Marco Flows : Great Unwinds


It was all about the AUD. If you are wondering how a milk scandal could be good for a currency, try living on planet Earth. Yes, even the Brazilian ban could not stop the AUD this week and the NZD… saw an amazing bounce off Monday’s low for a 5 consecutive day rise.

On Friday, RBA lowered its economic forecast but the AUD ran up further post comments. Bank analysts all strangely quiet, particularly the private bank “hue-and-cry-AUD/USD-for-0.85” ones, choosing to bombard our in-boxes with a bunch of spam mail to divert our attention away from their bearish AUD calls from just a week ago after RBA’s Stevens comments.

30 Jul Stevens: AUD drops makes sense, no major surprise if falls further

“AUD is under pressure in the run-up to RBA Governor Steven’s speech today and risks may be for an extension of the decline. The outlook for China is getting worse and worse, so the need to lower rates and weaken AUD to divert spending from abroad to the domestic high street and spur interest rate sensitive sectors is building. Governor Stevens has not been averse to making market moving statements at speeches, so he could ramp up the Bank’s forward guidance on lower rates ahead of the August meeting.” 30 Jul

Equity Markets

> Strategists have wonderful jobs.

“At least 7 strategists predict S&P 500 to finish year above 1700, compared to none when 2013 began.” Source : WSJ

> But did they notice this ?

“For the 7th time in the last day or so, the S&P 500 has tested up to the magical 1,700 level and failed.”

And on a magic 9th of August in 1995, “Netscape made a very successful IPO on August 9, 1995. The stock was set to be offered at $14 per share, but a last-minute decision doubled the initial offering to $28 per share. The stock’s value soared to $75 during the first day of trading, nearly a record for first-day gain. The stock closed at $58.25, which gave Netscape, an unprofitable firm, a market value of $2.9 billion.” Source : Wikipedia

> It bubbled till 1998, the rest is history. Facebook is in its 2nd year.


“Japan’s finance ministry released data Friday showing that the country’s debt burden has topped 1 quadrillion yen for the first time.” Source : CNN

> FYG, Quadrillion = 15 zeroes. GDP is out on Monday. Hang on to your seats !


> BRICS and EM are still looking blue. India, starting to look desperate.

“India – policymakers are still struggling to respond to weak growth and a currency slide. Short-term market interest rates have surged as policymakers engineered a liquidity squeeze to anchor rupee expectations. But policy rates have remained on hold and markets doubt the resolve of the central bank, pushing the currency lower. The arrival of a new governor at the RBI and another bout of tightening measures will underscore the central bank’s commitment to the cause. If these measures succeed, rate pressures could ease quickly limiting their negative growth impact. However, a failure to quickly build policy credibility will threaten the pickup in growth we expect at the end of the year.” Source : JPM

“Chinese trade growth rebounded in July with exports rising 5% y/y. Some improvement in the ‘true’ export growth in H2 on the back of a recovering US economy is expected, and has been factored in our baseline China forecast of 7.4% growth in 2013. We do not expect a sustained recovery or acceleration in growth based on the 11% y/y jump in imports. The strong numbers probably reflected some seasonal raw material restocking.” Source : Barclays

“MOSCOW—Russia’s economic growth slowed for a sixth consecutive quarter, bringing it closer to a recession and all but scrubbing President Vladimir Putin’s hopes for 5% annual growth in the near future.” Source : WSJ

Silent Buying In Europe

“As noted, buyers of spot were very active during the rally. Client flow in early Europe also showed steady demand from leveraged and real money accounts.” Source Barclays

EM Funds

“The slow outflows leakage from EM persisted. EM dedicated equity funds saw USD0.79bn of outflows, and bond funds saw USD0.34bn outflows.” Source : Barclays

Mutual Funds

“NEW YORK (MarketWatch) — Long-term mutual fund flows turned negative in the last week of July, according to data by Investment Company Institute released Wednesday. In the week ended July 31, investors pulled a net $4.48 billion from funds. That includes a withdrawal of $6.94 billion from bond funds, marking their eighth week of outflows in the last 9 weeks as investors pulled $4.07 billion from taxable funds and $2.87 billion from municipal funds. Equities saw slight inflows of $714 million, bolstered by $1.64 billion of world equity inflows, which offset $926 million of domestic equity outflows. Hybrid funds had $1.74 billion of inflows.”

EM Credits

“EM corporates are basically unchanged over the past week, outperforming US HY (+10by w/w) but underperforming European HY (-10bp w/w). But EM corporates are still 75bp (25%) wider than they were three months ago, versus a widening of only 25bp (6%) for European HY and 50bp for US HY (12%). Developed market HG indices are <5bp off their tights.”” Source : Barclays


> Why ? Because of this.

Reuters : Central Banks Roadmaps Leave Markets Lost

> And we are heading into a great unknown here. We have Jackson Hole coming on  22 Aug. Before that we have Japan and Eurozone’s GDP next week plus Fed speak. It just spells volatile.

> Meanwhile, US Treasuries are starting to look like a safe place to hide.

> For everything else, including Gold, it is just position unwinds.