The fall in US jobless claims to 451k from 478k was met with a solid global bid for stocks, while bonds sold off. The expectation was that claims would be higher at 470K. They’re still elevated for sure, but the recent decline in new claims is a good sign that the deterioration in late July/August was an anomaly. Whatever the case, it highlights the danger in being too fixated on volatile high frequency data in forming a medium term view.
Also giving the market a boost were the trade figures. Now these have habit of being revised, sometimes substantially, but the numbers for July (and noting it is still early days) are telling us that the net export detraction may be significantly lower in Q3 (exports rose 1.8% and imports fell 2.1%). Remember that imports alone took off 4.5%pts from GDP in Q2, net exports making the largest detraction since the 1940’s. What that means is that there is ample scope for GDP to be reasonably decent in Q3 and that talk of a double dip was exaggerated – the probability far below 40%.
As a consequence of this we’ve seen another fairly sizeable move on the US treasury curve and on decent volume (16% above average). Steepeners in vogue, the yield on the 2yr rose 6bp (0.56%) while the 10yr rose 12bp to 2.75% which is the highest close in about a month. Now admittedly ‘only’ average demand at a 30yr bond auction wouldn’t have helped bullish sentiment, but overall the auction wasn’t too bad and I doubt this was a key factor at play. Cover was at 2.73 compared to 2.75 in the 6 prior reopening. Aussie futures were off about 9 ticks on a 10 tick range with 3s at 95.32 and 10s at 95.01.
As for stocks they got a fairly decent bid, especially in Europe where the major indexes closed up between 0.9% and 1.2% higher. US equities didn’t do badly but they underperformed Europe with the S&P up 0.5% (1104), the Dow up 28pts to 10415, while the Nasdaq rose 0.3% (2236). Outperforming sectors included telecommunications, healthcare and financials. Otherwise the SPI rose 0.5% (4603).
Elsewhere we didn’t see a lot of action. On the FX front AUD and EUR were up smalls to 0.9234 and 1.2708. Conversely GBP sold off about 30pips to 1.5437 while JPY pushed a little higher to 83.82 from 83.66. Yen strength has clearly been worrying the Japanese government, and now the latest is that the Japan wants to buy Chinese bonds. China has been very active in buying short-term Japanese debt and the Japanese finance minister wants to even things out.
About the only place where risk wasn’t put on was in the commodity space. Crude was down 0.8% ($74.06) after the Energy Department said that crude stocks increased last week, while copper was down 2% in NY.
Bits and pieces otherwise. UK trade data showed the deficit unexpectedly expanding in July with exports falling 0.9% (after very strong growth) and imports rising 3%. The BoE held rates steady and made no changes to its asset purchase program. Finally, while many investors have been steering clear, one of the world largest (Norway's Sovereign wealth fund, as been snapping it up and apparently accelerated that process in Q2. The funds view is that Greece will not default especially over he next couple of years - the period they have got a guarantee. Makes sense.
Today we get Chinese trade data at some point and the final estimate of Japanese Q2 GDP (0950). Data tonight includes UK PPI and Canadian employment numbers.
Have a good day…
Friday, September 10, 2010
Monday, September 6, 2010
Finance broker compliance - cut and paste not sufficient
The head of Advantedge's broker operations is warning brokers that the compliance burden under the new licensing regime is likely to be even more significant than previously suggested.
Steve Weston, Advantedge's general manager for broker platforms, argued that there are 'significant' risk management and IT compliance requirements that licence holders will need to fulfil, which will add to the ongoing 'implicit' costs of maintaining a licence - particuarly in light of the proposed level of scrutiny from ASIC.
"It is likely that most brokers will find the credit representative model most suitable for them," added Weston, "The costs of the ACL add a compelling economic argument for most brokers to consider becoming a credit representative."
He did acknowledge, however, that there would be situations in which brokers holding their own ACL would be more appropriate, such as if there is a financial planning practice tied to the brokerage, or if the business model is built around using lenders not on Advantedge's platform.
"Even so," he added, "Advantedge's position is that, in the majority of cases, brokers will be better off as credit representatives."
Weston made the comments as he unveiled the details of Advantedge's support services for brokers under the new licensing regimes. Brokers operating under its aggregation groups PLAN Australia, Choice Aggregation Services and FAST will be offered the option to obtain and trade under their own credit licences, or to apply to become a credit representative under Advantedge's ACL. Becoming a credit representative will cost $139 plus GST per month per person.
Weston stressed that Advantedge will still "provide market-leading support irrespective of model", but added that credit representatives will also have access to a dedicated compliance team of credit advice managers. He commented that Advantedge is currently hiring for this team, which he expects to consist of at least ten people by the end of the year. He also revealed that Advantedge is "investing heavily" in changes to its software platform that will help brokers process loans more efficiently.
According to a recent Advantedge survey, up to 50% of brokers affiliated with its companies are considering taking up the credit representative option, with more still undecided. Eventually, Weston expects around 80% of brokers to operate as credit representatives - a similar proportion to brokers in the UK, where brokers already operate under an equivalent licensing regime.
Weston also commented that the new licensing regime is "the best single opportunity to turn the mortgage broking business into one that's more professional", and argued that brokers who embrace the change will build even stronger relationships with their clients.
Morning Australian Financial Report - reposted by andre di cioccio
As US markets were closed for the Labour Day holiday, there was little in the way of market action last night. European stocks got another modest boost rising about 0.2% (FTSE and SXXP) to 0.3% (Dax), while S&P futures and the SPI were virtually unchanged falling/rising 1pt to 1104 and 4591 respectively. There was a bit more action as far as European currencies were concerned with EUR down 40pips to 1.2874 and GBP off almost a big figure to 1.5398. I suspect those moves reflect a bit of profit taking after the US payrolls though as there really wasn’t any news or dataflow to spark it. AUD did nothing and sits at 0.9170 while Yen sits at 84.20.
Not a lot on rates either - bunds and gilts were down a bp or so on a 4bp range. Treasury futures nevertheless pushed higher from 1630 with 2s up to 109-21¾ from 109-20¼ and 10s rising to 124-29 to 125-02. Aussie futures were up about a tick with 3s at 95.46 and 10s at 95.09.
About the only news flow of interest concerned an announcement by Mr Obama to allocate $50bn on public infrastructure with more billions to follow over the over the next 6yrs. The expenditure would largely be used to improve roads, rail and infrastructure including airport runways. While the proposal probably has little chance passing congress before the November mid-term elections, it does highlight the concern among policy makers and the desire to be seen to be doing something. In my opinion the US doesn’t need further stimulus right now – certainly nothing more from the Fed and I agree with critics here who suggest further Fed action would be futile. Rates are already at record lows – that’s more than enough. So given this and the demonstrated reluctance by the Fed to engage, I think we can largely rule out further Fed action or at the very least attach a low probability to it occurring. As to fiscal stimulus – well this of course wouldn’t be futile but we need to wait and watch. There will no doubt be plenty of rhetoric coming into the elections, but remember there are a large number of Americans who are opposed to their government taking on more debt. It’s not guaranteed that more stimulus will be coming.
More broadly I think people have unrealistic expectations as to how quickly the US economy can restore the 8m jobs that were lost. Private demand is expanding, it accelerated sharply in Q2 which isn’t an indication that more stimulus is needed. But restoring 8m jobs – even if the labour market was booming – would probably take about 4yrs.
It’s an interesting contrast to what we’re seeing in Australia though. If anything, the RBA could be tempted into removing further stimulus today and under ordinary circumstances I suspect they would. But circumstances aren’t ordinary. Sentiment is toxic (though much improved) and there is a fairly vigorous debate underway as to the health of the US economy. I don’t think the RBA will completely ignore this uncertainty and they’ll probably opt too hold off. Added to that, credit growth is sluggish, the housing market appears to have come off the boil and core CPI moderated sharply in Q2. Nevertheless and for all the reasons I discussed yesterday, I think the statement they release today will be hawkish relative to market pricing.
While market pricing has changed dramatically over the last 5-days - Dec IBs now 13% priced for a hike from 40% for cut 5-days ago - I think there is a fair way to go before futures reflect the likely path of the cash rate. With that in mind my medium term view remains that the whole curve is expensive, will shift up and steepen. In the short-term and noting the reasonable rally we’ve already had, I still this there is value in being short into the meeting and would expect the IB’s and IR curve to steepen. Outright, I don’t have a strong pref for IBs, IR,s or 3s (on a very short-term basis) but I’d be taking any profit on 3s before the US opens. It’s very possible we see a reversal from Friday night’s moves and with little in the way of meaningful data out I wouldn’t risk it.
Anyway that’s about it – nothing much otherwise. Hopefully we’ll find out who will form government in Oz today as well, but another tie can’t be ruled out. Nothing much out globally – BoJ, Taiwanese trade, German factory orders and a couple of ECB speakers.
Not a lot on rates either - bunds and gilts were down a bp or so on a 4bp range. Treasury futures nevertheless pushed higher from 1630 with 2s up to 109-21¾ from 109-20¼ and 10s rising to 124-29 to 125-02. Aussie futures were up about a tick with 3s at 95.46 and 10s at 95.09.
About the only news flow of interest concerned an announcement by Mr Obama to allocate $50bn on public infrastructure with more billions to follow over the over the next 6yrs. The expenditure would largely be used to improve roads, rail and infrastructure including airport runways. While the proposal probably has little chance passing congress before the November mid-term elections, it does highlight the concern among policy makers and the desire to be seen to be doing something. In my opinion the US doesn’t need further stimulus right now – certainly nothing more from the Fed and I agree with critics here who suggest further Fed action would be futile. Rates are already at record lows – that’s more than enough. So given this and the demonstrated reluctance by the Fed to engage, I think we can largely rule out further Fed action or at the very least attach a low probability to it occurring. As to fiscal stimulus – well this of course wouldn’t be futile but we need to wait and watch. There will no doubt be plenty of rhetoric coming into the elections, but remember there are a large number of Americans who are opposed to their government taking on more debt. It’s not guaranteed that more stimulus will be coming.
More broadly I think people have unrealistic expectations as to how quickly the US economy can restore the 8m jobs that were lost. Private demand is expanding, it accelerated sharply in Q2 which isn’t an indication that more stimulus is needed. But restoring 8m jobs – even if the labour market was booming – would probably take about 4yrs.
It’s an interesting contrast to what we’re seeing in Australia though. If anything, the RBA could be tempted into removing further stimulus today and under ordinary circumstances I suspect they would. But circumstances aren’t ordinary. Sentiment is toxic (though much improved) and there is a fairly vigorous debate underway as to the health of the US economy. I don’t think the RBA will completely ignore this uncertainty and they’ll probably opt too hold off. Added to that, credit growth is sluggish, the housing market appears to have come off the boil and core CPI moderated sharply in Q2. Nevertheless and for all the reasons I discussed yesterday, I think the statement they release today will be hawkish relative to market pricing.
While market pricing has changed dramatically over the last 5-days - Dec IBs now 13% priced for a hike from 40% for cut 5-days ago - I think there is a fair way to go before futures reflect the likely path of the cash rate. With that in mind my medium term view remains that the whole curve is expensive, will shift up and steepen. In the short-term and noting the reasonable rally we’ve already had, I still this there is value in being short into the meeting and would expect the IB’s and IR curve to steepen. Outright, I don’t have a strong pref for IBs, IR,s or 3s (on a very short-term basis) but I’d be taking any profit on 3s before the US opens. It’s very possible we see a reversal from Friday night’s moves and with little in the way of meaningful data out I wouldn’t risk it.
Anyway that’s about it – nothing much otherwise. Hopefully we’ll find out who will form government in Oz today as well, but another tie can’t be ruled out. Nothing much out globally – BoJ, Taiwanese trade, German factory orders and a couple of ECB speakers.
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