Global Flows And Data – Hard To Trade

Global Purchasing Managers Index

“The global manufacturing sector made a subdued start to the third quarter. At 50.8 in July, the JPMorgan Global Manufacturing PMI ™ – a composite index* produced by JPMorgan and Markit in association with ISM and IFPSM – remained only slightly above the no-change mark of 50…..

National PMI suggested that the Asia region was the main drag on global manufacturing growth during July. Production volumes declined in China, India, Taiwan, South Korea and Vietnam, stagnated in Indonesia, while growth slowed to a five-month low in Japan. Elsewhere, Spain, Brazil, Russia, Mexico, Australia and Greece also reported contraction…”
Source : Markit Economics and JPM
>> Portfolio allocation tips !
Employment Outlook
“the compression in global corporate profit margins during 2011-12 served as a cushion, as firms resisted labor shedding—a development that produced a sharp slowing in productivity growth. The extended soft patch is shifting corporate behavior from a cushion to a constraint. Gains in capital spending stalled during 1H13 and the main risk to our forecast is a material deterioration in labor markets.

Labor conditions are already weakening across the EM and our forecasts continue to be marked down. This week’s disappointing US July employment report is a reminder that the pressure to restore profitability is a global threat.” Source : JPM

>> A macro trend that should not be ignored ! Position for further deterioration in consumption and spending in EM.
US & Eurozone
“Strong Business Survey Data in the US and Western Europe this week was the main reason for equity markets strength…..The Eurozone Manufacturing PMIs for July showed  another broad-based improvement and at the regional level, the final output reading was in line with the flash estimate of 52.3. Thus, according to the survey, manufacturing output expanded noticeably in July, which means that industrial production is likely to remain strong at the beginning of 3Q13..” Source : JPM
>> The West is the new East !
India & Malaysia Woes Continue
“The Indian rupee was the worst performing emerging market currency this week as it depreciated by a net 3.4% to a record closing low today of 61.105 per U.S. dollar. ….This is also its largest weekly depreciation since the week ending September 23, 2011….

The Malaysian ringgit has been by far the worst performing currency in East Asia in recent weeks (though the Indian rupee is still the worst performing Asian currency)….it can be seen as a result of a shift by foreign investors out of Malaysian government bonds and concern about trends in the country’s external accounts (does the sharp decline in the trade surplus in the second quarter portend a shift to a current account deficit for the first time since
1997?)” Source : Citibank
>> Not improving anytime soon which may lead to further slippages.
Non Farm Payrolls
“the market is treating this as a risk-off, funding-on event,  buying safe-haven G10 currencies, and the EM currencies most penalized by fears of liquidity withdrawal and selling high-beta G10 currencies where funding has not been an issue. This construct may be fragile and sensitive to perceptions of whether Fed dovishness, economic strength/weakness and liquidity dominate.

 Looking ahead, we expect some modest re-evaluation of the intense reaction to the data, but until a clear pattern shows in the data, sideway to maybe slightly up for USD.” Source : Citibank


“we would like to highlight is how hard it is to hold a good position with a conventional stop loss in the current environment. Visually the line chart looks like a straight line up since August of 2012, but there have been 14 instances when the pullback versus the high of the recent two weeks has been greater than 1%, so good risk management and tight stops would have taken investors out of the trade at least temporarily. So even if the overall performance of the trade has not been affected by mood changes in asset markets, the cut-risk environment since mid-May may have led to an essentially correct position being stopped out of risk management concerns.  With a 2% stop-loss there would be no position cutting but is taking on much more p+l risk. Keep in mind that in real time, no one knows that the trend will resume, so having witnessed the pullback, there is no guarantee that the underlying trend will resume, unlike the impression given by the chart. Our conclusion – even good positions are becoming increasingly difficult to hold.” Source : Citibank

>> this is the best honest to goodness admission that anyone can make !!!