillion in 2 years pumped into the markets looks like. Wonder where the market gets its “spring step” from? Now you know. Thank you Economist PhD’s!

We do note that EUR strength recently (as the ECB appears done for now) and the acceleration of asset prices in Europe (bank stocks, credit etc.) appear to have done a good job of discounting the next LTRO already – and in fact are starting to retrace as LTRO 2 expectations are ratcheted back from the cajillion EUR level as the stigma continues to rise, ECB members raise concerns over dependency (banks are not forced to delever and also will not re-engage in the inter-bank lending market), and just like last year perhaps the ECB will hike rates to stall inflation fears (thinking of all-time record local currency gas prices as transitory is hard after a persistent 3 year trend higher).

Charts: Bloomberg

Tags: Acceleration, Asset Prices, Bank stocks, Banks, Bloomberg, Currency, ECB, Economist, Funny Thing, Gas Prices, Good Job, Inflation Fears, liquidity, Nbsp, Rest Of The World, Spring Step, Stigma, Th Time, Time Record, Trillion
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YTD 2012 Country Stock Market Performance

Friday, January 27th, 2012

Below is a table highlighting the year to date stock market returns for 78 countries around the world.  Of the 78 countries shown, 59 (75%) are in the black for the year, while 19 are in the red.  Twelve countries have posted double digit gains already in 2012, with Argentina leading the way at 18.11%.  Russia ranks second with a gain of 13.70%, followed by Hungary in third and Greece (yes, Greece) in fourth.

The US currently ranks 33rd on the list with a gain of 4.73% year to date.  The US ranks fourth among G7 countries behind Germany (10.88%), Italy (6.77%) and France (6.44%).  The UK has been the worst performing G7 country so far in 2012 with a gain of 4%.

Last year the BRICs were significant underperformers versus the rest of the world, but they’ve bounced back so far in 2012.  As mentioned above, Russia is up 13.70% year to date, which is the best of the BRICs.  Brazil ranks second with a gain of 10.92%, India isn’t far behind at 10.50%, and China ranks fourth with a gain of 5.44%.

Tags: Argentina, Brazil, BRICs, China, Countries Around The World, Country Stock, France 6, G7 Countries, G7 Country, Greece, Hungary, India, Italy, Leading The Way, Rest Of The World, Russia, Stock Market Performance, Stock Market Returns, Stock Performance, Year To Date
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China – The Great Stabilizer

Friday, September 30th, 2011

For the past ten years, whenever global base metals demand dissipated, China’s voracious appetite stepped in to gobble up the leftovers. Since 2001, China has increased the country’s share of total global demand for base metals from about 15 percent to over 40 percent in 2011, as shown in the yellow line. This has made China more important to commodities than ever before, according to Macquarie.

Macquarie says China has been a “great stabilizer” for commodities: “As growth elsewhere in the world tends to weaken, Chinese call on supply from the rest of the world tends to rise and visa versa when demand weakens.”

As global demand declines, the world “exports disinflationary pressures to China in the form of lower Chinese export demand and also lower energy and other commodity prices. When inflationary pressures ease in China, the Chinese authorities have generally eased monetary and fiscal policies, leading to a strong restocking and domestic demand recovery,” says Macquarie.

The stabilizing effect we’ve seen over the past decade could be in danger if Chinese demand continues to weaken. So far this year, China’s metals demand has slowed despite continued growth in industrial production and construction.

Macquarie thinks there are near-term downside risks in prices due to weak financial markets but things look rosier farther out on the time horizon. The firm says demand for base metals will be weak but not “disastrously” so. Industrial growth in many developed economies has mostly recovered from the Japan earthquake in March and Chinese industrial production growth will likely remain strong around 12 percent on a year-over-year basis in 2012.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Tags: Base Metals, Chinese Authorities, Chinese Demand, Chinese Export, Commodities, Commodity Prices, Downside Risks, Export Demand, Financial Markets, Fiscal Policies, Global Base, Global Demand, Inflationary Pressures, Japan Earthquake, Leftovers, Rest Of The World, Stabilizer, Time Horizon, Voracious Appetite, World Exports
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International Equity Markets YTD Performance (Bespoke)

Tuesday, September 13th, 2011

Below we highlight the year to date performance of the main equity indices for the 20 largest countries in the world (based on market caps).  As shown, Europe’s big three (Italy, Germany, France) have been nothing short of disasters in 2011.  France is down 25.4%, Germany is down 27.4%, and Italy is down 32.8%.  On the other hand, the decline here in the US of 9.1% year to date doesn’t look all that bad when compared to the rest of the world.

Below is a more expanded list of 2011 stock market performance by country.  While Italy is at the bottom of the list above, two other countries have done even worse — Greece (-39.76%) and the Ukraine (-41.29%).  Of the BRICs, China now leads the way with a 2011 decline of 11.05%.  Russia is down 12.21%, while Brazil and India are both down roughly 20%.

Copyright © Bespoke Investment Group

Tags: Bottom Of The List, Brazil, BRICs, China, Copyright, Countries In The World, Decline, Disasters, Germany France, Greece, India, International Equity Markets, Investment Group, Italy, Largest Countries In The World, Rest Of The World, Russia, Stock Market Performance, Stock Performance, Ukraine
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Major International Market Returns (Bespoke)

Friday, June 17th, 2011

Although US equities have been under near constant selling pressure since the beginning of May, they have been holding up relatively well compared to the rest of the world.  The table to the right shows the change in major international benchmark indices on a YTD basis.  In local currency terms, US stocks have outperformed every other G-7 country besides Germany as well as all four BRIC countries.

These numbers are somewhat misleading, however, as they do not take into account the decline in the US Dollar so far this year.  After adjusting for the dollar’s slide, US equities lose a bit of their luster.  While US stocks are still outperforming all of the BRIC countries, they are underperforming every other G7 country except Canada and the UK.

Tags: Benchmark, Bric Countries, Canadian Market, Currency Terms, Decline, G7 Country, Germany, Luster, Rest Of The World, Stocks
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The Economy and Bond Market Cheat Sheet (April 11, 2011)

Sunday, April 10th, 2011

The Economy and Bond Market Cheat Sheet (April 11, 2011)

Treasury bond yields moved higher this week as higher oil prices raised inflation concerns. Combined with the first rate hike from the European Central Bank (ECB) since 2008, this fueled concerns that the Fed would need to respond sooner, rather than later.

In addition to higher rates in Europe, the People’s Bank of China (PBOC) raised rates for the fourth time in about six months. While the U.S. has held out, the rest of the world has been steadily raising interest rates and with the ECB’s move this week it adds even more pressure on the Fed to act.

Strengths

• Retailer’s same store sales rose 2.2 percent in March, well ahead of expectations and somewhat surprising given rapidly rising gasoline prices.
• Initial jobless claims fell to 382,000 last week and are slowly grinding lower.
• German factory orders rose 2.4 percent in February.

Weaknesses

• The ECB raised interest rates by 25 basis points this week, which may be the first of many increases driven by elevated levels of inflation.
• China again raised interest rates as it tries to tame inflation and engineer a soft landing for the economy.
• Gasoline demand fell 3.6 percent on a year-over-year basis as higher prices are crimping demand.

Opportunities

• In an interesting twist, higher oil prices may actually act as a deflationary force if they materially slow global economic growth.

Threats

• Budget cuts and austerity measures in Europe and the U.S. are necessary “evils” but will likely be a considerable drag on global growth.

Tags: Austerity Measures, Bank Of China, Basis Points, Bond Market, Budget Cuts, Cheat Sheet, China, Drag On, ECB, Gasoline Prices, German Factory, Global Economic Growth, Global Growth, Inflation Concerns, Initial Jobless Claims, Necessary Evils, oil, Oil Prices, Pboc, Rate Hike, Rest Of The World, Treasury Bond Yields
Posted in Energy & Natural Resources, Markets, Oil and Gas | Comments Off

Why is Jim Chanos Short China?

Friday, February 4th, 2011

Jim Chanos, president of US-based Kynikos Associates and one of the world’s most famous hedge fund managers, talks to the FT’s John Authers about China’s property bubble and the implications for the rest of the world.

Click here or on the image below to watch the video.

Source: Financial Times, February 1, 2011.

Tags: China, Financial Times, Hedge Fund Managers, Jim Chanos, John Authers, Rest Of The World, Source Financial, Video Source
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