Taichiseal Charts: US Data

Showing posts with label US Data. Show all posts

16 February 2011

Upper : US ISM Manfacturing Prices Paid.
Lower : Chicago PMI Prices Paid
Just 2 examples of clear uptrends in place and ongoing since 2009. Fed too complacent about inflation being under control.
Positioned for upside surprise and negative bond markets here. Forget negative carry, forget steep yield curves. When bond markets turn bearish or trend, they can go on and on seemingly forever.

Last week's number @ 500k = technical breakout of recent range of 420k-490k + reversal of downtrend that has been in place since Mar09.
Equity bears (= bond bulls) need just a wee bit of luck with tonight's release to bury the opposition.
[After the recent down move in US10YY from >3.00% to 2.52% now (objective at 2.20%), I have shifted to less bond bull + more equity bear (within an overall Risk Off stance) due to risk reward considerations]
Attached charts of Claims and NFP. Both clearly do not bode well for US growth outlook and supportive of Risk Off. Another claims >=500k tonight will lead markets to expect a poor NFP next week. Perhaps we might even get a chance to clean up without having to run a big risk position through the NFP release. Sometimes a bit of luck can make all the difference.

Current uptrend in ISM Mfg index since the bottom at 32.5 in Dec08 is very evident.
[Reuters chart not updated. Latest data for Apr10 at 60.4 is marked by the horizontal pink line]
My data only goes back to the year 2000. The high within this period was 61.4 for May04 (data released Jun04); we are now within touching distance of this.
Recap recent Fed Funds changes : 1. The last of the post-9/11 rate cuts to 1.00% was made in Jun2003 (entire cycle started in 03Jan01, with cut from 6.50% cut to 6.00%). 2. First rate hike of the next cycle was in Jun04 to 1.25%, to a peak of 5.25% in Jun06. 3. New cycle of cuts started in Sep07, down to current 0-0.25% set in Dec08. (See chart here).
Date of start of the previous rate hike cycle = 30Jun04, not long after the peak ISM number for May04 was released. Pure coincidence?
To me, carry trades (both Rates and FX) founded on "extended period" assumptions are fast getting into danger territory.
Not too bothered when the Fed actually starts tightening. More relevant is when the market snaps and do the Fed's job for them. Long ED Spreads and USD/JPY best positioning vehicles.

1st decent positive (+162k) NFP since Dec07. While one swallow does not make a spring, one would have to be foolhardy NOT to assume Newton's 1st Law - a body in motion stays in motion etc, especially given the distinct improving trend on the NFP chart.
Next FOMC meeting on 27-28Apr10. Plenty of time between now and then for market to fret over whether 0-0.25% interest rates are still appropriate. No brainer in guessing whether bond bulls or bears will be the nervous ones during the run-up.
The time for a large short TY position is NOW, before the Fed event itself upon which the actual decision will prove or disprove market speculation. There will be plenty of opportunities to reduce (profitably) to more appropriate risk levels between now and Apr27.
Longer term, assuming NFP does not turn back down, Fed tightening = higher US10YY. Delay in Fed tightening = higher US10YY on fears of Fed playing fire with inflation. (Bond bulls "skewed" either way).
Purple circles on charts show fresh breakouts. On the monthly chart, there is a SHS bottom which has broken out of its NL. Objective of the SHS bottom is just below 6%. Stop loss on a monthly close back below 3.83%. [closed at 3.94%]

Reuters expectation for Mar10 US NFP released on Friday = +190k vs Feb10 = -36k.
Red line = 0. Black line = +190k. From the chart, I think that a number anywhere close to consensus (or above +100k) would be a very positive development. The bar is indeed set quite low for a sea change in outlook from negative on the economy to the other side.
Expect an outcome >+100k => Big swing from relaxed outlook to concrete expectations of Fed policy tightening.
Best vehicle for bet on market expecting Fed tightening = Long USD/FX (neglible carry considerations either way, apart from vs AUD). Not short Rates because of steep negative carry. Not long Commodities because positive economic outlook = positive for commodities but the USD correlation works against. Equities is a tough call because of positive technicals. So .. best risk/reward for a bet on Fed tightening in FX vehicles.
My Core Book is for a step-up in Fed rate hike expectations and constructed on the above considerations. Am 1. Long USD vs [-EUR, -GBP, -JPY]. 2. Short USD vs [+CAD, +Gold, +Copper]. Netting the 2, naked position is about 10% EAR in favor of 1 (ie net long USD).
It matters little when ACTUAL Fed tightening takes place; all I am betting on is that market will move to price in more or earlier in event of a good NFP.