David A. RosenbergDecember 16, 2009
Chief Economist & Strategist Economic Commentarydrosenberg@gluskinsheff.com+ 1 416 681 8919
MARKET MUSINGS & DATA DECIPHERING
Breakfast with Dave
PLEASE NOTE THAT BREAKFAST WITH DAVE IS TAKING A BREAK FOR THEHOLIDAYS AND WILL RETURN ON JANUARY 4, 2010.HAPPY HOLIDAYS EVERYONE!WHILE YOU WERE SLEEPING
The U.S. dollar is consolidating but the currency du jour is the Sterling in theaftermath of its November unemployment data, which showed the first declinesince February 2008 (-6,300; consensus was +12,500). The once-hot Aussie hashad a few pegs knocked down from underneath it as Q3 GDP came in at the down-under end of expectations, at +0.2% (consensus was +0.4%) and Reserve Bank of Australia officials are downplaying further rate hikes.Bonds are doing very little and the action in equities is mixed to higher — Europeand U.S. futures in the green; in Asia, we did see Japan, India and Singaporehigher, while China, Hong Kong and Korea lower. Commodities, in general, are bidwith gold bouncing off its 50-day moving average. Bloomberg News runs with astory of how global central bank buying of bullion is a sell signal because monetaryauthorities were selling into bear market through the 1980s and 1990s and thatproved to be a wrong strategy. But the bottom line is that the central banks wereselling for more than 10 years until gold hit its trough, and they only recently began to buy. So from our lens, the fact that central banks are in the early stages of theirdiversification back into bullion is actually a constructive signpost.
INTERESTING MARKET MOVES
The U.S. dollar, left for dead just a few weeks ago, has staged a huge comebackand has popped above both its 50- and 100-day moving averages. Most of thestrength has been against the Euro, which has broken down as the world now sees that the region’s fiscal and banking sector woes are even worse than they are in the United States.Commodities are hanging in even in the face of the U.S. dollar strength, especiallycopper and we see that gold so far is successfully testing its trend lines. Be thatas it may, the renewed decline in the Baltic Dry Index bears watching for thecommodity complex.The Treasury market has also weakened materially on the back of concerns that the Fed may begin to boost the discount rate (its balance sheet has already shrunk17% in the past three weeks but remains bloated nonetheless), a growth scareunder way (to the upside) and more massive government bond supply on its way.We may at some point get some mortgage convexity selling to kick in and sendyields even higher in illiquid markets.
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IN THIS ISSUE
• While you were sleeping —economic data in the U.K.and Australia came inbelow expected; bondsare doing very little andequities are mixed tohigher this morning • Interesting market moves— U.S. dollar has staged ahuge comeback, butcommodities are holding in; U.S. treasury bondshave also weakenedmaterially on concerns that the Fed may begin toboost the discount rate• GDP is not everything part2; as we stated yesterday,GDP is not the bestbarometer of economichealth, and we are notalone in this assessment• Still signs of softness —strength in the U.S.industrial production datacame from materials andsupplies and the NAHBhousing index falls to itslowest level in six months• What the man said — evenwhen he is behind closeddoors at the FOMCmeeting, Fed ChairmanBernanke still manages toget the message across• Will it be payback time in2010? The U.S.government has a record$2.5 trillion in debt rolling over in 2010• No surprise in the U.S.housing starts data …fundamental trend is stillvery weak