Quote 

“All war is based on deception. “  -Sun Tzu 

Of Interest  – Spanish not exactly loving austerity (Bloomberg) 

Commentary 

Expectations for China’s GDP growth were 7.6% and “magically” the number came in at 7.6% (lowest in three years). Do you sense the sarcasm in my writing voice?

Analysts noted that electrical usage in the country suggested real economic activity was likely lower than reported. We’re going with the electrical grid numbers instead of those massaged reported. Why? China’s satellite country, aka Australia, is showing signs China’s demand is fading; it reported a decline in June payrolls. We believe the Reserve Bank of Australia will act to lower interest rates. Normally, you might expect that would be good news for Australian stocks, but in a world still driven by hot money liquidity flows it may not be. 

Action 

As you can see, the three price series—RBA Cash Rate, Australian $- USD, and MSCI Australian Stock Index (EWA)—seem quite positively correlated from a monthly perspective.

We believe the RBA Cash Rate expectations is the driver of this pack. A cut in interest rates in Australia represents growth concerns, represents falling yield differential for the Australian dollar, and triggers money, a lot of hot money intially there for yield, to flow out. At least that is the attempt to link the movement of the price series togther, and we think it makes sense. Remain short EWA. 

Be sure to listen to Michael Campbell interview Jack Crooks tomorrow on CKNW 980 @ 9:am PST Saturday June 14th/2012