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Things I am Going to Think About on Vacation

July 16, 2010
Like others, I try to clean off my desk before my summer vacation. This year it is particularly difficult because there seems to be several unresolved issues. I will mull them over and hopefully my subconscious will have more success than my consciousness in working through the issues.
There has been a key axis in the capital markets since late la…
Things I am Going to Think About on Vacation Things I am Going to Think About on Vacation Reviewed by Marc Chandler on July 16, 2010 Rating: 5
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TIC Data: No Significant Surprises

July 16, 2010
The May TIC report was largely in line with expectations. Foreign investors bought a net $35.4 bln of long-term assets, down from a revised $81.5 bln in April. Overall, including short-term securities, foreign investors bought $17.5 bln after a revised $13 bln in April.
Foreign investors bought Treasuries and Agencies, but were sellers of corporat…
TIC Data: No Significant Surprises TIC Data: No Significant Surprises Reviewed by Marc Chandler on July 16, 2010 Rating: 5
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Euro, Rate Squeeze, US CPI and Japan Woes

July 16, 2010
The euro is center stage today. It is gaining on nearly all the other currencies today, including the Scandi-bloc, which had actually been the best performer in recent days. Technically the move above the 100-day moving average is thought to have spurred new model-driven demand.
In addition, there seems to be a squeeze being exerted by a sharp jum…
Euro, Rate Squeeze, US CPI and Japan Woes Euro, Rate Squeeze, US CPI and Japan Woes Reviewed by Marc Chandler on July 16, 2010 Rating: 5
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Dollar Remains Soft

July 16, 2010
The US dollar continues to trade heavily against the euro and yen, but it is consolidating against the other major currencies. Poor US economic data and more benign news streams from Europe continues to fuel the euro’s recovery. It is moving above its 100-day moving average for the first time since mid-Dec 09 (~$1.2917).
Ideas that China’s growth …
Dollar Remains Soft Dollar Remains Soft Reviewed by Marc Chandler on July 16, 2010 Rating: 5
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Industrial Production Increase Misleading

July 15, 2010
The 0.1% rise in US industrial output in June seems to defy expectations for the first decline since mid-2009, but the headline is deceiving. Manufacturing, the key component actually fell 0.4%. The headline was flattered by a 2.7% jump in utility output. Utility output also jumped 5.4% in May. Manufacturing output was hurt by the cuts in auto out…
Industrial Production Increase Misleading Industrial Production Increase Misleading Reviewed by Marc Chandler on July 15, 2010 Rating: 5
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Yen: Battle Ground--Real Investors vs Speculators

July 15, 2010
Japan's Ministry of Finance publishes portfolio flows on a weekly basis. The latest data released earlier today shows the general continuation of recent trends. Japanese investors continue to buy foreign bonds and stocks. Over the past nine week, Japanese investors have purchased roughly $87 bln of foreign bonds and $15 bln of foreign equities…
Yen: Battle Ground--Real Investors vs Speculators Yen: Battle Ground--Real Investors vs Speculators Reviewed by Marc Chandler on July 15, 2010 Rating: 5
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New Day, Same Story

July 15, 2010
The news stream continues to be dollar negative. The minutes from the FOMC meeting may not have been as dovish as many had expected, but the subsequent economic data has also been disappointing. The deterioration of the May trade deficit in real terms is prompting economists to lower their Q2 GDP forecasts. Some are suggesting that the retail sale…
New Day, Same Story New Day, Same Story Reviewed by Marc Chandler on July 15, 2010 Rating: 5
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Dollar Offered

July 15, 2010
The US dollar is broadly lower against the major foreign currencies. The combination of Fed’s recognition of downside risks to the US economy and inflation coupled with relatively smooth bond auctions from Spain and France helped lift the euro through the $1.28 level. Sterling and the Swiss franc appeared to simply be benefiting from the softer US…
Dollar Offered Dollar Offered Reviewed by Marc Chandler on July 15, 2010 Rating: 5
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Fed Minutes Not as Dovish as Some Expected, USD Ticks Up

July 14, 2010
The minutes from the recent FOMC meeting were not as dovish as some had expected and this seems to have encouraged some profit-taking on short dollar positions.
As widely expected the Fed to cut inflation and growth forecasts, but the downgrades were not as severe as anticipated. This year's GDP forecast was trimmed to 3.0-3.5% from 3.2-3.7%. …
Fed Minutes Not as Dovish as Some Expected, USD Ticks Up Fed Minutes Not as Dovish as Some Expected, USD Ticks Up Reviewed by Marc Chandler on July 14, 2010 Rating: 5
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Euro Zone Update: Don't Stress the Stress Tests

July 14, 2010
Stress Test Update: The latest indication is that next Friday the results of the European bank stress tests will be reported in some aggregate (perhaps country level) with details for individuals banks expected in the following couple of weeks. This may disappoint those who were anticipating some closure on 23 July.
European Financial Stability Fa…
Euro Zone Update: Don't Stress the Stress Tests Euro Zone Update: Don't Stress the Stress Tests Reviewed by Marc Chandler on July 14, 2010 Rating: 5
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Headline Retail Sales Soft, Details Better

July 14, 2010
Headline retail sales were a bit weaker than expected with a 0.5% decline after a 1.1% decline in May. However, the weakness was concentrated in autos, gasoline and building materials, which the Commerce Dept picked up from different reports for GDP calculations. When excluded the June core-core retail sales rose 0.2% after a 0.2% decline in May. …
Headline Retail Sales Soft, Details Better Headline Retail Sales Soft, Details Better Reviewed by Marc Chandler on July 14, 2010 Rating: 5
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Half Full or Empty Glasses

July 14, 2010
The balance of forces continues to weigh on the US dollar. Earlier this year news form Europe was read as the glass was half empty. Now it is being understood as half full. At the same time, the earlier momentum of the US economy has stalled.
Leave aside the fact that Greece dropped plans to offer 1-year bills yesterday, the success of the 6-month…
Half Full or Empty Glasses Half Full or Empty Glasses Reviewed by Marc Chandler on July 14, 2010 Rating: 5
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Dollar Consolidates, Sterling Shines

July 14, 2010
The US dollar is consolidating its recent losses in largely uneventful activity. Sterling is the main exception to the generalization. Boosted by the firmer than expected CPI report yesterday and today’s favorable jobs report has pushed sterling to new 10-week highs against the dollar at $1.5280. The news stream and technical factors warn that the…
Dollar Consolidates, Sterling Shines Dollar Consolidates, Sterling Shines Reviewed by Marc Chandler on July 14, 2010 Rating: 5
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Tomorrow's US Economic Data

July 13, 2010
There is a full slate of US economic reports on Wednesday.
The first reports are import prices and retail sales. The former typically is not a market mover. However, given the heightened concern that the US may be dangerously close to deflation, investors may be more sensitive to price data. Import prices likely fell for the second consecutive mon…
Tomorrow's US Economic Data Tomorrow's US Economic Data Reviewed by Marc Chandler on July 13, 2010 Rating: 5
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US Q2 GDP Indications

July 13, 2010
The larger than expected real US trade deficit warns that economists may revise down expectations for Q2 US GDP. The preliminary estimate is slated for release at the end of the month. Although there has been increased talk of a double dip in the US, the risk is that even with the adjustment in expectations, Q2 GDP is very much in line with, and p…
US Q2 GDP Indications US Q2 GDP Indications Reviewed by Marc Chandler on July 13, 2010 Rating: 5
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Portugal Downgraded, Spain's Turn Again?

July 13, 2010
Spain's Finance Minister Salgado says the downgrade of Portugal earlier today does not put pressure on Spain. It is true as far as it goes, but of course Spain's problem transcends Portugal.
The ruling Socialists in Spain are seven seats shy of a majority and it has had to depend on smaller political parties for key votes. The economic aus…
Portugal Downgraded, Spain's Turn Again? Portugal Downgraded, Spain's Turn Again? Reviewed by Marc Chandler on July 13, 2010 Rating: 5
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Moody's Downgrade, Greek Bill Auction, UK Inflation

July 13, 2010
Moody’s downgrade of Portugal was not all that surprising. The 2-notch downgrade to A1 brings it in line with the way the market already is trading it. It adopted a stable outlook. We suspect there is scope for another downgrade, which after its Q2 move to AA- still seems to be the outlier. Moody’s cited concerns about the deterioration of the fis…
Moody's Downgrade, Greek Bill Auction, UK Inflation Moody's Downgrade, Greek Bill Auction, UK Inflation Reviewed by Marc Chandler on July 13, 2010 Rating: 5
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Push-Me, Pull-You in Global Capital Markets

July 13, 2010
The US dollar is broadly mixed as the news stream buffets the foreign exchange market. A better than expected reception to the Greek T-bill auction helped mitigate the reaction to Moody’s decision to cut Portugal’s credit rating two notches to A1. The ZEW survey captured the nature of the push/pull impulses today as the economic sentiment componen…
Push-Me, Pull-You in Global Capital Markets Push-Me, Pull-You in Global Capital Markets Reviewed by Marc Chandler on July 13, 2010 Rating: 5
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Canadian Jobs Data Underscore Likelihood of Rate Hike

July 12, 2010
Canada reported incredibly strong jobs data before the weekend. Canada grew 93.2k jobs, more than 4 times more than than market expected. It grew almost 50k full time jobs. These are impressive numbers and renews expectations that the Bank of Canada will raise rates when it meets again next week, even though there have been doubts in recent weeks …
Canadian Jobs Data Underscore Likelihood of Rate Hike Canadian Jobs Data Underscore Likelihood of Rate Hike Reviewed by Marc Chandler on July 12, 2010 Rating: 5
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Developments in Europe, Japan, and China

July 12, 2010
It is not clear if the firm dollar tone that has emerged at the end of last week and today is more than corrective in nature. It does not appear to have been associated with a clear fundamental development. There is some concern that about European bank stress tests some interest in the press reports that the BIS may have provided liquidity to a E…
Developments in Europe, Japan, and China Developments in Europe, Japan, and China Reviewed by Marc Chandler on July 12, 2010 Rating: 5
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Dollar Firmer

July 12, 2010
The US dollar is generally firmer against most of the major and emerging market currencies to start the new week. It has staged a reversal of sorts before the weekend and there has been follow through today. The euro ran out of steam after poking through $1.27.
Support near $1.2550 has been tested in Europe and a break could signal losses toward l…
Dollar Firmer Dollar Firmer Reviewed by Marc Chandler on July 12, 2010 Rating: 5
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Head and Shoulders Bottom in Euro?

July 09, 2010
The euro has been sold off in early North American activity. It does not appear to be news/event driven, but rather some week end profit-taking that triggered some stops. We do note that many were looking had targeted the $1.2700-$1.2750 objective. And there is a trend line drawn off of last November's high that intersects in that range today.…
Head and Shoulders Bottom in Euro? Head and Shoulders Bottom in Euro? Reviewed by Marc Chandler on July 09, 2010 Rating: 5
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China, Sterling Resilience, Japan Elections

July 09, 2010
One of the key talking points today will be the fact that late yesterday’s the US Treasury issued is review of the currency market and found that while the yuan was under valued, China was not guilty of manipulation. The report was due out in April and was postponed ostensibly in anticipation that China was going to move shortly. It moved in June …
China, Sterling Resilience, Japan Elections China, Sterling Resilience, Japan Elections Reviewed by Marc Chandler on July 09, 2010 Rating: 5
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Consoldiation May be Brief in FX

July 09, 2010
The US dollar consolidating this week’s losses against most of the major currencies; trading with a firmer bias within yesterday’s trading ranges. The general forces weighing on greenback remain intact. The negative news stream around Europe’s sovereign debt crisis moderating at the same time, though that short-term rates differentials have swung …
Consoldiation May be Brief in FX Consoldiation May be Brief in FX Reviewed by Marc Chandler on July 09, 2010 Rating: 5
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ECB Press Conference, Fed Action (?), European Data

July 08, 2010
The ECB press conference is the key event of the remainder of today’s 24-hour session. There are three key issues.

First, are the stress tests on European banks. Most observers seemed to share our preliminary assessment that the stresses being tested for were not particularly onerous. Although the details remain somewhat sketchy, reports suggest, …
ECB Press Conference, Fed Action (?), European Data ECB Press Conference, Fed Action (?), European Data Reviewed by Marc Chandler on July 08, 2010 Rating: 5
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Dollar Mixed But Soft Under Belly

July 08, 2010
The US dollar continues to trade with a heavier bias against the major and emerging market currencies. The yen and Swiss franc’s softer tone appears to be largely a function of the return of risk appetites, though Japan did report much weaker than expected machine orders (-9.1% vs -3% consensus). Sterling is under performing and there the weak dat…
Dollar Mixed But Soft Under Belly Dollar Mixed But Soft Under Belly Reviewed by Marc Chandler on July 08, 2010 Rating: 5
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More on Stress Tests

July 07, 2010
Press reports indicate that the Committee for European Bank Supervisors have revealed some details about the pending stress tests. A total of 91 banks in the EU will be tested. It appears the stress being tested for is two-fold: A 3-percentage point deviation of GDP for 2010 and 2011 from the EU's economic forecasts and a deterioration of sove…
More on Stress Tests More on Stress Tests Reviewed by Marc Chandler on July 07, 2010 Rating: 5
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European Stress Tests--You Ain't So Tough

July 07, 2010
Some reports suggest that the stress that European banks may be tested for include a 17% loss on Greek bonds and a 3% loss on Spanish bonds German bunds and possibly French bonds will not be stressed--that is to say the stress test will not include a loss on bonds from those two.
European Stress Tests--You Ain't So Tough European Stress Tests--You Ain't So Tough Reviewed by Marc Chandler on July 07, 2010 Rating: 5
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European Banks: Pre-Stress Test

July 07, 2010
The market awaits for the European Bank Supervisors to provide more details about the stress tests. If the market has a better sense of the robustness of the stress tests it might lift some uncertainty among investors.
There are several reasons why investors are anxious. Many of these are listed here, cobbled together from various media reports. T…
European Banks: Pre-Stress Test European Banks: Pre-Stress Test Reviewed by Marc Chandler on July 07, 2010 Rating: 5
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Bank Stress Tests, Poor European News, China Still Likes Treasuries

July 07, 2010
The market appears to have so much to worry about that it is having difficulty choosing which to focus on. The immediate interest is on the details of the European bank stress tests. The criteria is expected to be announced by the Committee of European Bank Supervisors.
The market is keen to know if the banks are string enough not only to withstan…
Bank Stress Tests, Poor European News, China Still Likes Treasuries Bank Stress Tests, Poor European News, China Still Likes Treasuries Reviewed by Marc Chandler on July 07, 2010 Rating: 5
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Dollar Firms, Risk Off

July 07, 2010
The US dollar is sporting a firmer profile against most of the major currencies but is largely confined to yesterday’s ranges. The yen is a main exception and been bid higher across the board as risk appetites wane. The market continues to wrestle with two main issues, the state of European bank balance sheets and the continued string of economic …
Dollar Firms, Risk Off Dollar Firms, Risk Off Reviewed by Marc Chandler on July 07, 2010 Rating: 5
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Baltic Dry Index Sinks; Currency Impact

July 06, 2010
The Baltic Dry Index has fallen for the 28th consecutive session today. It is the longest decline in six years. During this swoon the index has fallen 49%. The main driver seems to be concerns about the cooling of China's steel sector. Steel is the biggest user of iron ore. Iron ore and coking coal account for more than a third of the baltic d…
Baltic Dry Index Sinks; Currency Impact Baltic Dry Index Sinks; Currency Impact Reviewed by Marc Chandler on July 06, 2010 Rating: 5
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China Update

July 06, 2010
There are several noteworthy developments from China.
The first, while still a bit sketchy, seems the most promising. President Hu seemed to signal an acceleration of infrastructure construction in the western part of the country. The top economic planning agency indicated earlier today that China will invest CNY682 bln (~$100 bln) in 23 new major…
China Update China Update Reviewed by Marc Chandler on July 06, 2010 Rating: 5
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Dolar Bears in Control, but Finding it a Bti Tougher

July 06, 2010
The market’s focus has shifted away from the European debt crisis, where the news stream seems largely benign (for the moment), and toward the more negative growth impulses coming from the US. Even though the weakness in the June US jobs report appears largely concentrated in manufacturing, the recent string of economic data has shown a loss of mo…
Dolar Bears in Control, but Finding it a Bti Tougher Dolar Bears in Control, but Finding it a Bti Tougher Reviewed by Marc Chandler on July 06, 2010 Rating: 5
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Dollar Lower, Risk On?

July 06, 2010
The US dollar appears weaker across the board as New York traders return from the holiday weekend, but this is mostly a function of its modest bounce yesterday.
The greenback is near levels seen just before the weekend. The euro is slightly stronger, while sterling is slightly weaker. The dollar is a bit firmer against the yen and little changed a…
Dollar Lower, Risk On? Dollar Lower, Risk On? Reviewed by Marc Chandler on July 06, 2010 Rating: 5
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Drivers in Q3

July 02, 2010
As we begin the second half of what has already been a challenging year, it may be helpful to consider the potential drivers of the global capital markets. As always, numerous factors have to be juggled. Now however, even though the markets are as complicated as they've ever been, there are two key drivers that stand out: the European debt cri…
Drivers in Q3 Drivers in Q3 Reviewed by Marc Chandler on July 02, 2010 Rating: 5
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China Looks Cheap

July 02, 2010
When China first announced on 19 June that it was going to reintroduce flexibility into its exchange rate mechanism, we advised caution; warning that it may take some time for China's intentions to be clarified. The market's euphoric response was quickly unwound as it became clear that China's position is more nuanced than it may have …
China Looks Cheap China Looks Cheap Reviewed by Marc Chandler on July 02, 2010 Rating: 5
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Jobs Data To Keep Pressure on the Dollar

July 02, 2010
The unemployment rate fell to 9.5% from 9.7%, but this likely reflects people dropping out of the labor market. The work feel well 0.1%, which is the equivalent of about 300k job loss. The private sector 83k jobs and the May data were revised to show only 33k from 41k. Hourly earnings fell 0.1%. Bottom line then is few manhours of work, fewer jobs…
Jobs Data To Keep Pressure on the Dollar Jobs Data To Keep Pressure on the Dollar Reviewed by Marc Chandler on July 02, 2010 Rating: 5
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US Jobs, European Devleopments, Australia's Tax Compromise

July 02, 2010
The release of the US employment data is the main event of the day. Investors are well aware of the unwinding of the census build, which will produce a headline decline of jobs.
The market will look past this and focus on private sector jobs. The softer than expected ADP and ISM data yesterday have probably led to downward adjustment to expectatio…
US Jobs, European Devleopments, Australia's Tax Compromise US Jobs, European Devleopments, Australia's Tax Compromise Reviewed by Marc Chandler on July 02, 2010 Rating: 5
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Global Markets Update Ahead of the US Jobs Data

July 02, 2010
The US dollar is mixed ahead of the monthly jobs data. It is generally consolidating yesterday’s losses against the European currencies and Japanese yen, while slipping against the dollar-bloc. The increased concerns about the trajectory of growth, especially in the US and China at the same time that successful bond auctions and refi operations in…
Global Markets Update Ahead of the US Jobs Data Global Markets Update Ahead of the US Jobs Data Reviewed by Marc Chandler on July 02, 2010 Rating: 5
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Data Disappoints Adds to Dollar Selling Pressure

July 01, 2010
US data have been disappointing. The weekly initial jobless claim increase has been followed by a weaker than expected ISM manufacturing report. The ISM fell to 56.2 from 59.7. The consensus had anticipated a smaller decline to 59. Weakness was especially pronounced in new orders, which fell to 58.5 from 65.7 Employment eased to 57.8 from 59.8. Pr…
Data Disappoints Adds to Dollar Selling Pressure Data Disappoints Adds to Dollar Selling Pressure Reviewed by Marc Chandler on July 01, 2010 Rating: 5
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Is Fiscal Austerity Being Rewarded?

July 01, 2010
From the IMF to the G20, from bloggers to Nobel prize winning economists, there have been calls for the major developed countries to reduce deficits and stabilize debt to GDP ratios. The idea is that if this is done properly it need not retard growth and the markets will reward countries with lower interest rates requiring reducing the risk premiu…
Is Fiscal Austerity Being Rewarded? Is Fiscal Austerity Being Rewarded? Reviewed by Marc Chandler on July 01, 2010 Rating: 5
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Capital Market Developments

July 01, 2010
The ECB’s refi operations this week are being scrutinized for insight into the health of European banks. The 132 bln euro 3-month refi operation yesterday was generally heralded as favorable news. Recall that the market had been expecting between 200-300 bln euros would be needed to help smooth the expiry of the 12-month LTRO.
Today, banks took an…
Capital Market Developments Capital Market Developments Reviewed by Marc Chandler on July 01, 2010 Rating: 5
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Capital Markets Snapshot

July 01, 2010
The US dollar is mostly lower. The euro is the strongest of the majors, gaining across the board. The week’s high was set on Monday just below $1.24 and unless this is taken out, it simply seems like range trading.
Concerns that the world economy is losing momentum continues rival the European debt crisis a key factor discouraging risk taking. Alt…
Capital Markets Snapshot Capital Markets Snapshot Reviewed by Marc Chandler on July 01, 2010 Rating: 5
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