Macro Outlook : Taper Taser In The Most Important Next 10 Days

All the good work of the PMIs were wiped out by the Non Farm Payroll which fell short enough to unconvince about half the world that the Taper is imminent.

“Fed watchers Jon Hilsenrath of the WSJ and Robin Harding of the FT also offered their thoughts on the matter with fresh articles at the tail end of the NY session. Hilsenrath warns that ‘Septaper’ isn’t a done deal, while Harding expresses belief that no matter what the Fed decides to do, it is searching for ways to strengthen its forward guidance.” Source : Citi

They are right to believe so for the unemployment decline is called into question.

“the unemployment rate unexpectedly declined to 7.3%. Details of this dip weren’t rosy but the level itself left some believing that Fed may now be under immense pressure to lower its employment threshold. Recapping the details, the labor force fell by 312k, employment declined by 115k and unemployment fell by 198k. “Source : Citi

“the Participation Rate fell to 63.2%, which is the lowest since 1978. Household employment fell by 115K. Because the civilian labor force plunged by a larger 312K, the unemployment rate nudged lower to 7.3% in August from 7.4% in July — a decline that does not represent strength, but weakness.” Source : JPM

US Treasuries sold off so far because of 2 reasons – Taper and Fed Chairperson

“the front end has now moved to more properly price in the policy uncertainty that will be engendered by the appointment of Lawrence Summers as Fed Chairman.”

“The market has discounted a tremendous amount of the tightening that the Fed may deliver, and it’s certainly a lot more than the current level of Fed forward guidance would suggest. US generic 2y bond yields are now trading north of 0.50% despite the fact that the Fed Funds rate is likely to remain around 0.10% for at least 6 months, and they probably won’t trade above 0.25% for the next year. ” Source : CS

>> Like I said, “I suggest avoiding the weaker names and possibly considering the government bonds at some time, including the US treasuries which have sold off because trading desks are selling everything they can get their hands on. Meanwhile, SGD corp prices are getting scarcer and scarcer, some issues are not even quoted as if banks who brought them out are hoping that they would just disappear.”
>> Gold, anyone ?

USDJPY – Olympic Dreams

“it is broadly believed in Japanese markets that the Japan’s victory of the games could contribute in a rise in Japanese equities as well as JPY depreciation at this moment. Indeed, the winning is expected to enhance the prime minister’s popularity among Japanese people, which could lead to his stronger political leadership and enable him to push through the Abenomics more readily. Also, we suspect he would try to take this opportunity to decide the sales tax hike next year as scheduled persuading people that the nation needs fiscal resource to prepare the Olympics because it will require a lot of public works investments. As we have lately discussed, the sales tax hike will influence JPY negatively because the rush demands are likely to increase imports and it will be accompanied by the additional easing by the BoJ. Governor Kuroda has strongly urges the government recently to raise the tax rate by showing his intention to implement another accommodation in the case the economy unexpectedly falls in a slump.

USDJPY was pulled back to low-99 last Friday but the pair was supported by the Ichimoku cloud whose lower limit is currently located at 98.6. Should the pair goes higher over the last week’s high at 100.2, it will be more obvious that USD has appreciated against JPY beyond the resistance line since this May. In this case, the upside risk to the high in May at 103.7 will emerge in the mid-run as well as a near-term possibility of the pair to test the high in July at 101.5 within a few weeks.”

>> Join the fray

Australian Elections

* Next Government Will Have To Raise Debt Ceiling : Hockey

* Analysis : After Election Victory, Australia’s New PM Faces Sternest Test

* “For the AUD, the main risks stem from fiscal differences between the parties and their outlooks on the economy. The Coalition is seeking to reduce the budget by A$31bn. There also have been discussions of a repeal of the mining and carbon tax (A$16bn). Additionally, it is committed to cutting 12,000 public services jobs, and if needed, will allow the Central Bank to cut rates before looking to any stimulus spending (Reuters, 25 Aug).

Over a long horizon, lower fiscal deficits tend to be currency positive, but markets could fret over the impact on growth, pricing in an offset with monetary policy in the short term. Less fiscal spending also means greater attention on the RBA. Our expectations are a coalition win is AUD negative on the margin, but given that the market has had ample time to price in a largely expected outcome, such an impact is likely to be limited.” Source : Citi

>> All eyes on RBA minutes on 17th Sep then I guess.

China August Exports Beat Forecast, Points To Stabilisation

China’s government may cut the country’s annual growth target to 7 percent next year, although the actual pace of expansion will be higher, said Fan Jianping, chief economist at a state research institute.

>> China Good, Australia Good. China is a beacon of stability in the current state of global turmoil and uncertainty.

Syria – nothing happening for the next week, at least, with the G20 quite split on international response. Congress to return on 9 Sept to vote on outcome.

“As leaders of countries making up half of the world’s population firmly opposed military action against Syria without a UN mandate, the US kept pushing for a strike, claiming that many countries represented at the G20 summit were “comfortable” with it.”

>> It will be a “limited strike” with no ground troops. Watching for Obama’s address to the nation on Syria on 10 Sept.

Eurozone – Risks and risks

* Anti-Euro Party Surges Before Elections

* The International Monetary Fund and Greece estimate that Athens will need 10-11 billion euros in new financing in 2014- 2015 above what the euro zone and the International Monetary Fund have agreed to so far.

* Slovenia liquidated two of its smaller banks, Probanka d.d. and Factor Banka d.d., in a move described by Central Bank Governor Bostjan Jazbec as a preemptive action to avoid the fate of Cyprus

* Norway Election Defeat Looms
“Voters are instead poised to hand power to a Conservative-led opposition bloc that has promised tax cuts and more investments in infrastructure. Stoltenberg’s government is heading for defeat on Sept. 9, as pledges to spend more of Norway’s oil wealth on benefits fail to resonate.”

>> Spending is better than saving which means there is less money for reserves ?

* Spain Industrial Output Falls For 23rd Straight Month In July

>> That leaves us with no choice on the EUR.

EM – all hinging on India

“new RBI governor, Raghuram Rajan, outlining both his approach – which focused on transparency
and predictability – and some of the policy measures to be introduced. The market reaction was extremely positive,
prompting an appreciation of the rupee”

>> India + China = EM peace for Asean. Should see stock markets recover ground but is that time to sell ?


This could be the biggest fortnight of the year without throwing in the possibility of Obama’s Fed chairperson nomination during the FOMC. Not to mention the new iPHONE 5S amd 5C (C for Cheap ?) to be launched.

Markets are still shrouded by so much uncertainty.

It will be hard to ignore the noise next week and not attempt to partake nor purloin in the initial euphoria. Depends on whether you want to live for the moment to buy in haste and repent in leisure.