- Modest schedule to data and events to end the week, featuring French
Business Confidence, UK CBI Industrial Trends & US Housing Starts,
Russia & Colombia rate decisions; Quarterly Equity derivatives expiry
- Russia: RUB and Oil price retreat allows Nabiullina to keep her word
on next move in rates being in Q1 2017
- US Housing Starts: seen retreating after colossal October surge; NAHB
jump underlines solid outlook
- Charts: S&P500 Put & call Open interest, AAII Neutral Sentiment index;
RUB vs. USD, China 10-yr bond future, JGB 10/30 yr yield spread
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** EVENTS PREVIEW **
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After another tumultuous week, the day's calendar of data and events is rather modest, featuring French Business Confidence ('surging' to a 5 yr high at 105), the UK CBI Industrial Trends survey and US Housing Starts, while rate decisions are due in Russia and Colombia. It is also quarterly derivatives expiry in US and European equity markets, which will leave many equity markets looking for direction thereafter, give a very high level of neutrality. As my colleague Andy Ash noted yesterday: "For two long and tiring years I have been commenting on how high the neutrality has been. In the middle of this year, for example, as can be seen on the chart on the attachment, the neutrals were way above 50% of all asked. The market went sideways and then slipped a bit. In early 2016 and mid 2015 the market went sideways, on the high neutral reading and then sold off heavily. Essentially a big neutral reading means no-one knows what to do and doesn’t want to do anything anyway. They also tend to be around low volatility periods. BUT it can never last long because we are all meant to be active and making money (apart from all the money that is flowing into passive … haha). So when we hit neutrality we get panicky that we should be either long or short…..one or the other but at least have a view. The neutrals then move off the fence into bullish or bearish camps, moving the market violently while doing so. If they jump into bullish, the market rallies until the neutrals have moved …then falls considerably, because the longs didn’t really want to be long, they were not convicted bulls, simply neutrals who needed a view. And vice versa if the neutrals firstly move into bearishness. Well now…..as I have said above, We now have the opposite. Everyone appears to have a view. You would think everyone would be bullish but interestingly not so." (charts attached).
China's intervention to prop up its bond market, where liquidity dried up in an unpleasant reminder of the Global Financial Crisis, will certainly be a talking point, particularly given the CNY's drop vs. the USD (though it continues to make substantial gains vs. EUR, JPY, GBP). The about turn in JGBs will also be talking point, as the 10-yr yield dropped back after flirting with the perceived BoJ intervention trigger at 0.10%, though the sharp flattening in 10/30 yr JGB yield spread (see charts) over the past 3 days is perhaps the more notable feature.
Yesterday's post Fed USD surge, and accompanying drop in oil prices, should allow Bank Rossi governor Nabiullina to stick to her word that the next rate cut in Russia will not happen before Q1, in so far as the RUB has given back most of its post N-OPEC agreement gains, and per se allows the expected no change from the current 10.0%, even if the OFZ curve is already discounting a series of rate cuts. Finally, as a reminder, a major Polar Vortex is expected to hit North America this weekend, stretching as far south as Texas where temperatures are forecast to fall as low as -17C.
** U.S.A. - Nov Housing Starts **
- With yesterday's surge in the NAHB Housing Market Index to 70, its highest level since Q3 2005, there is little doubt that the housing market remains in good, if not rude health. However after October's 25.5% m/m surge in Housing Starts after a somewhat subdued Q3, it is little surprise that a relatively sharp 7.0% m/m correction is projected for November to an SAAR pace of 1.23 Mln, and there would appear to be a fairly high risk of a revision to October. The rather less volatile Building Permits measure is seen slipping a modest 1.6% m/m to a very solid 1.24 Mln SAAR.
from Marc Ostwald
