Today saw little in the way of data but much in ancillary news as the world’s politicos and economos were busy enlightening the world with their wisdom. Canadian Finance Minister Jim Flaherty was on the soap box laying out a partial agenda for the G7 meeting in early February. It seems that the need for certain Asian nations to appreciate their currencies will be discussed.
The G7 is a moribund group and should be officially laid to rest and carried away by a group of at least 20 pallbearers. The impact of this group is nil and has lived past its usefulness and is in reality an atavistic remnant of a colonial past. But let the charade continue as the food is good, the conversation delightful and the photo-ops beyond compare. Please don’t bore us with your self-importance–that is what hollywood starlets are for.
The surprise of the day had to be the performance of the debt markets. The British gilts staged a rally in the face of the derisive comments by Bill Gross, but with the POUND trading higher there may have been some short covering. Outside of that, we saw little reason for that performance. Differentials in the German/Greek 10-year sovereigns came in to 215 basis points as the financial world is beginning to “accept” the idea of a strict budget. It also appears that the IMF is going to send a team to offer technical assistance on pension reform, tax administration and budget management. The IMF generally offers the same advice to countries suffering under the ill effects of runaway budget and balance of payment deficits. We are totally befuddled as to how this advice will apply to Greece for the IMF playbook reads as follows:
1. Raise taxes
2. Cut government spending
3. Devalue the currency
The first two will be politically problematic and the third is impossible while Greece is in the EURO–so we will watch this the impact of this coming charade with great trepidation for the Greek economy. Notably today, the Potugese bond market did not get decimated, even with the threatened downgrade of their debt. For this, the EURO staged a strong rally as the market was caught long DOLLARS and the failure of the EURO to sell off on bad news propmpted a solid rally in most of the major currencies. We believe that DOLLAR weakness has been generated by the realization that the U.S. is not as strong as hoped, putting the FED and Treasury in a difficult situation.
There were two FED speeches today: Atlanta Fed President Dennis Lockhart and Kansas City Fed President Tom Hoenig. Lockhart was the more dovish of the two, as he expected inflation expectations to remain low, touting the Goldilocks phrase just right. Hoenig, on the other hand, was much more “hawkish” (we hate that word). He said the central bank “should consider raising its target rate even with unemployment at 10%.” (“The answer is yes you can given that you are at zero.”) Hoenig also said, “We need to think about and assure the marketswe are aware of longer term implications” of low rates. There is nothing we don’t agree with and we might add that we think we know who was the one voice concerned about the MBS buy program that was recoreded in the FOMC minutes.
There is one interesting side note we wish to point out to all the GOLD traders. Last night we saw something that we have never seen in 32 years of active trading. The entire range in the gold market was established on the one minute bar in the first minute of trading. It was interesting because it could not have been news-driven because the early high was never retested and a new low was never even close to attempted. We make no attempt to understand the how and why, just wish to point out a curiosity of the electronic world.
January 11, 2010 at 9:51 pm |
Do you happen to remember the volume that traded with the quick move in that first minute?
That last paragraph reminds me of the time I saw about 900,000 shares change hands in an OTC 5 letter stock issue that regularly saw very little volume. The bid/ask widened quite a bit and both bid and ask dropped. If i am remembering correctly there were a couple chunks of about 100,000 that changed hands at a single price. it was wild. Unique situations are interesting to observe.
rad blog bro
January 12, 2010 at 10:36 pm |
no I do not—but remember there is a vast difference between futures and equities–and that makes trading them on an ongoing basis more difficult