The Hall Market Report

Head On A Swivel – Financial Market Blog

BOC no change in rate, slight change in outlook

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As expected the Bank of Canada today announced this morning  it is maintaining its target for the overnight rate at .25 percent; continuing its commitment to keep rates at this level until the end of 2Q2010.  BOC noted that core inflation (Q4) was slightly higher than expected but excess production capacity remains in the system.

The economy is expected to reach full capacity and inflation is expected to hit the upper end of the band in 3Q2011.

Inflation Outlook upside risk – stronger than projected global and domestic demand

Inflation Downside risk – protracted recovery, strong dollar

BOC Inflation gauge – risks are generally balanced with overall inflation risks tilted slightly downward.

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Written by thehallmarketreport - Head on a Swivel

January 19, 2010 at 8:48 am

Posted in 1

Why Rate Hikes May be a Hike Away

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With both North American Central Banks sticking to their accommodating low interest rates are market participants missing key dashboard signals in their belief that rate increases will be upon us sooner than later. Its true that the long trusted and traditional data point are generally pointing to rising inflation[1] but it seems that unemployment, which is still rising, reigns king in interest rate decisions. Perhaps the unprecedented disruption in 2008 requires us to consider different data points in our expectation assessment. Or perhaps it is as simple as how difficult it would be to defend a decision to raise interest rates while unemployment is still rising.  More on this in a bit…….


[1] Inflation in Canada is tracked by Statistics Canada through the consumer price index (CPI) which is a basket of about 600 goods and services. Prices are checked every monthly and are weighted by their importance in the total budget (so a 10 per cent increase in a durable good would have a bigger impact on the CPI than a 10% increase in a food item).

hold that thought and we’ll be back later with a swack of data on this……….

Written by thehallmarketreport - Head on a Swivel

January 15, 2010 at 8:49 am

Posted in Holy Macro

I’ll take “the” future superpower for $1000 Alex

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China Making its Not so Subtle Move?

China has been dominating the front page headlines with its GDP growth (see Chart below) but there are other back page happenings that are very interesting as the world’s superpowers realign themselves. To be a superpower, among other things, you need to have a strong military, strong financial system, technology advances and improvements in your standard of living.

Case in Point:

Point 1 – Military Superpower: while US military spending accounts for 41% of the world’s spending, the Chinese is a distant second at 6% but they have increased their military expenditures nearly three times that of the US from 1999 to 2008 (194% compared to 67%). 

 Point 2 -Technology advances and eye in the sky: we note with significant interest that the US space program is scheduled to retire the shuttles this year and if there is a delay in getting Constellation (“next gen” shuttles) in the air the Americans will be hitching a ride with Russia or the Chinese (China is also planning moon landings and is expected to have the capability this decade).

Point 3 – Financial Super Centre: China is taking a major step in elbowing its way into the financial markets by having approved ‘in principle’ the creation of stock index futures, margin trading and short selling which will be implemented later this year. These are all tools that are commonly used  by sophisticated market participants. As China moves to evolve Shanghai in to an international financial centre they are also taking its first steps of a long road towards turning the Yuan to a fully convertible currency.  The US by far and away dominates as a reserve currency but the trend is down and the Chinese have been taking “basket currencies” to the IMF (nothing like kicking a dollar when its down!). 

Point 4 – Improving Standard of Living:    The Chart on page 5 says it all. A strong military, strong space program, implementing a super financial centre of trade, a fast and growing GDP.

Alex – I’ll take ‘the’ future world Superpower for $1000 – it use to be an easy answer! 

Written by thehallmarketreport - Head on a Swivel

January 11, 2010 at 11:36 am

Head on a Swivel – January 11, 2010

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Written by thehallmarketreport - Head on a Swivel

January 10, 2010 at 11:34 pm

Economic Information – January 11, 2010

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INTERMARKET-ANALYSIS AND KEY INDICATORS SUMMARY

(SEE “HEAD ON A SWIVEL” FOR FULL REPORT WITH CHARTS)

Economic News

 There were seven US major data points released last week with pending home sales m/m showing a significant miss (-16% compared to –2.3% expectation). As well, non-farm employment was crushed on Friday with 85K loss of jobs compared to a near flat expectation. However, we have an interesting psychology occurring here as on Thursday the news was all about how important Friday’s pending employment actual/expectation number would be to the market, yet the market initially pulled back then it shook off the numbers and moved higher. For the week ISM manufacturing posted a gain (55.9 versus 54.1) and unemployment claims came in better than expected (434k versus 449K). Unemployment was steady at 10.0% versus 10.1%.  A similar story occurred in Canada as jobs fell short (-2.6% versus +20.2K) and the unemployment rate held steady at 8.5%. Big misses on material items yet no panic sell off and the VIX closes out lower. Stability and optimism has returned!?!?!?!.

This week the markets are looking for an increase in unemployment claims (438K forecast versus 434 last week). Look to Thursday as both core and total US December retail sales are announced and expected to increase for the 3rd month in a row.  The last 2 months actuals beat expectations and we wait to see if the estimates are yet again conservative. Core CPI comes out Friday morning (0.1% expectation). Expectations for each month in 2009 was for a .1% increase and 7 times the actual number was above the estimate. Canadian housing start are expected to rise slightly (161k versus 159k last week) however new building permits, a gauge of future construction activity,  are m/m expected to fall (-1.1% from 18% previous month).

 Credit Markets

Credit markets ($LIBOR, $TED and VIX) continue to remain subdued. We’ll watch these measurements to gauge banks inter-lending confidence when the world’s central banks begin to withdraw stimulus. Stay tuned.

Bonds

Bonds prices continue to fall and yields continue to rise on the improving economic outlook.  Japan bonds, another safe haven call, completed the biggest weekly price last week as global markets continued to show strength.

Currencies

The USD reversed last month’s gain and fell to a 3 week low against its major trading partners as an improving economy caused bids for commodity dollars (Aussie, Kiwi and Loonie) at the expense of safe-haven currencies.  In addition to the commodity demand a reverse of last weeks view that the Fed was nearing the end of the stimulus program turned around on the Dec 15-16 Fed minutes.  The Yen saw a change of management with Naoto Kan taking the helm as Finance Minister. Previous “management” preferred a stronger Yen but said he prefers a weaker yen and it is believed that he will put that philosophy into action to revive the Japanese sluggish economy.

 Commodities

Major commodities charts remain constructive albeit for different reasons. Gold moved up this week in hedge mode as talk of an extended stimulus program put pressure on the USD. Oil was up again as China, the world’s second biggest importer of energy product (4.1 million barrels a day) and the world fastest growing economy, recorded record Oil imports last year and projected an additional import increase of 10% this year. Natural Gas moved to its highest price in a year on a artic chill covering the Northern Hemisphere (get Al Gore another quilt!) and the reduced supplies due to problems with Norway’s Karrrstoe processing facility.

North American & Nikkei Indices

 S&P500 Index had its biggest weekly gain in 2 months and is at a 15 month high on the back on positive economic news which pushed up metal and oil prices and generally the share price of related companies. The Dow also followed trend closing up 1.8% for the week and was confirmed by the DJTA.  The Nasdaq also advanced with gainers counting for outpacing decliners 1.75 to 1.The TSX shook off disappointing employment news and moved to a 15 month high lead by gains in industrials, materials and energy stocks.  The Nikkei advanced on the week partially on the yen/$dollar losing ground which improves the local exporters outlook.

Canadian Reports

US Reports

 

Written by thehallmarketreport - Head on a Swivel

January 10, 2010 at 11:18 pm

Got a boo-boo? Need a doctor? Better off in the Great White North

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My kid had an ‘owwie’ the other day so we took him to the local hospital, waited our turn based on the appropriate level of the “owwie”, got fixed up and we were on our way. 

No long wait, no reassigning to other hospitals, no insurance forms, no out of pocket costs. It’s the only health service way our generation knows and we should be thanking Tommy Douglas for his vision for taking the lead and pounding on the political desks in the last 1950’s and early 1960’s for an improved health system (the program was actually implemented by the next premier Woodrow Lloyd, in 1962).  It gained further momentum, when  Prime Minister Diefenbaker decreed in 1958 that any province seeking to introduce a hospital plan would receive 50 cents  on the dollar from the federal government and  Prime Minister Pearson created full federal/provincial program in 1966.

And now the US version of fixing an “owwie”………..

Written by thehallmarketreport - Head on a Swivel

January 7, 2010 at 2:49 pm

(Not so) Breaking News – US Commercial Real Estate problems on the Horizon?

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(Separating the news from the noise; or in the case of stocks the news is the noise or why a picture is worth a thousand dollars!)

 We’ve been on this theme for about six months and closely monitoring the Commercial Real Estate (IYR) and Regional Banks (IAT) ETFs and have recently updated our initial release (see Real Estate – Anybody Home earlier in the Blog).

 The News

 Bloomberg just released an article that points out the potential trouble in the Commercial Real Estate and Regional Banking arenas that have been known for some time but the charts are not reacting as ones gut may expect. Below we have noted some key points in today’s Bloomberg article:

 Losses on commercial real estate loans pose the biggest risk to U.S. banks this year, troubling smaller lenders while unlikely to threaten the entire financial system, U.S. bank examiners concluded during a review.

 Regional banks are almost four times more concentrated in commercial property loans than the nation’s biggest lenders, according to data compiled by Bloomberg on bailout recipients.

 Federal Reserve Governor Elizabeth Duke said in a Jan. 4 speech that credit conditions in commercial real estate “are particularly strained.”

  Fed Governor Daniel Tarullo cited commercial real estate as one of the “key trouble spots” in congressional testimony in October after the Fed stepped up a review of banks’ exposure to such loans.

 The default rate on commercial mortgages held by U.S. banks more than doubled to 3.4 percent in the third quarter, according to Real Estate Econometrics LLC, a property research firm in New York.

 Default rates in the first three quarters of 2009 have been the highest since 1993, according to the firm

 Italics Source: Bloomberg; January 4, 2010 Commercial Property is Biggest Risk, U.S. Bank Examiners Find

 The Chart

 

Things that make you go mmmm?

 Note how the regional banks (IAT) with all the attention and support that the entire financial is receiving and the economy improvements is at best moving sideways. Now look at commercial real estate and even with all the bad headlines the IYR continues to catch a bid and positively diverge from the regional bank’s trend.  Interesting as real estate data does point to a correlation between the economic recovery, slack in the employment numbers and the demand for retail shopping footprint and rates. So how is it that the higher highs and high lows continue? I believe that we need to “credit” (pun intended) the subtle and overt power and control that US policy makers have had influence over pricing or occupancy rates and levels.  The policy makers appear to be deeply involved and are using programs, policy and influence to encourage loan modifications and extensions in the hopes of staving off a massive commercial real estate and banking problem. While it looks like the banks are waiting for “the other shoe” to play out while commercial real estate has, for now, made its decision on the future.

 Gut Check/Chart Check.

 If your gut tells you something check the chart for confirmation as the ‘trend is your friend’ and sometimes your savior! That’s what we call separating the news form the noise where the news is the noise!

 Lesson reiterated – trust the gut? – yes, but confirm with the chart……wait for the support/resistance battle to play out.

Written by thehallmarketreport - Head on a Swivel

January 6, 2010 at 2:39 pm

Posted in Sector Surgery

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