Markets and $5.2bn inflows push US ETP assets to $1.519 trillion
Data in this report is as of Fri, May 17th
Market and Net Cash Flows Review
Equity markets were mostly higher during last week with the exception of EM markets which ended slightly lower. The US (S&P 500) edged higher by 2.07%; while, outside the US, the MSCI EAFE (in USD) rose by 0.44% and the MSCI EM (USD) dropped by 0.36%. Moving on to other asset classes, the 10Y US Treasury Yield rose by 5bps last week; In the meantime the DB Liquid Commodity Index was down by 0.34%. Similarly, the Agriculture sector (DB Diversified Agriculture Index), Gold and Silver prices retreated by 1.60%, 6.12% and 6.81%, respectively, while the WTI Crude Oil end flat for the week. Last but not least, Volatility (VIX) dropped by 1.11% during the same period.
The total US ETP flows from all products registered $5.24bn (+0.30% of AUM) of inflows during last week vs. $13.79bn (+0.90%) of inflows the previous week, setting the YTD weekly flows average at +$4.2bn (+$84.46bn YTD in total cash flows).
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The Fed carefully planted the WSJ "tapering" story in the Friday news dump last week to allow the weekend to smooth it over with investors. Monday's Retail Sales number was good enough to hold the market despite a day with no POMO. To counter, on Tuesday, uber bull hedge fund manager David Tepper was put on CNBC to move the premarket off its decline. This was met with $3.3 Billion of POMO in the morning session. Combined this was enough crack for the bulls to create a panic buy. Oddly, the VIX also rose during the frenzy.
Wednesday morning the market noted poor manufacturing data; Empire Manufacturing Index missing at -1.4 from expectation of 3.5; Industrial Production was also a miss at -0.5 from expectation of -0.2 (previous 0.3);; MBA Mortgage index was a big miss at -7.3% from the prior 7.0%. On the flip side, the Housing Market Index rose. France has joined Southern Europe in recession with negative GDP while German GDP was flat. Commodities across the board are deflating.
Sounds like all bad news? Nope. The bulls enthusiastically are buying every dip no matter how small. Of all the politicians on earth, Bernanke is the ONE that has never let his flock down.
by David Gillie
Economic data has been a mixed bag this week, The ISM Index was a bad miss and construction spending was a beat on Monday. Auto and truck sales came in in line with expectations and factory orders had a modest rise. This morning's MBA Mortgage Index was a big miss but escaped media attention. ISM services was also a miss. Attention was focused on the ADP Employment Change which was down to 158K from the previous 237K. It's getting soft-peddled on the financial channels as "Under 200K".
The Cypress story is over (as far as the media is concerned). Insiders, such as the Russian Oligarchs, were given a "heads up" prior to the 60% confiscation of depositor's funds and 930 million Euros were quickly extracted while the banks were closed to the Cypriot public. TV crews were quickly extracted and the assumption is "Cyprus took it well". Unemployment hit 12% across the Euro Region. However, Europe has clearly become a two tier region with Northern Europe averaging around 6-7% unemployment and Southern Europe suffering 20% unemployment.
Meanwhile, China struggles with their economy, Argentina went belly up and Brazil is showing signs of weakness. In the US, bulls are undaunted by bad news and dip-buying is all the rage as the Fed promises to maintain all-time highs in US markets to the tune of $85 Billion a month. "We can't be broke, there's still checks in the checkbook!"
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
In a One-Man Market, nothing matters except Fed Chairman Bernanke. As soon as he’s on camera, traders faint like teenage girls at an Elvis concert.
Economic data - irrelevant. Fundamentals - irrelevant. Technical analysis - irrelevant. Government embroiled in scandals - irrelevant. Do we get our $85 Billion a month? Yes or No! That's all that matters.
As usual, traders make the "wrong" move first - and then correct. In this case, the "safe bet" is always to the upside. Naturally, Gold, Oil and the S&P make the most violent moves. Then through the rest of the testimony, the algos pluck words and respond in a matter of nanoseconds.
As it turns out, the whole "tapering" story was just a plant to test the market's reaction. There was never an intent of cutting back the gravy train. If there are ANY changes, it's likely to be an INCREASE of QE as the Bank of Japan continues an unprecedented currency destruction of the Yen.
Today's testimony and the previous testimony have been a hurricane of confusion. Out of one side of his mouth, Bernanke states that they may continue QE as the economy shows signs of softening. On the other side, he states the Fed will be discussing cutting back on purchases at the next few meetings. There. Trade THAT!