Macro Morning: Healing


Data out of Europe overnight continued the recent trend of better than expected performance for the EU and other developed markets. GDP growth for Q2 was a great and very welcome surprise was the pick up in French GDP of +0.3% (-0.1% expected), German GDP (+0.7% v 0.6% expected) and overall EU GDP which was +0.3% for the quarter. Clearly not strong but better than expected and the French numbers in particular are good news.

Before I move onto the performance of markets overnight it is worth having a quick look the growing divergence between the G10 and the Emerging and BRIC economies that has ocurred in the past 6 months.

Citi Eco Surprise Index BRIC's, EM and G10

The chart above is of the Citibank Economic Surprise index for the G10 economies, the BRIC’s and emerging markets more broadly. We know that the Russian Government downgraded the growth outlook a couple of nights back and we know that the other members of the BRIC area are themselves also under pressure.

But the Citi Eco Surprise index is all about expectations and not absolute data outcomes – the absolute influences the print relative to expectations – but what the above shows you is the under performance of the emerging world relative to the developed and in this relationship you see why the Aussie dollar has continued to under-perform even though the big economies are doing better.

If our customers are in strife then by definition we are in strife too.

To the overnight markets and we see that in the US Stocks were off again as rates stayed elevated and concerns grow about the taper. There is also a lot of talk about “The Hindenberg Omen” which is also weighing on sentiment in the US a little. At the close the Dow was down 0.73% the Nasdaq fell 0.42% and S&P500 was 0.54% lower while with the exception of the FTSE (-0.38%) European stocks were all up between a quarter and half a percent.

s&p 500, spx, s&p 500 chart, daily,

One of the reasons I’m bullish US dollar at the moment and gold as well, is because I reckon that stocks are due for a correction. You can see in the chart below a clear support zone – a mini box if you will, with a base around 1675. If stocks break, if this Hindenberg omen is real or even half real or even just enough to get people to stop buying then we are in for a retracement and the US dollar and gold are going to be the clear winners once more.

FX markets were fairly quiet with the euro basically unchanged along with USDJPY while the Aussie is up a little after finding support above the previous nights low in Asian trade yesterday. GBP was a bit stronger up after the MPC minutes and unemployment (7.8%) were released.

I was short from the high 90’s and gave the Aussie a chance to break down but when it didn’t I covered my shorts. For the moment this level of 0.9080 remains key and the catalyst for a solid topside break seems lacking at the moment while the US dollar is the beneficiary of the taper talk support it is getting.

I’ll probably be looking to sell at some point in the day to see where it wants to run to for the next day or so.


On the data front today it is the Feast of the Assumption in much of Europe and Indian independance day but in New Zealand we get Business PMI, in Australia consumer inflation expectations and the RBA FX transactions which might be interesting for the first time in a while. Retail sales in Singapore and the UK are out along with US CPI, jobless claims, IP and the NYC Empire Manufacturing index and Philly Fed survey.