Digesting very poor German Orders and slightly better than expected
Indonesia Q2 GDP ahead of UK auto sales, but politics likely to rule
the roost again - be that US/China Trade, Brexit negotiations, threat
of German coalition breakdown, or massive protests against Iran
clerical government; US kicks off $239 Bln funding exercise; Romania
rate decision
- German Orders send very poor signal for manufacturing sector, however
across the board decline every category very anomalous, and also
runs counter to survey and Bundesbank evidence
- US Treasury auctions: record shorts in US 5 & 10-yr futures implies
risk of short squeeze, despite very low levels of yields relative to
growth, inflation, unemployment and Fed policy signal
- Charts: US Treasury and Commodity positioning
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** EVENTS PREVIEW **
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The week gets off to a very quiet start with little more than German Factory Orders and the slightly better than expected Indonesia Q2 GDP to digest ahead of UK New Car Registrations. On the event side, it is politics via way of a sharpening of US China Trade tensions, a clear entrenchment of positions on Brexit negotiating positions, a not empty threat from German SPD leader to break the grand coalition, and a rapid escalation of protests nationwide against the clerical govt in Iran as US sanctions are set to be re-imposed. An expected 25 bps rate hike in Romania and the forecast update from Sweden's NIER will this likely be little more than roadkill against those higher order factors. That said Romania's BNR remains well behind the curve relative to CPI (seen at 5.2% y/y vs. June 5.4%), Wages (May 14.4% y/y) and robust growth, with the consensus looking for an all too modest 25 bps rate hike to 2.75%. Aside from another raft of European and US Corporate earnings, the US kicks off its run of $239 Bln of T-Bill and Coupon issuance this week with $106 Bln of 3- & 6-month Bills, with market positioning both bloated overall, and showing record net shorts in the 5 & 10-yr Note futures contracts, as per the various attached charts from the weekly CFTC COT data, which despite the sharp increase in Treasury issuance imparts the risk of a short squeeze, even if longer dated real yields look wholly inadequate given the strength of US GDP and an expeceed 2.9% y/y July CPI reading this Friday. The latter is perhaps the best example of the sort of paradoxes that have been built into market term structures thanks to QE, which bode very poorly for futures financial stability. In passing, it is worth noting that positioning (net and total open interest) in a number of commodities futures also looks very bloated - see attached charts.
In respect of German Factory Orders, there is no arguing with that the sharp -4.0% m/m sends a very poor signal for the German Manufacturing sector, and marks the fifth decline in six months. Eminently this runs counter to the signals from recent German survey data and Bundesbank monthly reports, which have signalled a pick-up in June/July after a poor start to the year. The fact that every single category fell - be that domestic, Eurozone & Non-Eurozone or Capital Goods, Consumer Durables or Intermediate Goods - looks to be highly anomalous, in so far as there is rarely ever a month where there is a "parallel shift" down, barring events such as the global financial crisis of 2008; a sharp revision to and / or sharp bounce in July seems likely.
From Marc Ostwald