10yr breaks support, Goldman issues identical chart analysis as ShadowCap
by Zero Hedge - June 30th, 2010 11:38 am
Courtesy of naufalsanaullah
The 10yr broke the important 310bps support level I’ve been highlighting for a couple weeks now. The risk aversion expressed by the demand for Tsy notes manifested in a more pervasive risk asset decline yesterday, in equity, credit, and FX.
Meanwhile, GS FX sales strat issued a report recently highlighting two very important technical developments we’ve been repeatedly speaking about: the 1040 H&S in the S&P and the 10yr 310bps level. The report is below.
On the economic data front, the Chinese LEI was revised downward to 0.3% from 1.7%, causing Chinese equities to fall. The Aussie Dollar also plunged on the news, as did copper. The Australia-China-USA “love triangle” pervasively covered on ShadowCap is quickly becoming a closely-followed theme in financial news.
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DiggFX Decoupling Comes Early, As Euro Once Again Completely Ignored In Carry Trades
by Zero Hedge - June 30th, 2010 11:30 am
Courtesy of Tyler Durden
After yesterday’s calamitous market selloff, the decoupling in various asset classes indicates just how great the degree of confusion in the market is. The AUDJPY is now indicating once again overbought risk assets, at least on a relative basis. As this is now the only relevant carry trade driving the market, a convergence pair trade here appears an opportunistic entry point to pick a few points.
As for the EURJPY, forget about it. The pair is now decisvely correlation with pretty much nothing. The euro has now fallen out of all carry trade favor.
The Oxen Report: Overnight Trade On Its Way
by David Ristau - June 30th, 2010 11:23 am
Hey all. Its the last day of June, and it has been a pretty great month for The Oxen Report. Yesterday, we had some good and bad moments. We were very successful with our Short Sale of the Day in Standard Microsystems (SMSC). We got .png)
involved out of the gates at 24.75 (per my Oxen Alert – Entry/Exit), and we sold just minutes later at 23.46. It was a super gain of nearly 5% for our short. We also finished our position in our Short Sale from Monday in News Corp. (NWS). We entered on Monday at 14.68, and we exited at 14.25 on Tuesday for a 3% gain. Our Midterm Trade from last week with Micron Technologies (MU) was looking great on Monday, but the market did not react well to earnings. We got involved at 9.66, and we sold 1/2 our position at 10.04 on Monday and the other half at 9.24 on Tuesday. We averaged our exit at 9.64 for a slight loss.
Finally, we opened a position, yesterday, in Worthington Industries (WOR) as our Buy Pick of the Day at 13.40. The stock has done barely any movement up or down since, and we are just waiting. I am not holding past today, however. We also have our open position in Schnitzer Steel Inc. (SCHN). Yesterday, SCHN dropped significantly on the down day, and we were looking at a 5% loss. I DD on my position (42.50) with a buy at 40.10 for an average entry at 41.30. The company reports earnings in after hours, and it is up a bit from yesterday’s close. I am hoping for a nice rise this afternoon to get close to break even.
Let’s get into today’s Overnight Trade of the Day…
Overnight Trade: Christopher & Banks Corp. (CBK)
Analysis: The retail sector has been churning out phenomenally great profits over the past two months as the first few months of 2010 saw a great rise in retail spending. The first four months all saw sequential growth from month-to-month in retail sales. Since the beginning of May 2010, 33 apparel stores have reported quarterly earnings. 31 of those stores 
have reported better than expected earnings. Many of these beats were quite significant as well. The companies saw great retail store…
Another Slap For Merkel As Her Presidential Pick Does Not Get Enough Votes In Second Round
by Zero Hedge - June 30th, 2010 11:22 am
Courtesy of Tyler Durden
The German presidential election is heading for a third round, after Chancellor Merkel’s presidential candidate Christian Wulff was unable to generate an absolute majority in the second round against opponent Joachim Gauck. Even though this position is largely a figurehead, it is another symbolic slap in the face of the Chancellor, who finds herself navigating increasing dissatisfaction over her austerity measures, coupled with the controversial decision to bail out Greece and Spain, and French banks, further augmented by an increasing German desire to pull away from the Euro. In the third round candidates need only a simple majority to win. Voters consist of a special assembly that elects the head of state, made up of members of parliament and delegates from 16 states.
IMF Discloses Ongoing FX Reserve Rotation Out Of “Developed” Currencies Into Yuan, Ruble And Other Currencies
by Zero Hedge - June 30th, 2010 10:56 am
Courtesy of Tyler Durden
The latest IMF Currency Composition of Official Foreign Exchange Reserves report was just released. In the quarter ending March 31, the biggest relative drop occurred in central bank holdings of Dollars, declining as a percentage of total reserves from 62.2% in Q4 2009 to 61.5% in Q1 2010. This is the lowest ever relative holding of US Dollars by foreign banks. Oddly enough, the euro was not the biggest beneficiary of this loss of confidence in the dollar (it also declined on a relative basis by 0.1% as a % of total holdings to 72.2% in Q1), but the “Other” currency category. We assume that the Chinese Yuan is the dominant currency in this particular basket. Other reserves increased from 3.1% of total to 3.7% in just one quarter. Central banks are starting to rotate holdings out of Dollars (and after this quarter, certainly out of euros) and into non-traditional, non-developed currencies. Are China and Russia slowly becoming reserves?
FX holdings as a percentage of total:
Sequential QoQ change in FX holdings:
Chicago PMI Comes In Uninspired And In Line, Employment Component Causes Market Spike
by Zero Hedge - June 30th, 2010 10:06 am
Courtesy of Tyler Durden
The positive goal seeking data bias continues: after a horrendous ADP jobs report pushed futures lower earlier, the Employment component, a far less relevant metric in the Chicago PMI released at 9:45 (and 5 minutes earlier if you are a subscriber), the Employment index, came in at 54.2, an improvement of 5 points over the 2010 low of 49.2 in April. And somehow this number is supposed to reverse all the negativity associated with not only the ADP, but the very large likelihood that Goldman may be well on its way to revising its NFP (+150k) expectation lower. Otherwise, the actual overall reading of 59.1 came in right at expectations of 59.0, and marked another yet another monthly decline, from April’s 59.7; the Business Barometer index is now at a three month low as can be seen on the chart below. Of 7 components in the index, just employment, as noted, was Higher: everything else was flat or negative, with both the Inventories and the Supplier Deliveries subcomponents plunging, by 9.9 and 4.4, respectively. Inventories is now at the lowest reading since February 2009. Restocking is now over – no more GDP gains will be seen courtesy of this economic gimmick.
Fed begs you to ignore non-economists that predicted revised Q1 GDP in Nov 2009
by Zero Hedge - June 30th, 2010 9:59 am
Courtesy of EB
Despite the pleas of Dr. Athreya to the contrary, Rick Davis of the Consumer Metrics Institute boldly goes where no BLS statistician or Fed economist dares…that is into the upstream consumption data (gathered in real time, no less) that leads the taxpayer-subsidized bean counters’ work by up to seven months. While it’s no surprise that all is not well on the H2 2010 horizon, CMI tells us specifically what to watch out for.
The following is reprinted with permission from the Consumer Metrics Institute.
June 29, 2010 – What the Revised 1st Quarter GDP Numbers Really Mean:
On June 25th the BEA quietly revised its measurement of GDP growth for the first quarter of 2010 down for the second time, this time to 2.7%. The newly revised growth estimate nearly matches the Consumer Metrics Institute’s original projection for the first quarter, which was 2.62%. The big difference is that the Consumer Metrics Institute’s projection (based on our Daily Growth Index) was available on November 30, 2009 — seven months ago.
(Click on chart for fuller resolution)
Because the Consumer Metrics Institute’s Daily Growth Index only lags the real-time consumer economy by several days and has a day-by-day time resolution, the Daily Growth Index can also tell us something totally missing in the BEA report: that the newly revised GDP ‘freeze frame’ picture captures a moment in time when consumer demand was dropping at a rate of about .08% per day. This means that the difference between the revised GDP and our original projection represents only a single day of economic change. But more importantly, our Daily Growth Index shows the dynamics of the economy at the point in time when the BEA ‘still picture’ was taken.
One other important note should be made about the June 25th BEA release: in it the BEA also increased the inventory component within the 2.7% number from 1.65% to 1.88%. That means that the net-after-inventory-adjustments number was less than 0.9%, and over two-thirds of the reported aggregate growth was from relatively unpredictable inventory swings.
If factories were unwittingly growing inventories during the first quarter in the face of what was really slackening consumer demand, the official GDP numbers for both the second quarter and the third quarter (to be released 4 days before the U.S. mid-term elections) could be interesting, since factories could very well over-correct again…
Australian Dollar Owners Make a Killing.
by Zero Hedge - June 30th, 2010 9:50 am
Courtesy of madhedgefundtrader
Those who took my advice to buy the Australian dollar at the $.80 handle (click here for the call at http://www.madhedgefundtrader.com/may_25__2010.html ) are no doubt now shopping for the next vintage Ferrari to add to their collection, a contender for next year’s triple crown, or a new mansion at the Hamptons. Sure, they know the house will drop in value by half, but who cares?
Those who loaded up on the Ausie made 11%, and 55% in a month if they used 5:1 leverage that some currency traders favor. Not only have the outrights done well, so have the crosses, such as Ausie/yen and Ausie/Euro.
The Australian dollar tanked in May because of a global flight from risk and a proposed 40% windfall profits tax on mining companies that triggered the most ferocious negative advertising campaign in TV history. Since then, hedge funds poured into the currency down under, making it one of the world’s best performing assets this month.
The bottom line is that interest rates there are high and rising, while ours are low and stagnant, to the benefit of Ausie holders, and at the expense of Buck owners. Australia is running a trade surplus and a labor shortage, not American style trade deficits and labor gluts.
Then the stunning news emerged yesterday, that the man who proposed mining tax, Chinese speaking prime minister Kevin Rudd, was tossed out on his ear by his own left-of-center Labour Party, to be replaced by Julia Gillard, a Welsh borne former trial lawyer.
I’ll date myself hear, but when I first lived in Sydney 40 years ago, women were not allowed to go into pubs. They were restricted to the more civilized and vomit free “lounge.” To see a woman now running the country is irrefutable evidence of how far the country has come.
The Russian Central bank said it is moving a portion of its reserves into Australian (FXA) and Canadian dollars (EWA). They join a procession of central banks that have been pulling the ripcord on the troubled euro and landing into currencies with vastly better fundamentals.
I still love the Lucky Country’s currency and the stock market (EWC) long term, seeing it eventually reaching parity against the US dollar. But you might want to take the easy money that has been made off the table during…
Morning Gold Fix: June 30, 2010
by Zero Hedge - June 30th, 2010 9:26 am
Courtesy of Tyler Durden
Commentary courtesy of www.fmxconnect.com
Gold traded in a wide range on Tuesday as markets reacted to frightening news. Slowing growth from China shocked the market, driving oil prices more than $3 lower,dropping the Standard & Poor 500 ~30 handles and leaving gold and the dollar as the prime beneficiaries. More contagion fears from Europe and paltry consumer confidence reports didn’t help matters either. Gold sold as low as $1228 per 100 troy ounces on Tuesday before ultimately closing just over $1246, a $4.80 gain for the day.
Razzles
Yesterday’s activity was in our opinion a microcosm of the main drivers currently having a tug of war on the precious metals markets, i.e. deflation risk and European sovereign default risk. Forget inflation for now. Sure Gold is a hedge for inflation, but so is your house, or a Cadillac. Our own analysis almost never seeks to predict price movement, but instead seeks to understand if observed correlations between events and price movement are in fact causations. Yesterday was a great day to provide a clean data point in what we think are the main movers of gold currently. Our conclusion is simple and may have been obvious to readers, but we are ecstatic to have a better handle on the “whys” of market movement. As reactionary traders, it allows us to know better what to do in an event. Do we step in front of it, or do we go with a trend? Do we take profits or add to positions?
Our suspicions are simple: deflationary events drive gold lower, sovereign default risk drives it higher. The dollar, stock market, and bond market are secondary as proxys now (OMG, I can’t believe I said that… Gold is its own asset now!)
Here is what we saw yesterday.
Deflation: an unexpected revision to a leading indicator there helped give a sharp decline in Chinese equities which spilled over into Europe and the U.S. markets. Double dip… you betcha! Forget about China supporting the global markets. (which we think was silly anyway. Their stimulus investments were to generate more exports, the Chinese people aren’t becoming meaningful consumers anytime soon) Outcome: bearish for equities, commodities. At this point of the day, gold was priced like it was a commodity, and dragged down. CANDY
Sovereign Risk: Thursday, the ECB bank-lending program expires and the leaders were trying to…
ADP Bad Enough To Shake Even Goldman’s Confidence
by Zero Hedge - June 30th, 2010 9:08 am
Courtesy of Tyler Durden
Today’s ADP number came in at +13k, compared to expectations of +60k, with the previous number revised to +57 from +55. It was basically a disaster, as it now puts the already shaky expectations for the June NFP number in even greater jeopardy. The number was so bad it even has Goldman’s Jan Hatzius scratching his head. As the firm has lately been horrendous in predicting the NFP, we anticipate that Goldman will likely downward revise its +150,000 gains in payrolls ex-census over the next 48 hours.
From Goldman:
USA: ADP Employment Change – Weaker Than Expected
Actual: +13,000
Previous: +57,000
Consensus: +60,000
Released: Wednesday, June 30, 2010 at 08:15 (New York time)Weaker Than Expected
BOTTOM LINE: ADP report weaker-than-expected, showing an increase of only 13k in June.US-MAP:
ADP Employment Report -3 (3, -1).KEY NUMBERS:
ADP report says private-sector payrolls +13k in June vs median forecast +60k.MAIN POINTS:
1. The ADP report on private-sector payrolls rose by 13k in June, coming in weaker than expected. (The May number was revised up from +55k to +57k.) While employment at service providing companies rose (+30k), payrolls at goods-producing firms declined by 17k. Employment at medium and large companies rose (+11k and +3k, respectively), while employment at small companies fell by 1k. The pattern of employment losses at small firms in manufacturing is suggestive of weakness in construction employment following the expiry of the homebuyer tax credit.2. While the ADP count was too low in March and April, the report provided an accurate early indication of the weak BLS private sector payroll reading in May. Therefore, this weaker-than-expected report is suggestive of downside risk to our preliminary estimate of a 150k gain in payrolls excluding census workers.
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