Comment by Phil

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Phil
January 10th, 2013 at 7:26 am

Good morning!  

Big Chinese trade surplus getting us off to a good start with Asia up about half a point and Europe up a quarter-point.  Nothing thrilling but not down is good – especially if it pops the RUT over 880.  

Chinese trade surplus +61% M/M to $31.6B, well above consensus of $19.6B. Exports +14.1% Y/Y vs +2.9% in November and expectations of +4.6%. Imports +6% vs flat and +3.3%. Export growth to U.S. and EU improve to +10% and +2.3% respectively. 2012 trade surplus with U.S. +8.2% to $218.9B. China says survey of 2,000 companies finds that export orders had increased, providing a good prognosis for Q1

Analysts express caution about reading too much into China's huge export beat. "It's well known that monthly year-on-year changes of trade data are volatile," says BofA's Ting Lu, who also warned that a Californian ports strike could have distorted the data. IHS Global says the volatility of the figures in 2012 "points to weak fundamentals on the demand side."

New loans from Chinese banks -13.2% M/M to 454B yuan ($72.9B) in December, below consensus of 550B yuan. A broader measure, aggregate financing, +20% to 1.6T yuan. The figures give bank lending a share of aggregate financing for 2012 of 52%. That's a record low and highlights the increasing importance of the less-regulated shadow-banking sector, which has sparked fears about rising credit risks.

China's forex holdings rose by the lowest amount in nine years in 2012. Reserves +$128B to $3.31T in December from $3.29T in September and $3.18T in December 2011. Consensus for the latest figure was $3.32T. M2 money supply +13.8% Y/Y in December vs expectations of +14%.

At some point, the Dow has to catch up, I think it may be time for a long Dow play if RUT is over 8800 – we need to review the index again once earnings are in.  We did an extensive review of the Dow components on Sept 25th, when the Dow was at 13,400 and, at the time, I predicted they only had 78 more points left to gain before they topped out in value.  The Dow topped out at 13,661 in October – so our logic was good.  We did another review live in Vegas, one component at a time, as we analyzed them for long-term potential and we found plenty to be bullish about with the Dow back at 12,800 but now we're back to close to our predicted 13,478 and we have to wait for the reports (because I don't pull these numbers out of my ass) to get a better sense on if 13,600 is makeable now but, back in September, my conclusion was:

So, we're just finding $78 of likely improvements in the near future and that's just 4.4% – not exactly rally fuel is it? No wonder the Dow is having so much trouble getting over the Must Hold line – it's already exhausted. But, on the other hand, we don't have any particular reason to short it at the moment so we'll just have to watch earnings very, very closely in the weeks ahead.

Dollar back under 80.50 despite Yen over 88.  Euro back to $1.31 (barely) and Pound $1.605 needs to confirm at $1.61 – whichever one crosses first (up or down) will give us a good indication of direction.  EUR/CHF is back to flatlining again so we'll start watching it again.  Seems like an even $1.21 is their current goal.

Oil very excited at $94.40 (and NOW we should be able to DD on USO puts and a good futures short below $94.50 on /CL) and gold $1,664, silver $30.50, copper $3.71, nat gas $3.15 and gasoline, unfortunately, $2.80, which is ridiculous after yesterday's build. Here's a note from Raymond James targeting $65 oil later this year:  

The RJ house call for commodities on both oil and gas are, one, we think that supply in the U.S. on the oil side has been growing pretty robustly, and we could add an incremental 3 million barrels over the next five years. Secondly, on the demand side, what we see is – or what we know is – that the U.S. economy is not growing rapidly. There's risk to potentially going into recession if we fall off the fiscal cliff. And we know Europe is having their own macroeconomic issues, and there are big concerns about China slowing down. So we think that higher supply in the U.S. and weaker demand globally could come together and manifest itself in the most obvious sign of exploding oil inventories in the next six months, and those higher inventories then will push oil prices down. So using our bottom-up, play-by-play oil model, we think to get going with the slowdown you need to see pricing average $65 for 2013.

On the gas side, we know last winter was extremely warm, causing prices to collapse. It would have been worse had we not seen up to 10 Bcf/D of coal to gas switching on the power side. Industry did its part by dramatically curtailing most dry gas drilling in 2012. And now, heading through into this winter, we think that better year-on-year comps on the gas storage side will firm up an improving gas picture. Weather data has not entirely cooperated though so far, so some industry players are suggesting that supply finally could roll given the lower spend levels of 2012, though our model…

They were one of the few firms that agreed with me last year, when I said $100 oil wouldn't hold but $65 may be a little extreme – I'll be thrilled to get low $80s and hold that with gas below $2.50.  

We have that ECB meeting today with some expecting a rate cut below 0.75% but that would push the deposit rate below zero and I can't see them doing that, especially with the economy over these stabilizing.  

We're done with our own 30-year auction at 1pm and then maybe some action.  Also:

Fed Hawks Fly After ECB Meets. Central bankers on both sides of the Atlantic could stir the markets Thursday.

Thursday's economic calendar:
8:30 Jobless Claims
9:45 Bloomberg Consumer Comfort Index
10:00 Wholesale Trade
10:30 EIA Natural Gas Inventory
12:45 PM Fed's George: Economic Outllok
1:00 PM Results of $13B, 30-Year Note Auction
2:00 PM Fed's Bullard: U.S. Economic and Monetary Policy
4:30 PM Fed Balance Sheet
4:30 PM Money Supply
8:00 PM Fed's Kocherlakota: “U.S. economy with Marketplace Money economics”

Bullard is key, he's speaking directly on Monetary Policy and he's a bit hawkish but nothing like Plosser, Lacker or Fisher although George and Kocherlakota are both more hawkish than he is, so it's going to be that kind of day.