Enis’s Macro Wrap – Red Asia, Green Europe…Again

by Enis September 5, 2012 7:43 am • Commentary

I laughed this morning when I saw overnight price action.  My market monitor keeps showing identical moves in overseas markets, but it’s no technical problem, just a repeating pattern.  Asian markets sell off, leading risk assets lower across the board.  Once European markets open though, risk-on takes over, and SPX futures rally backs towards the flat level.  That is what happened again overnight.  Hong Kong has closed in the red on 12 of the last 15 trading sessions, down almost 5% in that period.  Meanwhile, European and U.S. markets are basically flat in that same period.  

What’s interesting about continued Chinese weakness is that it is occurring against an increasing chorus of calls for more action from government authorities.  But as first year economics students learn, there is no free lunch.  Chinese officials are paying for the excesses of the 2008-2009 stimulus program, and have been much more cautious in stimulating this year as a result.  Despite continued weak economic data in the U.S. and Europe, sentiment regarding officials’ ability to help is still much different.

I highlighted the EEM vs. SPY chart on Friday’s CotD to illustrate the extent of faith in U.S. stocks relative to global stocks right now.  I wanted to go back 3 years on the Hang Seng vs. SPX to make this point even more emphatic:



The black line shows that the SPX is up 37% in 3 years, while the orange line shows that the Hang Seng is down 9% in the same 3 years.  That divergence has gotten especially large in the past year.  Either decoupling is finally upon us, or U.S. stocks are in a precarious position.  You know our view.

Overnight price action:

  • SPX futures close to flat after the Asia up and down.  Asia closed broadly red, with Hang Seng leading, down 1.5%.  Europe close to flat after rallying after the open.
  • Commodities are close to unchanged, while the dollar is generally higher vs. most crosses, though only slightly.  The Euro bounced from its overnight lows at 1.25, now trading 1.2560.  The Aussie Dollar continues to be the weakest major currency, down to 1.02 against the dollar.
  • Sovereign bonds close to flat in most countries, with peripheral yields a touch lower
  • Light economic calendar.  Tomorrow’s ISM Non-Manufacturing and ADP Employment report will be more significant (and payrolls on Friday)