Reviewing the ABC's

While Macro Man's progeny are now old enough to read, he finds himself reliving old times, going through the A-B-C's in his quest for an accurate risky asset forecast. He has made much in recent weeks of the A-B-C technical set up, and until a few days ago all was proceeding according to plan. However since then, a few unforeseen events have occurred. To Macro Man's consternation, the correlations between the SPX and other risk trades have swiftly broken down, taking his alpha P/L from +$700k to flat month to date. Moreover, the A-B-C pattern in the SPX is not proceeding according to plan.

The correction seems to have played out at supersonic speed- what should have taken a couple of weeks has instead taken a couple of days. Looking at other charts of risk assets, Macro Man is slightly worried that we are in fact still in the Wave B corrective bounce. The Bovespa, for example, failed to make a new low last week, suggesting the current bounce is not the end of Wave C, as Macro Man had originally thought, but rather still part of the B Wave. In that case, a less-than-dovish Fed could perhaps be the trigger for a renewed downdraft in risk assets. Macro Man will therefore look to buy back his short June 1310 puts on SPM7 for 10 or lower in today's trading. By the same token, he wants to start extricating himself from one of the malfunctioning hedges. He will therefore look to sell 15 million EUR/HUF at 248 spot basis.Macro Man's obsession with the alphabet is not confined to technical teal-leaf reading, however. Last night saw the ABC weekly consumer confidence survey registered the joint largest weekly drop (from +2 to -5) in the history of the survey. Now, some commentators are suggesting that this somehow represents the subprime chickens coming home to roost. Macro Man takes a more prosaic view, and reckons that the decline of the (lagged, smoothed) confidence index simply reflects the prior decline in equities. The recent past would appear to support this view.

Elsewhere, a few other items of interest:

* Yesterday, Macro Man observed the strange dissonance between INR strength and SENSEX weakness. A poster was kind enough to point out the technical distortions caused by the tax season and the absence of available government paper in comparison with banks' statutory liquidity ratio. Today, the whole market is talking about it, as Indian short rates squeezed as high as 70% overnight and the INR enjoyed another solid rally as a result. Should the usual happen and the squeeze unwind in April, the INR might make for a nice tactical short. However, the timing will have to be spot on.

* Inflation still matters! Higher-than-expected CPI readings in the UK and Canada yesterday sent both the loony and the pound soaring. The latter was particularly amusing, a a rumour had circulated in the minutes prior to the release of a weak figure. However, some of the the wind was taken out of sterling's sails today by the release of the March MPC minutes, where one member voted for a cut. Mr. Blanchflower, you're my kinda guy! Macro Man is actually hoping for a bit more of a squeeze in sterling so he can apply larger, broad-based shorts.

* In Malaysia, Bank Negara said they were happen for the ringgit to strengthen. Macro Man can't remember the last time he heard that kind of talk from an Asian central bank, especially one as historically activist as Negara. He will look to sell $30 million versus MYR on a pop back to 3.50 spot basis.