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Morning Notes For October 26th 2010 at Trader’s Narrative

Morning Notes For October 26th 2010

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The following is a guest post by a buy-side analyst working in a US asset management firm. The author’s comments are in italics. I welcome your feedback in the comments:

  • International passenger traffic had a 10.5% year-on-year increase which is significantly stronger than the 6.5% rise recorded for August. International freight traffic recorded a 14.8% year-on-year increase, which is significantly weaker than the 19.0% rise recorded in August. “The industry’s situation is volatile. Passenger traffic represents about three quarters of the industry’s revenues. While September’s passenger growth is reassuring, the accelerating decline of air freight, including in Asia, is an early indicator of some turbulence ahead,” said Bisignani. “Government actions can impact the sustainability of the recovery. Austerity measures will dampen demand. When combined with new or increased taxation, as we have seen in Germany and the UK, the challenges are even greater,” – IATA
  • International Monetary Fund working paper titled “Deconstructing the International Business Cycle: Why Does AU.S. Sneeze Give the Rest of the World a Cold?” As the charts here show, “Our results suggest that the international business cycle is largely driven by U.S. financial shocks with a significant impact from global shocks, mainly reflecting commodity prices,” they write. – International Monetary Fund
  • From Tom Keene - Q: What do our listeners need to know about QE2 right now?
    A: First off, that it’s completely priced in by the market. We did a survey and over 90 percent of the people in the market expect it and they expect QE2 of somewhere between $500 billion and $1 trillion. The second thing to note is that even if it’s fully priced in fixed income, in foreign exchange there can be sort of longer-term impacts where even though everybody knows about it, QE2 leads to continued dollar depreciation for an extended period of time. – Bloomberg
  • TIPS auction from Mon getting a lot of attention this morning; NYT, FT, and WSJ all note that the negative yields at the 5yr auction are a “positive sign” as it signals the market is anticipating inflation down the road; the fact the yields were negative signals that investors are giving the Fed the benefit of the doubt in its ability to manufacture inflation; the NYT headline – “In Bond Frenzy, Investors Bet on Inflation”
  • US stock returns haven’t been so strong from the perspective of foreigners - international investors in US equities are doing less well than the raw S&P rise suggests. Indeed, in euros the S&P is barely up at all. In yen terms, the entire rally since Tokyo’s unsuccessful foreign exchange intervention on Tuesday, October 26, 2010

SPX in Euros Oct 2010

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