Macro Outlook – Limbo Rock

There is an almost certain lack of direction in the markets, Great Rotation or not and everything seems to be hanging in limbo.

That is how I perceive the situation to be after taking a few days off.

JPM’s Limbo Points

Notwithstanding positive turns in the economic indicators.

1. Tightening financial conditions
2. Rising oil prices
3. US politics set to heat up
4. Federal election in Germany on September 22
5. Constitutional court overruling of an important part of Portugal’s fiscal overhaul
6. Shelving of Italy’s property tax by the Letta government
7. Details of the banking union as officials return to Brussels in September
8. EM policymakers forced to act – India, Indonesia and Brazil

Source : JPM

Citibank’s Scary EM Outflows Projections

“1995: outflows were worth 23% of assets or 85bn. We fully unwound the previous 3 year of inflows

1999/2000: outflows were 13% of assets, or 71bn. We fully unwound the previous 2 years of inflows.

2003/4: outflows only 6% of assets, also 51bn. We only unwound around 8m of inflows

This time: 2% of assets or 68bn outflows. This is only 7 month of inflows

Fixed income inflows were completely off the chart insane this time around. Obviously driven by QEx. This would argue potentially for an overshoot now, even if the Fed behaves more like 2004 than like 1994.”

Source : Citibank

In my view, everything hinges on 1 event this month.

The FOMC on the 19th of September and whether we kick the QE can down the road again, this will be followed closely by the Fed chairperson nomination.

We will have non committal and conflicting reports out of the banks until then even if none of the politcally correct reports we read will ever acknowledge that the economic outlook will sour in some places more than others, if they value their banking licenses.

I am not rushing out to get my hands dirty. We have had a great party while it lasted, stocks, bonds and all. Uncertainty is no fun.


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What To Expect In Asia ( 28 Aug 2013