Category Archive: 5) Global Macro

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Commodity and Oil Prices: Staying Suck

2017-05-24

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2017-05-24

U.S. Industrial Production, 2006-2017
The rebound in commodity prices is not difficult to understand, perhaps even sympathize with. With everything so depressed early last year, if it turned out to be no big deal in the end then there was a killing to be made. That’s what markets are supposed to do, entice those with liquidity to buy when there is blood in the streets. And if those speculators turn out to be wrong, then we are all much the wiser for their pain.

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Bi-Weekly Economic Review

2017-05-23

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2017-05-23

The economic data releases since the last update were generally upbeat but markets are forward looking and the future apparently isn’t to their liking. Of course, it is hard to tell sometimes whether bonds, the dollar and stocks are responding to the real economy or the one people hope Donald Trump can deliver when he isn’t busy contradicting his communications staff.

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Emerging Markets: Preview of the Week Ahead

2017-05-22

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2017-05-22

EM FX ended last week on a firm note, shrugging off political risk that consumed markets earlier in the week. With US rates remaining low, the dollar remains under pressure against the majors, and so EM FX is likely to benefit also. Yet we warn investors not to jump back into EM countries that are inherently riskier, such as Brazil, South Africa, and Turkey. We continue to favor Asia in the current environment.

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Trying To Reconcile Accounts; China

2017-05-21

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2017-05-21

China Fixed Asset Investment, April 2013 - April 2017
Chinese economic data for April 2017 has been uniformly disappointing. External trade numbers resembled too much commodity prices, leaving an emphasis on them rather than actual economic forces. The latest figures for the Big 3, Industrial Production, Retail Sales, and Fixed Asset Investment, unfortunately also remained true to the pattern.

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Emerging Markets: What Has Changed

2017-05-20

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2017-05-20

Stock Markets Emerging Markets, May 17
China’s government approved the creation of a bond link between Hong Kong and the mainland. S&P upgraded Indonesia one notch to investment grade BBB- with stable. Fitch revised the outlook on Vietnam’s BB- rating from stable to positive. Egypt will announce a package of social spending soon. Moody's changed the outlook on Poland's A2 rating from negative to stable.

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Reasonable Retail (Therefore Consumer) Expectations

2017-05-20

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2017-05-20

Transitory Retail Sales, January 2013 - May 2017
Retail sales estimates are not adjusted for inflation, but even so whenever they get down toward the 3% growth level you can be sure there is serious economic trouble. The 6-month average for overall retail sales dropped below 3% in March 2001, the month that marked the start of the official dot-com recession (though that is not the official name for the cyclical peak, it probably should be).

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Hopefully Not Another Three Years

2017-05-19

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2017-05-19

The Still-Shrinking 'Recovery'
The stock market has its earnings season, the regular quarterly reports of all the companies that have publicly traded stocks. In economic accounts, there is something similar though it only happens once a year. It is benchmark revision season, and it has been brought to a few important accounts already. Given that this is a backward looking exercise, that this season is likely to produce more downward revisions shouldn’t be surprising.

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China Inflation Now, Too

2017-05-18

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2017-05-18

China Producer Price Index, April 2007 - May 2017
We can add China to the list of locations where the near euphoria about inflation rates is rapidly falling apart. This is an important blow, as the Chinese economy has been counted on to lead the world out of this slump if through nothing other than its own sheer recklessness. “Stimulus” was all the rage one year ago, and for a time it seemed to be producing all the right effects. This was “reflation”, after all.

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Lackluster Trade, China April Edition

2017-05-17

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2017-05-17

China’s trade statistics for April 2017 uniformly disappointed. They only did so, however, because expectations are being calibrated as if the current economy is actually different. It is instead merely swinging between bouts of contraction and low-grade growth, but so low-grade it really doesn’t qualify as growth.

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Inflation Is Oil, But Inflation Is Much More Than Consumer Prices

2017-05-16

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2017-05-16

CPI Changes On Energy, January 2016 - May 2017
The average annual change in the WTI benchmark price was in April about 25%. That was still a sizable increase year-over-year, and just marginally less than March’s average of 33%. For calculated inflation rates, it represents the last of the base effects that have to this point made it appear as if economic improvement was possibly serious.

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Earnings Update – The Proof of the Pudding is in the Eating

2017-05-16

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2017-05-16

S&P 500 Q117 Earnings Growth Rate, December 2016 - May 2017
The first quarter just seemed to zoom by this year, bringing continued optimism (or, animal spirits if you prefer) to the stock market and leaving even higher valuations in its wake. The Standard & Poor’s 500 Index returned an impressive 6.07% for the quarter, on the tail of the previous five consecutive quarters of positive performance.

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Emerging Market Preview: Week Ahead

2017-05-15

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2017-05-15

EM FX ended last week on a firmer note, helped by lower US rates and softer than expected CPI and retail sales data. Stabilizing commodity prices also helped EM. Yet these supportive conditions seem unlikely to persist, and we remain defensive on EM.

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Lackluster Trade

2017-05-14

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2017-05-14

US Imports, June 1989 - May 2017
US imports rose 9% year-over-year (NSA) in March 2017, after being flat in February and up 12% in January. For the quarter overall, imports rose 7.3%, a rate that is slightly more than the 2013-14 comparison. The difference, however, is simply the price of oil.

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Emerging Markets: What Has Changed

2017-05-13

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2017-05-13

Moon Jae-in was elected president of South Korea. Philippine President Duterte named Nestor Espenilla as central bank governor. Nigerian President Buhari traveled to London for a follow-up to the initial medical visit earlier this year. Market expectations for 2018 inflation in Brazil rose for the first time in more than a year. Peru's central bank unexpectedly started the easing cycle with a 25 bp cut to 4.0%.

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The Wrong People Have An Innate Tendency To Stand Out

2017-05-12

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2017-05-12

Japan Government Bond Yields, January 1985 - May 2017
I don’t think Milton Friedman would have made much of chess player. For all I know he might have been a grand master or something close to that rank, but as much as his work is admirable it invites too the whole range of opposite emotion. He was the champion libertarian of the free market who rescued economics from the ravages of New Deal socialism, but in doing so he simply created the avenue for where Economics of that kind could be transposed...

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Noose Or Ratchet

2017-05-11

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2017-05-11

Quarterly Report On Bank Derivative Activities, April 1995 - April 2016
losing the book on Q4 2016 balance sheet capacity is to review essentially forex volumes. The eurodollar system over the last ten years has turned far more in this direction in addition to it becoming more Asian/Japanese. In fact, the two really go hand in hand given the native situation of Japanese banks.

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Auto Pressure Ramps Up

2017-05-10

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2017-05-10

Motor Vehicle Sales And Production, January 2011 - May 2017
The Los Angeles Times today asked the question only the mainstream would ask. “Wages are growing and surveys show consumer confidence is high. So why are motor vehicle sales taking a hit?” Indeed, the results reported earlier by the auto sector were the kind of sobering figures that might make any optimist wonder.

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Bi-Weekly Economic Review

2017-05-09

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2017-05-09

The economic reports since the last economic update were generally less than expected and disappointing. The weak growth of the last few years had been supported by autos and housing while energy has been a wildcard. When oil prices fell, starting in mid-2014 and bottoming in early 2016, economic growth suffered as the shale industry retrenched.

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Emerging Markets Preview

2017-05-08

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2017-05-08

EM FX got some limited traction as the week closed, helped by stabilizing commodity prices.  However, oil, copper, and iron ore have all broken important technical levels that suggest further weakness ahead.  We also think the FOMC and jobs data support our view that the next Fed hike will be in June.  This backdrop should keep EM on the defensive this week.

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Emerging Markets: Buyer Beware – An Interview with Jayant Bhandari

2017-05-07

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2017-05-07

Jayant Bandari
Maurice Jackson of Proven & Probable has once again interviewed one of our friends, namely Jayant Bhandari, a frequent and highly valued contributor to Acting Man. Jayant is probably best known to our readers for his strong criticism of the economic and nationalist policies implemented by prime minister Narendra Modi in India since he decreed the demonetization of the bulk of the cash currency circulating in the country (see his most recent article...

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