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Archive for the ‘macro’ Category

“oh no, major NFP miss… US periph economies are going to be hit hard!” (buy above 13)

“wait, there’s going to be a helicopter drop soon… tuesday perhaps?” (sell back to 12.95)

… where the reaction should have been something more akin to inverse usdjpy…

 

good thing i stayed out… except a small sell entry EURUSD at 1.27655. Reason? Just putting some on red which is probably going to close out against me.

To the best of good buys

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In addition to British GDP having major event risk on those remarkable GBPUSD and GBPAUD, the FOMC is once again going to announce rates for the 3rd time this year. I can’t seem to find the post for March’s meeting (this was it… I think), but here are the minutes as well. Overall, last month’s showed more on-track recovery, which had the greatest effect on knocking the wind out of yen.

For the last meeting’s pre-announcement look, EURUSD and AUDUSD offered relatively good indications of direction. However with the tight range on both pairs, commodity charts once again give us the best outlook. I would like to pull up yields, but no bloomy…

Also, watch USDJPY as we are bouncing against a very steep tenkan-sen. Very steep, as in 84.000 by the end of the week. However, any chance of a crack and that will turn into 79.500s by about the same time.

Silver, descending channel.

Gold, also descending channel. Gold charts offer a bit more of a worry since prices have stopped at the external fib. 1 day upside seems to be 1660, while downside almost certainly means at least a retest of 1616. Downside slightly outweighs upside.

I can’t trade this, but I’d put in 1 entry right now, 3 at 1660 and then hold at least into mid-May as the bottom of the cloud descends to 1650.

So metals are showing more downside potential than upside. Will the Fed overlook moderately weaker data in the last month and attribute them to a natural breath of air before full-recovery sets in? Whatever the case, the rhetoric for additional easing should be subsiding. The last few European bond auctions have been somewhat optimistic, depending on how you read it.

Unloading some EURUSD exposure and putting it in EURCAD…

To the best of good buys.

 

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We start with the below post here and this picture. Replace the 30 with 10 and it’s still pretty much the same thing..

 

… and a return to the thesis that the Fed (especially with its current board and situation) is a growth-fostering, not a price stability central bank. This, and the fact that recent manufacturing and consumer confidence data have been dampened by the increase in energy prices further the possibility that instead of keeping prices under control, will further try to ease or in our case, talk down rates. This provides us with a perfect opportunity to trade what the fed is seeing (the recent jump in yields ripe for a reversal). We just have to pick the optimal pair.

Also, if history teaches us anything about the (independent-HAHA) central bank, it will try to keep yields low to not bankrupt the treasury. Not a strong point, but nevertheless a thought…

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Because our pair finding ultimately comes down to the performance of each country’s yields and spreads against the expected lower US yields, let’s start with a simple correlation of selected pairs first. Note EURUSD is out of the mix because the European debt market is very interesting… and quite crowded

oooh let’s clean that up a bit…

So with monthly correlations since mid-Jan (the start of the shift from risk to rates), we see that AUDUSD, USDSEK, and the very well-expected USDJPY making the short list.

For the sake of efficiency, simplicity and time, we will focus on these three pairs. Fundamentally, these pairs represent the overall FX market quite well, with AUDUSD a leveraged proxy of Chinese economic growth, USDSEK for European commerce, and USDJPY the raw play on just US yields. Also, none of these have negative intervention risks… yet…

Here’s a better view of the spreads so far and FX.

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So what will be the best pair to carry this order? Because the current err… bias is for US rates to come down this week, the most opportune pair will have best rate growth (for various reasons) expectations. Luckily, there is Credit Suisse’s Central Bank rate hike index/CSSTs based on overnight swaps (OIS). This index is awesome.

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arrrrgh can’t finish this… must sleep…. Here’s what I have of the charts so far, and I’ll finish the rest tomorrow. I wouldn’t buy any higher yielders against yen. That’s all, really, and keep watching dips to buy risk against dollars. TreasYields

To the best of good buys.

 

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Basically, all prices are up from last year. I’m going to start tracking these indices to see inflation effects for no particular reason except that the beef board gives relatively good data.

These are also wholesale prices (WPI/PPI) so increases here should be geared higher once it reaches the consumer market.

And it looks like USD yields are about to fall off a cliff again… maybe because demand for T-notes are falling? No, that doesn’t make sense because yields would be higher, so it’s yield differentials at play here. Thus, USDJPY.

Here’s the Wholesale Pricing Chart 012712.Green is up YoY, red is down YoY

To the best of good buys.

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This is what they said in January, and this is what they said at this meeting. It seems that the Fed finally realizes the effects of energy and food inflation, especially after rounds of ease that saw gasoline jump 50c within the last month and effectively stopped my rotary zoom-zoom.

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Never minding what the past was, the fed is finally recognizing that the US economy is recovering. Pull out any ISMP/ADIA graph and it clearly shows even at the zero lower bound (questionable where we are) this kind of combined easing and domestically driven demand will start to put pressures on inflation. –>IS/AD is shifting outwards, and thus eventual tighter rates to cope with inflation.

Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.

Withholding the possibility of rapid rate increases, the fed is shifting less and less on dovishness in order to foster maximum output, and instead watching inflation rates to keep it in balance with overall growth. Having read what Helicopter (no longer Ctrl-P) Ben has written during his tenure as a professor, I understand that he is still weary of raising rates too fast and crushing out investment and overall credit. Hence with regards with the 2014 promise, I expected the bank to keep it to the day, though give up more and more indications that prices will have to be watched.

So with the expectations of a rate hike in the future, what do we buy the dollar against?

Also, there’s a major HS pattern on EURUSD…. if we break, we target 1.26xx… looking for another entry point.

And errr… the rate driven yen

To the best of good buys.

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On the fundamental side, what could mark that turn? The downgrade of Greece to selective default by the S&P earlier today didn’t seem to bother the markets, apparently carried higher by Merkel’s vote and new home sales.

But we do have two other high-risk events: PSI negotiations and LTROs.

PSI negotiations aren’t exactly finished yet, and the balls are currently in the court of participants, ie mostly hedge funds (currently causing the trouble as they can’t get LTROs and don’t have that much margin left). Given the participation rate is expected at around 66% of total nominal value, that shouldn’t be a problem…

So the second round of 3 year direct bank loans/LTROs on tap for the 28th and announced on the 29th. The number is EUR 489 billion, the record of the last one in December. On the risk consideration side, for all meanings it is risk-positive, as the funds basically backstops banks from a quite possible crunch when some country does decide to go back to its legacy currency (on the 29th).

What would a higher record mean? What would be a lower? For all cases, there are pros and cons of both a higher and lower turnout. Forgetting having to draw an entire heatmap of outcomes, the direct effect will be Euro dilution, and in the bank’s case, having money for more carries. Barring interest rate effects, this will be the ECB’s very clever and not-written-into-as-expressly-prohibited-Lisbon-treaty easing, giving funding directly to the banks locked in at 1.00%.

There are at least 5 stable AA+ or higher countries with 2 or 3 year yields above 1.00%. Namely Australia.

Exchange rate risks? Possibly, but not if it’s a boom economy. Only if there’s a recession will there be a massive FX rate-caused implosion of carries (yen, 2008-2012…). Plus, banks can always get an option protection against downside. 3 years shouldn’t be that expensive… but again, don’t really have data for that OTC market.

And if the Aussie is too reliant on Chinese growth, SE, NO, PL (and maybe even HU!… provided your risk appetite…) sovereigns should provide the adequate fundamental reasons for carries.

*And on a side note, the ECB has an awesome statbank and interactive yield curve chart with forwards and all the fun stuff!

So anyways, no matter if the LTRO2 requests total EUR 200 billion at the low end or EUR 750 billion at the highest (I’ve seen so far…) Draghi is a smart and devious GS man, sticking it to the thrifty, saving and price-stability pursuing Deutschesvolk.

Given the state of the European economy, rates should stay low for at least quite a long time, even with inflation pressures (and to add a comment, beginning to show in Eastern Europe). But with the 3 year LTRO, banks are guaranteed that 1.00%. If I was a bank, I’d just borrow however much I can, try to cover my own assets first, and then do something risk-free with them.

But these are banks, run by people, and they are greedy.

I need to look at ECB balance sheets (sovereigns purchases) and deposits (how much of that LTRO1 money went back) when I go back to the office…

But hey, banks have money? LETS GO PLAY WITH THE FIXED INCOME MARKETS!

To the best of good buys.

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Dual x Axis Chart with Excel 2007, 2010

Making this post because the old joke one was getting way too many hits without actually giving any help. Most of the guides online are for the old versions of Excel, which by comparison with the shiny ribbon on the new ones, isn’t quite the same.

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This is the end product, all done with excel and no paint at all. Here is the excel file (look on sheet 2, since I just did it with random data). MoneySupply

Also, more updated chart on the bottom. Two are basically the same.

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1. Get your data ready, so like this: (Choosing 1 date/x-axis so far is OK, we’re going to add the other one later).

2. Insert chart like normal and format the 2 money supply data (or whatever you have – could be more series!) onto the second vertical axis:

3b. (I’m going to make it a bit prettier by adjusting the x-axis. I do research for trading, so I have to make it pretty for the customers).

Here’s the fun part. Say you want CPI to be 5 years ahead. You have that date series ready (look at pic excel2.png), and you want it add it in, while keeping the axis for M1 and M2.

4. Click on the green CPI line, right click, and choose “select data.”

5. You’ll get to something like this. Click on the CPI line (or the one you want to add a secondary x-axis for) and click edit.

6. You’ll get a highlighted set representing the old date series (column Bs). Select your second x series (go to the 2011/2012 date series and drag down to control all). Then click OK.

7. You’ll go back to the original. Click OK again.

8. Go back up to your chart, and there’s no other x axis despite all that work? Click your chart, go to the ribbon and LAYOUT tab, then axis and horizontal axis. Show it left to right, unless your data somehow goes back in time.

9. Oh shoot, why is it on the top? Click that axis only, right click and go to format, where you’ll be greeted by an old friend. Choose axis labels, and then low.

10. And there you go, your 2 x-axis chart. You can now make it pretty and fit in axis labels and things like that depending on how much you like your professor clients.

There you go, and here’s the newer charts with two graphs. Knock yourself out. And excel doesn’t let you have multiple axis graphs (3 and 4, etc), only bloomberg does. But that’s quite an expensive piece of machine… MoneySupply2

To the best of good… research? Hopefully the dollar makes a comeback and smacks Helicopter Ben in the face. What is he thinking, the US as an open export economy? I think we have a monopoly on technology/waffen already, and seriously no one wants to drive an American car 😛

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