The OECD downgrades their 2015 growth outlook for the G20 to 2.8% from 3%. This is largely yesterday's news since the Q1 slowdown has been well advertised. The big question now is the strength of the Q2 pickup in growth. Today's strong retail sales, +1.2%, reaffirms the a strong Q2 pickup scenario. Treasuries rallied after the report. I view this rally mainly as a relief rally with the risk of a large positive retail sales number taken off the table. The retail sales report is consistent with a September Fed hike. The USD strengthened and the treasury yield curve flattened. Utilities led the rally on lower 10-year treasury yields and their domestic focus and limited exposure to a strengthening USD. I don't like utilities because as treasury yields increase, they loose their yield support and at lofty valuations, there is no valuation support. WTI down today on the stronger USD and continued high OPEC supply (31mbpd); although the IEA cited increasing demand.
The Athens Stock Exchange FTSE Bank Index rallied 16+% today. Someone is bullish on the Greek bailout! The broader Greek stock market up 8.2%. The leaders of Germany, France and Greece agreed to continue talks with "high intensity". This doesn't sound like much progress to me. The Greexit is inconsequential to the market in my opinion anyway. It makes sense for the Greek stock market to react, but the S&P?... I don't think so. Although I don't think the market should react to Greek headlines, I know there will be some reaction until the market's attention snaps to the next headline and Greece is forgotten again. One hour before the European market close (Greek market closed already), our daily Greek headline came out: "IMF leaves talks due to lack of progress." SURPRISE... surprise. Stocks dipped, the 10-year treasury rallied 1 bps and little reaction to the front of the curve where a credit contagion would first manifest itself. yawn...
Good article today about Athanasios Orphanides about Fed policy. Makes you a bit uncomfortable about the current state of monetary policy. Curve flattener today supports the view of early but less Fed hikes.
House set to vote on President Obama's trade bill. These trade negotiations are so important to the global economy, but much of the details of these bills are hammered out behind closed doors and it is difficult to know whether the bill is good or bad and for whom until after the bill is passed and the details are released. Politico has a couple articles on the trade bill: one on Boehner's involvement and one on Pelosi's.
Another interesting article on the basis between swaps in Chicago versus London. Raises some liquidity concerns.
Michael Grove, CFA