"Macroeconomics meets the movies: the top five Q1 awards"

My latest post as a Yahoo Finance Contributor titled "Macroeconomics meets the movies: the top five Q1 awards" can be found here.

Asia today - the norm in Japan, China prepares for CNY & the Aussie $ falls

So Japan is back after a holiday...and look what is happening, a weak yen below 120 again against the US dollar...

...and a strong equity market (Nikkei in this case): 

The similarity of the above two charts is very striking (of course the former is geared).  A really interesting link on Japan today was this one which noted hopes for a recovery based on: 

Japanese bonds are the worst-performing government securities in the past month except for Greek debt, and benchmark 10-year yields have doubled from their January lows.

We will see about this...I note the continued weak producer price data and continued failure to fiscally consolidate ("Japanese Cabinet: Unlikely To Achieve Primary Balance Surplus By FY2020"). 

Whilst in China there were some notable headlines on further state owned organisation reform (link here) and pre Chinese New Year monetary manipulations ("PBoC injects $CNY 160bln via 14-day & 28-day reverse repos"), Australia is probably the second most interesting source of stories in the region today as the Aussie dollar continued to move weaker...

(nice chart above via @johnnyshap who noted 'at 76.50 the AUD is now trading around the long term average of US 76.41c since it floated in Dec 1983)

...as unemployment rose (according to Bloomberg TV to the highest since 2002).  Ex specific mining names exhibiting self-help (BHP Billiton) I remain short Australian assets on the basis that at an economy-wide level there are still issues.

Asia today - New Zealand dollar, another Abenomics struggle and Chinese distortions

A further tweak in the bubbling away currency war today in Asia this time from New Zealand with the country's central bank not only saying that further tightening was on hold but the unjustifiably high exchange rate would "weigh on growth" and likely see "a further significant depreciation."

That helped to take the New Zealand dollar down to levels seen a few years ago...although the exchange rate (against the US dollar) remains far below that seen at the height of the recent financial crisis: 

Meanwhile in Japan the credibility of Abenomics was hit again as December retail sales fell 0.3 per cent, pushing the annual gain down to just 0.2 per cent. Economists were expecting a 0.3 per cent monthly rise and a 0.9 per cent annual gain.  As the chart below shows (source Fast FT) Abenomics on this (and other measures) remains lacklustre at best...

Turning to China a couple of headline caught my eye today: 

#CHINA SECURITIES REGULATOR TO INSPECT 46 COMPANIES ON STOCK MARGIN TRADING!! - XINHUA #SHCOMP

China plans to cut its growth target to around 7 percent in 2015, its lowest goal in 11 years,

The former has certainly overhung the Chinese market today although the index remains over 3,000 index points:

Meanwhile, an interesting report on Bloomberg today noted that 'Standard Chartered Plc estimates 65.8 billion yuan ($10.5 billion), equivalent to 7 percent of Hong Kong’s yuan savings, has gone into mainland equities since the Shanghai-Hong Stock Connect began that same month' which has led to distortions like the Hong Kong short-term deposit rate being materially above the Chinese equivalent: 

Staying with China, there was a really interesting report from the Peterson Institute on the Chinese services sector which famously is not a high proportion of GDP:



What struck me as interesting was that the state share of services investment was actually very high (much higher than for the manufacturing sector)

So why is this?  Chinese government interests in areas such as water, transportation and education have been particularly influential.

The 2015 Index of Economic Freedom Report released by the Washington based HeritageFoundation on Jan. 27 (Washington, DC, time), revealed that Hong Kong has been rankedthe world's freest economy for 21 consecutive years with an overall score of 89.6 (on ascale from 0 to 100).

Charts and thoughts today

A big reporting day today...both sides of the Atlantic (if the east coast can struggle through the snow). So a few headlines...and observations. 

  

Chinese Industrial Profits (Dec) Y/Y -8.0% vs. Prev. -4.2%; biggest fall on record....StatsBureau blames HIGHER COSTS & LOWER PRICES

Not so great...but at least deals are happening: 

China 2014 M&A Activities Record 6,899 Deals Valued At $407b – PWC

Perhaps no surprises that the Shanghai bourse is down over 1% today (although still above the 3, 300 level so hardly weak...)

Meanwhile in Japan I smiled at this headline: 

Japan EcoMin Amari: There Could Be Some Leeway In Meeting Inflation Target Given Drop In Oil

The slow slide of Abenomics continues...

Turning to the big European macro story a lot being made in Greece that Tsipras's first meeting with a foreign ambassador since being elected Greek PM was with Russia's Andrey Maslov…  Here's an interesting link on Greek/Russian inter-relations (link here).  

Meanwhile The Telegraph here gave some important future timings:

‘Liquidity support for Greek banks spiked to €54bn at the end of December, and is rising fast. If the ECB were to pull the plug, Greece would spiral into a systemic crisis immediately. Yet that could in theory happen as soon February 28 when the temporary extension on Greece’s bail-out package expires. The final drama will occur in July and August when Greece has to repay €7bn to the ECB’

You can see what they mean:

And where is the money owed?

Lots of scope for 'further discussions' here...

Meanwhile with Russia being downgraded to junk the rouble has been all over the place (although stabilised in Asian trading and still way off those late 2014 lows).  

Charts and thoughts today - the Swissie, Japan's challenges & a worrying diffusion index

What a big day yesterday.  Well the Swissie has retraced a little overnight but - let's face it - in the broader context of yesterday's move this is still puny.

One more chart on the Swissie.  Always good to see the trade-weighted exchange rates.  Exporters of the world are facing different influences.  

Of course you look at the above and inevitably the question of the yen comes up.  Now from any element of a mean-reversion perspective the Japanese currency should rally from here - especially as (amusingly to me) it is regarded as a 'safe haven'. Sure enough you have seen the yen pop up to last couple of month highs against the US dollar...

...and of course this puts pressure on the Nikkei:

I remain short the yen and fundamentally - based on how I see the policy crunch in Japan developing further - this still feels correct.  It strikes me though that sub 16,000 points the Nikkei is starting to look more interesting on the long side (anticipating a new fall in the yen).  

Otherwise further noises in China of new legs to the corruption crackdown - and this has overhung some areas of the market like the Macau gambling and property stocks.  I will be gaining lots of insights into Hong Kong and related early next week due to travel. 

Chart of the day so far for me is probably this one from Gavekal Capital who nicely indicate some of the real pressures on global equities.  Never good to see a diffusion index looking like this...far too narrow. Given some of the forced policy choices and debates noted above, we should not be surprised.  

Of course there is always somewhere that is worse.  The Venezuela 5 year CDS spread is somewhat firm.

"Why the Swiss have just let their currency explode"

My latest post as a Yahoo Finance Contributor titled "Why the Swiss have just let their currency explode" can be found here.

Asia today - Japanese election, Australian budget, Indonesian rupiah

So Asia is all about Mr Abe's (not unexpected) victory in the Japanese election today...

 ...a victory which was achieved with a broadly unchanged underlying Parliamentary position: 

 

And the impact of another 5 years of a huge economic experiment?  A lacklustre reaction from both the Japanese FX and equity markets.  

My personal view remains that Japan is somewhere between a rock and a hard place with the likely end scenarios some combination of a much weaker yen, a highly volatile stock market (not totally unopportunistic especially amongst the larger exporters) and ultimately some form of debt consolidation (on a ten year view). The only hope remains radical supply side reform but so far don't hold your breath...

Reflecting continued challenges in the Japanese economy, today's Tankan’s big manufacturer index slipped to 12 in December from 13 in September, As Fast FT noted 'the overall assessment of business conditions improved since September by a single point to 5, where a positive number denotes a "favourable" environment. But companies' forecasts for conditions in three months' time produced an average score of 1, with a particularly gloomy outlook among smaller companies'.

Maybe the Japanese economy should more fully embrace its tourism scope via the weak yen

What else in Asia? In a mid-year budget update, the Australian Treasury predicted deeper budget deficits in the coming years, as falling commodity prices result in slashed revenues and lower tax receipts. The Treasury said it is now projecting a deficit of A$40.4bn in the 2014-15 year, versus an earlier estimate of $A29.7bn. The mid-year budget update doesn't foresee a budget surplus until 2019-20.  Not the greatest signal for Australian assets...especially as the Governor of the RBA was on the wires late last week suggesting a weaker Australian dollar was optimal...

Meanwhile did you see that the Indonesian rupiah fell to a multi-year low too?  Currency wars are building sourced from Asia...

(chart sourced from Fast FT)

Asia today and charts today

A relatively quiet day in Asia with the Chinese data not really surprising either way.  I thought the two most interesting stories were first the conclusions (link here) from the Central Economic Work Conference meeting where:

The government will strive to keep economic growth and policies steady and adapt to the "new normal" of slower speed but higher quality.

No surprises there.  

Otherwise I thought that the interview in The Australian Financial Review with RBA Governor Glenn Stevens  who said that the price of money is not the issue and what matters is the exchange rate which he would prefer to see at 75 US cents was interesting...as the Australian dollar is currently trading at 82.71.  Currency wars! 

A few charts which caught my eye.  

Bond market divergences: 

Based on a more dove-ish FOMC composition I am still not convinced that we see rate rises in the US in 2015...

Huge political scepticism despite budget deals in the US:

GaveKal Capital highlight that in today's P/E ratios in Europe...

...and globally are not exactly cheap.  Certainly bond yields and inflation are ultra-low...but at such absolute levels you need earnings to come through otherwise you get volatility. 

So oil sub US$60.  Another great winners/losers chart...

...but I really liked this divergence chart versus previous history.  The impact of efficiency drives due to the previously high >$100/barrel price?

"The Bank of International Settlements says something interesting (honest)"

My latest post as a Yahoo Finance Contributor titled "The Bank of International Settlements says something interesting (honest)" can be found here.

Charts today - strong US$ issues, UK interest rates, real wages and US energy reserves

A few charts and insights of note today. 

I totally agree with the BIS that the strong US dollar causes problems/challenges...

...as graphically indicated here: 

Fascinating re the Bank of England and UK interest rates on the front page of the Financial Times:

I am still not convinced that we see higher rates in the UK in 2015.  After all the real wage growth level has been terrible:

Energy – apparently despite the ongoing price declines, Oil net longs increased by 12K contracts over the week, the largest net purchase since June.

Meanwhile (and sort of supporting the implied challenge to higher oil prices implicit in the above), S reserves have been rising: 

Asia and charts today

·        

             Japan – yen flirting with 120.0 against the US$ as it seems Abe will win the upcoming election so entrenching inflation push (A Bloomberg report notes ‘Abe’s ruling Liberal Democratic Party may expand its majority in the lower house, according to opinion polls released by five newspapers today. His coalition with junior partner Komeito will probably keep its “super” two-thirds majority in the lower house, a margin that allows the chamber to override decisions in the upper house’)

      Now I note that the Reuters Breaking News indicator suggests that 'Abenomics' is working...but to me they are playing between a rock and a hard place with real wage declines and a big fiscal burden.  Of course that doesn't rule out a 'money illusion' run in Japanese stocks...but this would surely be consistent with a big fall in the currency too.  On that basis stick with the exporters.   

·         China  - new 7 year highs and ‘Mainland investors are opening stock accounts at the fastest pace in three years, trading in Shanghai surged above 500 billion yuan ($81.3 billion) today for the first time and initial public offerings have returned an average 180 percent in 2014’

(remember 'red' (looks more like pink in the above picture!) is good/up in China!)

·         Global PMI output – composite at a 7 month low as per the JP Morgan survey.  That feels like the reality message I am seeing from most companies: to grow earnings cost cutting is as important as anything else.  

Got to like this from today's Financial Times on the future profile of the UK economy using official reports...more debt and less export capability!

·         Sentiment #1 - According to Trim Tabs, $42 billion has flown into equity ETFs during the last 4 wks, the largest inflow since 2007

·         Sentiment #2 – finally AAII bull-bear spread goes sub 25% materially.  Still on a contrarian basis time to be cautious bearish...but not so warped.  

Week ending 12/3/2014   Data represents what direction members feel the stock market will be in the next 6    months.
Bullish	42.7% down 9.5
Neutral	31.4% up 4.3
Bearish	25.9% up 5.1
Note: Numbers may not add up to 100% because of rounding. Change from last week:  Bullish: -9.5  Neutral: +4.3  Bearish: +5.1 Long-Term Average:  Bullish: 38.9%  Neutral: 30.7%  Bearish: 30.4%

·         Oil - First $2 US gas being sold (average still c. $2.74) http://www.bloomberg.com/news/2014-12-03/first-u-s-gas-station-drops-below-2-a-gallon.html

·     Russian sanctions - 19% of Germans favor expanding sanctions against Russia 43% support existing levels 27% say sanctions should be lifted. 

      Personally I am still anticipating a Russia/Germany 'deal' at some point...