All Quiet

Not much has been happening recently on the macro-newsflow front. The main story has been the recession of the probability of QE3 in the US. The market has caught up with the strong US data flow to the extent that the Citigroup US economic surprise index has been drifting downward for a couple of months. I do not try to predict market performance beyond the horizon I can see at any given time, but I do wonder whether 2012 could be a year in which US equities move choppily upwards as the weak recovery continues and the Fed remains on hold.

No doubt people will be thinking: Europe! Iran! But I do not expect another crisis episode in Europe until either Portugal or Ireland faces real trouble meeting a bailout payment or the solvency of Spain or Italy comes into question. It is quite possible that neither of those will happen this year. With respect to Iran, the oil price has already run up and has failed to make new highs — and weaker economies in Europe and China may actually help in that regard. According to James Hamilton of the University of California, San Diego, the real economic damage is done when oil rises to new highs, not when it returns to previous highs. And the Iranian situation appears to be moving in the right direction, with sanctions really starting to bite and talks mooted — although of course it is very early to conclude that everything is hunky-dory.

With markets diverging and risk-on, risk-off seemingly a thing of the past, the potential for positive performance from US equities does not necessarily impel us towards a positive view of other “risk assets”. China’s policy-induced slowdown appears to be real, and that implies a negative view of, for example, copper and AUD. Copper has lagged the recent rally and AUD has actually fallen. I wonder whether it is time to short these assets. For the time being there is no opportunity to do so, but I will continue to watch for one while I think about whether to trade an opportunity if it comes along.


On the subject of Europe, the lurching convergence of political opinion with economic reality continues, according to a report in Der Spiegel. Last week the European Commission put out a paper that described three options for the EFSF and ESM and it seems that Merkel and Schauble are dropping their opposition to option 2, under which the EFSF and ESM would run in parallel, with a joint gross lending capacity of EUR 940bn, until the EFSF expires (in 2013 I believe). Merkel is under a lot of international pressure to beef up Europe’s “firewall” and this would be a way to do it without getting approval from the German parliament.


  • German Ifo business climate 109.8 a.e. A small increase MOM.
  • New home sales 313k d.e. and fell, Feb.
  • New Zealand trade balance turned positive, as expected, Feb.

This Week

  • Pending home sales (Mon).
  • Draghi and Bernanke speak (Mon).
  • CB consumer confidence (Tue).
  • Bernanke speaks again (Tue).
  • UK current account (Wed).
  • UK final GDP (Wed).
  • Durable goods orders (Wed).
  • Japan retail sales (Thu).
  • German employment data (Thu).
  • US final GDP (Thu).
  • Bernanke speaks yet again (Thu).
  • Japan household spending, CPI, IP (Fri).
  • Eurozone flash CPI (Fri).
  • Personal income and outlays report (Fri).
  • Chicago PMI (Fri).