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Naufal Sanaullah

naufalsanaullah@gmail.comwww.shadowcapitalism.com

PhillyFedandhousingpricemissesfailtoderailholiday-shortenedrallyaheadofEasterweekend

Amacro-dataintensiveThursdayaheadoftheGoodFridayholidayshowedmixeddata,buttheresultsfailtoputthebrakesonthecontinuedrallyinrisk.USinitialjoblessclaimsbrokethe400kmarkonceagain,clockinginat403kvs390kexpected,followedbyApril’sPhillyFedfallingdownto18.5vs36.8consensusvs43.4prior.USFebruaryhousingpricedataalsoshowedadrop,witha1.6%declineMoMvsexpectationsofamuted0.3%fall.Ontheothersideofthepond,GermanIFOsawabeatincurrentassessment(116.3vs115.5consensus),butasmallmissinexpectations(104.7vs105.5consensus)duetorisingperipheryconcerns.UKretailsalesalsobeat,showinga0.2%MoMgrowthinMarchagainstexpectationsofa0.5%decline.TheS&Prallied0.53%onThursday,closingnearitsHODandapproachingabreakoutintofresh52weekhighs,astheinversehead&shoulderspatternI’vebeenpostinginrecentpieceslookspoisedtoresolvesuccessfullytotheupside.Thisisdefinitelyabullishdevelopmentandthepatternsuggestsanother100pointsintheS&Pisimminent.EarningsarecomingupforthemajorityofAmericanfirms,sothereareplentyofcatalystsforthemarkettomoveeitherway.Margincompressionwilldefinitelybethenameofthegameasinvestorswatchforinflation’simpactoncorporateresults.EURUSDhasbeentradingsidewaysinthelastcouplesessions,asaweakeningdollarhelpstomitigateeuro-relatedconcernsthatarehurtingothereurocrosses.Peripheryspreadscontinuetowiden,andSpanishyieldsaretestinghighsonanumberoftenors.Spanish10yrpaperyielding6%

Shadow Capitalism

Market Commentary by Naufal Sanaullah

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willnotbeagoodsigngoingforwardfortheEurozone,andwhetherPortugal’sissues(whichledittoseekabailout)willleadtocontagioneffectsinSpainisgoingtobeavitalissue.Iamturningmorebearishontheeuroonceagain,againstonlystrongriskcrossesfornow(IespeciallylikeEURSGDshorthere),butremainlongEURUSDbecauseofmoreUSD-specificfactors.Beloware10yrSpanishspreadstoBunds(courtesyofGoldmanSachs’sJohnNoyce)andtheEURUSD.USDJPYhastakenabeatinginrecentweeks,asanexpectedcorrectionfromthemassivepost-BoJsurgeturnedintoasharperselloffduetoUSDweakeningacrosstheboard.Thecrossnowsitsat

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significantsupportaround81.50,however,whichalsomarkedlateFebruarylows.Riskdefinitelylooksbackon,withtheS&Psittingrightathighs,andthatshouldcontinuetoweighonJPY.AfallingyencouldsteertheNikkeibackhigherasexportersregainabitoftradeadvantage,butthebiggerissueisthemassiveJapanesedebtburden.AndwithJapan’spublicpensionfundliquidatingJGBholdingstofinancepayments,theremaybemorereasonstobesellingJGBsthanbuyingatthispoint.IamexpectingariseininflationinJapan,whichiscountertomostanalysts’opinions,andanewbearmarketinJapanesegovernmentdebtwithintobeginwithinthenexttwelvemonths.InFXspace(andinthemorenearterm),however,NZDJPY,CADJPY,andCHFJPYalllooklikegreatbuysatcurrentlevels.Asoilpricesrise,naturalgascontinueslookingincreasinglybullish.Chinaisthesecondlargestenergyconsumer,aftertheUnitedStates,andisdistancingitselffromnuclearpowerafterJapan’scatastrophe,whilehavingtodealwithincreasinggeopoliticalcatalystsforhigheroilprices.Naturalgasistheobviousalternative.Thechartisalsobullishwiththelargetrianglelookingtoresolveinto