10Y bonds stocks

Daily Kickstart (Week Ahead Preview Edition)

Happy 2017.

Sh*t wait. I forgot. We’ve still got one last holiday shortened, low volume, thin taped, algo happy week to go before we usher in what promises to be a nightmarish new year.

Japanese shares were lower overnight on light volume as the yen gained against the dollar. The Japanese government is reportedly pondering the implementation of policies designed to deal with gambling addiction after legalizing casinos in the country. Perhaps they should use Haruhiko Kuroda and the BoJ as guinea pigs for the new initiative given their penchant for buying the dip (a.k.a. gambling) in Japanese equities and ETFs.


(Chart: Bloomberg)


(Charts: Goldman)

Meanwhile, “the Shanghai Composite Index rose 0.4 percent” after falling to “the lowest since October as reports of further curbs on the property market weighed on the sector,” Bloomberg notes, adding that “President Xi Jinping told a Communist Party meeting last week he isn’t wedded to China’s 6.5 percent economic growth objective, according to a person familiar with the situation.” Here’s a rundown of all the news that’s worth printing out of China (once again, via Bloomberg):

  • Onshore yuan’s 1-month implied volatility climbs to highest in a week, as Chinese President Xi Jinping was said to have stated openness to growth below 6.5%. Markets:
    • USD/CNY’s 1-month implied volatility climbs 6bps to 5.87%, highest since Dec. 19
    • Xi told meeting of Communist Party’s financial and economic leading group last week that China doesn’t need to meet objective of 6.5% growth if doing so creates too much risk, says person familiar with situation
    • CNH +0.09% to 6.9504 per dollar, snapping 2-day loss of 0.4%
    • Onshore yuan little changed at 6.9486
    • Bloomberg replica of CFETS RMB Index, which tracks yuan vs 13 exchange rates, remains near highest level since July
    • PBOC keeps yuan fixing little changed at 6.9459
    • SHCOMP -0.9%; SZCOMP -1%; Hong Kong markets closed for holiday
    • Xi Said to State Openness to Growth Below 6.5% on Debt Risks
    • China to Keep Appropriate Liquidity at Banks: Financial News
    • China Inc. Struggling to Sell Bonds Poses Quandary for Economy
    • China’s CSRC Urges Brokerages to Improve Internal Control


The negative net issuance you see in the chart above implicitly means corporates aren’t issuing enough debt to cover this month’s repayment schedule. 

US markets are of course closed in observance of a holiday that’s already over. There is some data this week which might give whoever happens to be at the desk something to trade on. Here’s a rundown from Deutsche Bank:

Tomorrow’s pending home sales (+0.2% vs. +0.1%) report for November should show modest gains. Note that the November data are unlikely to capture the full impact of the recent sharp increase in long-term interest rates. Fed policymakers will be keeping an eye on how the recent tightening of financial conditions will impact the housing market and the broader economy over the coming months.

Thursday’s advance goods trade balance (-$62.0 billion vs. -$62.0 billion) should remain close to last month’s figure. This series is part of a more comprehensive Advance Economic Indicators report that the Census Bureau now releases, which includes estimates of wholesale and retail inventories.

Friday’s Chicago PMI (58.0 vs. 57.6) for December is one of the more important releases this week. As we have repeatedly emphasized over the past several weeks, forward-looking measures of consumer and business attitudes are of greater importance at the moment given the potential for substantial fiscal stimulus next year. Thus far, the December manufacturing sentiment data have been encouraging. Recall that the Philadelphia Fed manufacturing survey surged 13.9 points in the month to 21.5, which was its highest level since November 2014 (33.6). H

In summary, this week’s data should point to improving growth prospects in 2017.

Right. Just hope the effect of all that promised fiscal stimulus goes to growth and not inflation, because if it turns out that adding stimulus to an economy with little or no slack drives up inflation more than it does growth, stocks may struggle to buffer the ongoing sharp repricing of yields.

In any event, enjoy what’s left of your holiday vacation and watch out for that $30-$60 billion in selling from defined benefit plans – a block order that will be promptly spotted and frontrun by vacuum tubes eager for something to chew on in an otherwise quiet week.


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