Big day today.
Contrary to Macro Man's expectations, equities put in a very good day yesterday, with the SPX breaking and closing above the 767 level. Perhaps the feel-good was stoked by the unexpected rise in housing starts; if so, Macro Man remains sceptical, as that data is a rather flimsy foundation for a recovery.
Perhaps, also, the rally was stoked by a belief that the Fed will do something at tonight's meeting. Certainly, the Fed has lost its leadership in the global easing league table. While Bernanke has long been touted as an expert on the Great Depression, and the Fed was the first CB to publicly contemplate quantitative easing in this cycle, they've basically done nothing for several months. (OK, they've been preparing for the TALF, but hey- what have you done for me lately?)
As a consequence, the growth of the Fed's balance sheet has stalled. In the meantime, the BOE, SNB, Bank of Israel, and
BOJ have all embraced some form of QE. So is the Fed going to bring shock and awe tonight, or is Bernanke going to do nothing, sit there like a deer caught in the headlights, and pray like hell that the TALF works where every other Fed program has failed? If the latter, equities may face their sternest test of the "recovery".
Nevertheless, markets clearly seem to "want" to trade this recovery. The few equity longs of Macro Man's acquaintance are crowing, dollar bears are emerging, yawning, from their winter hibernation, and thousands of virtual trees have been killed with all the e-ink spilled about China's incipient rebound.
And indeed, there are a few interesting-looking charts. Oil is trying its damnedest to break out; June WTI, pictured below, has driven through both trendline resistance and the 55-day moving average CTA trigger level. Frankly, Macro Man has more sympathy for this move than the equity bounce, as the long-term supply/demand dynamics of the energy market are considerably more bullish than those for equities.
Elsewhere, some of Macro Man's sacred cows appear to be en route to the abattoir. He has long favoured playing SGD weakness, and it appears that he has quite a bit of company. There's been quite a squeeze at the very short end of the SGD yield curve, with overnight rates trading as high as 55% yesterday. Ouch! The chart below, showing tom-next forward points, illustrates how unusual this is. Ultimately, this squeeze should prove cathartic ahead of next month's MAS meeting. In the meantime, it's just another indication that the pain trade takes no prisoners.
Finally, AIG. Macro Man has been alternately amused and bemused by the reaction to the AIG bonus disclosure.
