Week in Review: The 'Nothing Matters Rally' Takes Hold

by: Dean Popplewell

By Dean Popplewell

The theme last week was that the ‘Nothing Matters rally’ took a firm grip and promoted riskier trading activity. Global equities saw black and the EUR continued to outperform any bad news; downgrades, periphery prime ministers resigning, delaying of EFSF objectives or the irate Irish. The Euro-summit came up short in delivering a ‘grand bargain’. The lack of a firm plan for increasing the lendable size of the EFSF and absence of commitment from Portugal for new measures to secure EFSF funding leave the EUR vulnerable in the near term after key resistance remained intact this past week.

Philly Fed President Plosser’s late comments on Friday will test that EUR’s vulnerability. A voting member and a known inflation hawk, he will have rattled the markets by stating that monetary policy would need to be normalized in the ‘not too distant future.


  • Jean-Claude Trichet had ‘nothing to add’ testifying on monetary policy before the European Parliament earlier last week. The market interprets the ‘strong vigilance’ language as an indication that a rise in the ECB’s main policy rate is likely, unless something alters the official view between now and April 7.

  • BoE Minutes revealed the MPC [Monetary Policy Committee] again voted 6-3 to leave rates unchanged. Adam Posen continues to prefer increasing QE while Spencer Dale and Marting Weale thought a 25bp hike was appropriate and Sentance preferred a 50bp hike. Members see increased uncertainty on the inflation outlook given the oil price developments. A May hike is looking most likely

  • ECB’s Jurgen Stark said that events in Japan and elsewhere had increased uncertainty but they had not changed the inflation picture, the growth picture and the threats to price stability. This is strong proof that Trichet and Co. will not be changing their appetite for a rate hike anytime soon.

  • Portuguese Prime Minister Jose Socrates resigned after failing to push through additional austerity cuts he promised the rest of the Europe two weeks ago. Elections are scheduled for May.

  • Moody’s cuts 30 Spanish bank's ratings.

  • Euro-zone flash PMI’s showed moderation in manufacturing but improvement in services (manufacturing- 57.7 from 59.0 in February).

  • U.K. retail sales came in surprisingly weak with a 1% drop in February. The trend remains disappointing with some negative impact from the January VAT hike.

  • S&P downgrades Portugal to BBB, following a Fitch downgrade. Portuguese yield to Bund spreads are wider, reinforcing market expectations that access to EFSF funding will be inevitable.

  • The German Ifo business climate indicator was lower in March (111.1), following nine months of consecutive improvements and an upward revision to February. This keeps the ECB’s plan to normalize interest rates credible.


  • U.S. sales of previously-owned homes dropped more than forecasted (-9.6%, m/m, to +4.88m annualized units last month). The median buying price managed to decline to its lowest level in nine-years (-1.1% to $156k). Monthly supply jumped to +8.6-months of listed product, up from +7.6 in the previous month.

  • The U.S. Treasury announced that it was selling its $142b MBS portfolio (beginning ‘its’ unwinding of QE1). Some will view this as a form of tightening and a supposedly positive move for the dollar. However, this is ‘NOT’ the big Fed program. The Treasury portfolio is about a tenth the size of the Fed’s. The Fed still has some ways to go before announcing its own exit strategy.

  • U.S. house prices fell -0.3% in January according to the FHFA. The Richmond Fed manufacturing activity index fell to 20 from 25 which still indicates very strong activity given the average is only 0.4.

  • The Dallas Fed's Richard Fisher said the U.S. recovery was gathering momentum and needs no further support (no QE3), and Cleveland Fed's Sandra Pianalto believes the recovery was modest (it’s actually strong – ISM is at its highest measure in 27-years) and that rising inflation pressures were temporary.

  • Canadian retail sales declined -0.3% in January from the previous month. The market had been expecting an increase of +1%. Ex-autos and the print came in flat. In a separate report, the country’s leading-indicators index rose in February the fastest in nine months (+0.8%), led by gains in stock prices and ‘a turnaround in manufacturing’.

  • Canada’s government faces the prospect of falling this week after opposition parties declined to back the government’s budget earlier in the week. Thus far, markets view elections as a non-issue for the currency. The most likely outcome of an election will be a status quo return of another Conservative minority government.

  • U.S. durable goods orders unexpectedly plummeted last month (-0.9% vs. market expectations of +1.5%). For a sector that has been driving the U.S. economy to date, it is worrisome. A bright spot was inventories climbing +0.9% and unfilled orders, a sign of future demand increasing to +0.4%.

  • U.S. weekly claims continue to hold below that psychological +400k watermark (+382k vs. +387k). The headline print inched a tad lower, down 5k, to levels last seen in the pre-Lehman crash.

  • Bernanke will begin holding four press briefings a year. Betting that by holding press conferences, he will provide clarity about monetary policy and disrupt financial markets.

  • The U.S. economy grew at a +3.1% pace in the fourth quarter, revised from +2.8%, led by a jump in consumer spending.

  • Dallas Fed's Fisher states that liquidity is in excess and maintains his hawkish tone, while Atlanta Fed's Dennis Lockhart still sees the current policy stance as appropriate, thinking the recent spike in short term inflation measures will not persist.

  • March Michigan sentiment fell to 67.5, the lowest level in a year, from a preliminary 68.2.


  • Japanese trade surplus widened to JPY556 billion in February from JPY289B in January, led by a +4.4% m/m rebound in exports. Markets would prefer to focus on the March trade data and expect exports to fall due to the disruption from the earthquake.

  • Japan’s MoF released the latest data on international transactions in securities. The week following the earthquake, Japanese investors were net buyers of foreign bonds and notes. There was little evidence of significant transfer payment inflows or repatriation flows

  • Central bank intervention in Asia appears to be holding KRW [Korean Won], INR [Indian Rupee], TWD [Taiwan Dollar] and PHP [Philippine Peso] back for now.


  • The U.S. kick starts the week with pending home sales, supported by consumer confidence numbers and the Swiss economic barometer.

  • Down under, we get building approvals and retail sales out of Australia followed by the Kiwi business confidence index.

  • In the U.K. we see current account data, manufacturing PMI and the Nationwide and Halifax HPI releases.

  • Canada is quiet, only reporting GDP mid-week

  • On the labor front, the U.S. gives us ADP non-farm, weekly claims and finishes the week with the highly anticipated Non-Farm Payroll data.

  • Japan reports the Tankan Manufacturing index, while China releases its Manufacturing PMI

Disclosure: None