short 1 6e z7 @ 1.2065
macro paper trading
- Thread starter macro_paper
- Start date
so yesterday I made a claim that eurozone lending to non-financials corporates is contracting year-on-year:
Now it turns out that we are using different data sets (links below). I've always looked at total loans outstanding statistics, while he looks at adjusted total loans outstanding (tells a lot about my attention if it's today when I noticed it). The situation is deteriorating in my dataset, and getting better in his dataset. There must be lots of other "wrong" data sets that I look at across economies. The ECB website isn't exactly helpful in explaining what those adjustments are. GO READ METHODOLOGY is what they say.
http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=117.BSI.M.U2.Y.U.A20T.A.1.U2.2240.Z01.E
http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=117.BSI.M.U2.Y.U.A20.A.1.U2.2240.Z01.E
Draghi drew a different conclusion in his statement:
Now it turns out that we are using different data sets (links below). I've always looked at total loans outstanding statistics, while he looks at adjusted total loans outstanding (tells a lot about my attention if it's today when I noticed it). The situation is deteriorating in my dataset, and getting better in his dataset. There must be lots of other "wrong" data sets that I look at across economies. The ECB website isn't exactly helpful in explaining what those adjustments are. GO READ METHODOLOGY is what they say.
http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=117.BSI.M.U2.Y.U.A20T.A.1.U2.2240.Z01.E
http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=117.BSI.M.U2.Y.U.A20.A.1.U2.2240.Z01.E
So USDTRY has gone down to 3.40 from 3.85 peak in January. It’s an expensive one to short and shorting a currency that’s gone from 1.75 pre taper tantrum and 2.00 post taper tantrum to 3.40 forces question if there was an overshoot and how much further USDTRY could fall. Given their inflation history, it’s also difficult to imagine that markets would be too complacent about inflationary risks there.
However, I am not sure that the term structure of interest rates and by extension the inflation outlook is right. 2y gov yield is up from 8.50% last October to 11.34% (11.56% peak), 2s5 inversed from 45 bps to -35 bps. Don’t have time series for shorter maturities but the zero coupon data for today (not too sure that the data is meaningful/from actually tradeable securities) points at flat structure of 11.80% up to 1 year maturity, so the markets expect that TCMB will start easing in a year’s time. For background, the TCMB tightened the effective rate since Oct-16 from 7.75% to 12% as inflation defied the bank July-2016 expectations of slowing down from 7.7% yoy in June-2016 to 6% in December-2016 and instead increased to 8.53% in December-2016, then peaked this year at 11.87%. Latest print is 9.80% with bank expecting 8.7% in year-end and 6.4% in 2018.
Pricing easing looks premature. The CPI edged down in the past few mo on slowdown in goods CPI, especially food, but services inflation is still trending up. Bank loan growth is also at peak with 22.6% yoy. Perhaps, the credit guarantee fund played a role in acceleration but loan growth was not that weak in 2016 either except August and September (two post-coup months). PMI and confidence indicators point at stronger economy, so aggregate demand should not let CPI wither like it’s happened in Brazil or Russia recently. July trade balance came in very weak and reversed 18 months of progress on TTM basis. No overheating seen in real retail sales, though. IP isn’t particularly strong either.
This pricing of term structure is nothing new. The 2y pricing was worse and had minimum yield of 10.56% in early June just before the May print showed CPI still ran at 11.7+% and sent yields higher. The new thing is the price of lira that kept disregarding the change in inflation dynamics + increase in bond yields and kept strengthening against the USD (but cheaper against EUR). I’d want it back to somewhere around 3.80 with steeper curve, but carry is too high to get in with a long horizon.
If inflation keeps running high and TCMB has no political capital to tighten more, it could be a fun ride with lira weakness reinforcing more inflation.
However, I am not sure that the term structure of interest rates and by extension the inflation outlook is right. 2y gov yield is up from 8.50% last October to 11.34% (11.56% peak), 2s5 inversed from 45 bps to -35 bps. Don’t have time series for shorter maturities but the zero coupon data for today (not too sure that the data is meaningful/from actually tradeable securities) points at flat structure of 11.80% up to 1 year maturity, so the markets expect that TCMB will start easing in a year’s time. For background, the TCMB tightened the effective rate since Oct-16 from 7.75% to 12% as inflation defied the bank July-2016 expectations of slowing down from 7.7% yoy in June-2016 to 6% in December-2016 and instead increased to 8.53% in December-2016, then peaked this year at 11.87%. Latest print is 9.80% with bank expecting 8.7% in year-end and 6.4% in 2018.
Pricing easing looks premature. The CPI edged down in the past few mo on slowdown in goods CPI, especially food, but services inflation is still trending up. Bank loan growth is also at peak with 22.6% yoy. Perhaps, the credit guarantee fund played a role in acceleration but loan growth was not that weak in 2016 either except August and September (two post-coup months). PMI and confidence indicators point at stronger economy, so aggregate demand should not let CPI wither like it’s happened in Brazil or Russia recently. July trade balance came in very weak and reversed 18 months of progress on TTM basis. No overheating seen in real retail sales, though. IP isn’t particularly strong either.
This pricing of term structure is nothing new. The 2y pricing was worse and had minimum yield of 10.56% in early June just before the May print showed CPI still ran at 11.7+% and sent yields higher. The new thing is the price of lira that kept disregarding the change in inflation dynamics + increase in bond yields and kept strengthening against the USD (but cheaper against EUR). I’d want it back to somewhere around 3.80 with steeper curve, but carry is too high to get in with a long horizon.
If inflation keeps running high and TCMB has no political capital to tighten more, it could be a fun ride with lira weakness reinforcing more inflation.
I have no idea if he is right or not and it would be hard to compete with central bank research. Core is weak, GDP growth from household goods consumption could easily be dumb credit-driven spending, not clear why they should defy the global trend of weak wage growth. On the other hand, labour market tightening has somewhat accelerated, some conditions during 2010 hikes (unemployment and core) were less favorable, yet 2011-2012H1 growth turned out to be okay with headline overshooting and core at target.
Going long BA U8 doesn't look like a good idea to me at all now. Betting that there are just slightly more than 2 hikes at the 8 meetings the contracts covers fully and 2 partly is unreasonable when they hiked twice in two meetings so far. U8 roll-down doesn't look high relative to EUR, USD, AUD or GBP. M8-M9 looks too depressed relative to other STIRS for an active cb, too. I think that red BA's deserve some punishing for the BoC's resolve, and punishing them is cheap.
Poloz's three-piece suit and finger ring should have been an indicator that he was willing to break away from the pack.
week 04/09/2017:
EDU1-EDU2: 0
EDM8-EDM9-EDM0: 0
UXY-WN steepener: +969 USD
Short EURNOK: -2823 USD
Short EURCZK: -1536 USD
Short 6EZ7: -406 USD
Long bund vs gilt: -1240 GBP, +2080 EUR
Short bund vs ER Z0: -2235 EUR < i was wrong to assume ecb doing nothing was fully in the price.
ER Z7-Z8-Z9: 0
total: ~ -5586 USD
EDU1-EDU2: 0
EDM8-EDM9-EDM0: 0
UXY-WN steepener: +969 USD
Short EURNOK: -2823 USD
Short EURCZK: -1536 USD
Short 6EZ7: -406 USD
Long bund vs gilt: -1240 GBP, +2080 EUR
Short bund vs ER Z0: -2235 EUR < i was wrong to assume ecb doing nothing was fully in the price.
ER Z7-Z8-Z9: 0
total: ~ -5586 USD
Korean won-priced gold is back to around September 2016 level, so the geopolitical factors have roughly offset the better global economic outlook and somewhat better domestic economic fundamentals.
I don’t see anything that the US can really do about NK other than live with it. In this scenario won-priced gold could reverse the gains and return to 1.4m. KOSPI is certainly more optimistic than gold. Given the asymmetries* it’s probably better to wait for gold to go down and go long at 1.4m, though my gut feeling says it will not return there as the NK story has probably increased the demand for gold.
* - asymmetry assuming KRW falls in war scenario and not appreciates like JPY after the earthquakes.
I don’t see anything that the US can really do about NK other than live with it. In this scenario won-priced gold could reverse the gains and return to 1.4m. KOSPI is certainly more optimistic than gold. Given the asymmetries* it’s probably better to wait for gold to go down and go long at 1.4m, though my gut feeling says it will not return there as the NK story has probably increased the demand for gold.
* - asymmetry assuming KRW falls in war scenario and not appreciates like JPY after the earthquakes.
sld 5 BA M9 @ 97.86
Given the August print it's now quite likely that CPI in the UK will be above the 3% October peak that BoE projected in August (6-2 vote). In June they said it was likely for CPI to rise above 3% (5-3 vote, but with Forbes out the same 6-2), so I guess going above 3% is not sufficient to trigger a hike. Wage growth is crap afterall. Retail sales are struggling to pick up nominally despite the inflation. Construction and services PMIs got weaker over the past few months. Short sterling sell-off over the past few days looks a little bit excessive, but 99.49 isn't really attractive to go long L M8 yet.
A while ago there was a BoE figure that exchange rate passthrough on CPI is up to 30%. If so, the increase in EURGBP from 0.76 pre-Brexit to 0.92 and 50% import share is worth 3.2% in price level. A fall in GBPUSD from 1.42 to 1.32 and the remaining 50% import share is then 1%. 1+3.2=4.2% on top of core CPI that was running at around 1.2% on the eve of Brexit. I doubt that we'd see inflation at 5.4% but it makes CPI above 3-3.5% quite plausible. On the other hand, EURGBP was around 0.9 during the previous BoE meeting, so the fx-component should be in their 3% peak forecast.
If BoE underestimate the imported inflation, with three hikes priced in and L M8 at 99, GBP would probably be strong enough to deflate the import prices and thus require no hikes at all, so the equilibrium in this case would be somewhere between 99 and 99.49. I hope their models are better than my back-of-envelope calculations, though.
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TCMB did not change policy rates this year at all and reduced liquitity to push funding rates higher instead. Now average funding rate is close to the upper band rate, so they can't use this tool further. The lira isn't weakening, so I don't think investors will complain about TCMB not doing enough to prop up their holdings.
A while ago there was a BoE figure that exchange rate passthrough on CPI is up to 30%. If so, the increase in EURGBP from 0.76 pre-Brexit to 0.92 and 50% import share is worth 3.2% in price level. A fall in GBPUSD from 1.42 to 1.32 and the remaining 50% import share is then 1%. 1+3.2=4.2% on top of core CPI that was running at around 1.2% on the eve of Brexit. I doubt that we'd see inflation at 5.4% but it makes CPI above 3-3.5% quite plausible. On the other hand, EURGBP was around 0.9 during the previous BoE meeting, so the fx-component should be in their 3% peak forecast.
If BoE underestimate the imported inflation, with three hikes priced in and L M8 at 99, GBP would probably be strong enough to deflate the import prices and thus require no hikes at all, so the equilibrium in this case would be somewhere between 99 and 99.49. I hope their models are better than my back-of-envelope calculations, though.
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TCMB did not change policy rates this year at all and reduced liquitity to push funding rates higher instead. Now average funding rate is close to the upper band rate, so they can't use this tool further. The lira isn't weakening, so I don't think investors will complain about TCMB not doing enough to prop up their holdings.
rolled 6e u7 -> z7 @ 0.0057, nok u7 -> z7 @ 0.000245
week 11/09/2017:
EDU1-EDU2: -2250 USD
EDM8-EDM9-EDM0: +2625 USD
Short EUR: +1188 USD
Short EURNOK: -1348 USD
Short EURCZK: +426 USD
UXY-WN steepener: -2953 USD
Long bund vs gilt: -3540 EUR, +6820 GBP
Short bund against ER Z0: +480 EUR
ER Z7-Z8-Z9: +1500 EUR
Short BA M9: +500 CAD
Total: ~+5349 USD
EDU1-EDU2: -2250 USD
EDM8-EDM9-EDM0: +2625 USD
Short EUR: +1188 USD
Short EURNOK: -1348 USD
Short EURCZK: +426 USD
UXY-WN steepener: -2953 USD
Long bund vs gilt: -3540 EUR, +6820 GBP
Short bund against ER Z0: +480 EUR
ER Z7-Z8-Z9: +1500 EUR
Short BA M9: +500 CAD
Total: ~+5349 USD