Monday, January 08, 2007
Markets have opened slowly today as traders digest the strong payroll numbers from Friday. To say that market reaction on the day was curious would be an understatement. The dollar rallied, which was as it should have been. That equities sold off a smidge was also not altogether unexpected, given the level of angst that had accompanied flat performance over the year’s first two sessions. However, the extent of the fixed income sell-off ultimately proved to be disappointing, and the collapse of emerging market assets/currencies was also peculiar. Surely evidence that a hard landing is not in the offing should be positive for EM! For the time being, however, emerging markets appear to be keying off of equities. And in the grand scheme of things, USD/BRL rallying 0.5% with the Bovespa down 4% is actually a pretty good show for the real.
Macro Man has a few fish to fry in the portfolio this morning. In no particular order:
*He sells 10 million EUR/TRY @ 1.8850 spot basis, 1.8995 to February 2. This EM sell-off look to be a positioning adjustment, and recent news on the global economy (reasonable growth, lower energy prices) should ultimately prove negative for the euro versus the dollar, but positive for high yielding oil importers like Turkey.
*He ventures a cheeky long in COH7 at 57.50 to the tune of 100 contracts. The stop loss is placed at 55, with an initial target of 60. Too many smart people who know about energy are calling for this for Macro Man not to have a flutter. Last week’s sell-off surely looked climactic, and with index rebalancing this week likely to be a source of energy demand, it’s worth playing. Macro Man buys Brent rather than WTI simply because he didn’t see any newswire photos of Danes stripped to the waist and sunbathing over the weekend, whereas he did see such photos of New Yorkers.
*He sells 500 RXH7 115.50 – 117 strangles @ 0.75. All the “good” news is in the European yield curve, and Macro Man thinks Bunds will be sticky at 4%. By the same token, the news in the US is probably too good to countenance a rally of more than a point or so over the next six weeks. Therefore, collecting some decay in a boring market has some attraction to it.