Half measures

While the Bank of England stood pat, the follow through in sterling has been tepid. to say the least. Macro Man will therefore dip his toe, executing half of his sterling basket trade (described below) at 1.9650 and 0.7468 spot basis (1.6520 on the basket.) He'll offer the balance at the level described this morning, i.e. 1.6550.
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January 10, 2008 at 1:02 PM ×

Why this reaction on cable, after a first spike to 1.966 we're now one figure below, 1.955!!!
According to you this is because BOE is behind the curve and so a recession is more probable??
I play a buy on this important level, stop 1.95..
what do you think?

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Macro Man
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January 10, 2008 at 1:07 PM ×

It trades like everyone's bearish and no one's got it. I wish I'd done my full whack size...

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Peter
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January 10, 2008 at 1:42 PM ×

noone's got it (GBP short).. thats my guess too
everybody remained sidelined as it fell..

Trichet mentioned 'growth' a couple of times

should send equities down, bunds up (it alsready is)

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January 10, 2008 at 2:18 PM ×

A little bit confusing statement of Trichet, little dovish... but according to me he prefers a steady state of 4%.. now he escapes a hike talking about medium-term mandate, he will react only if he sees wage-pricing pressures, but then he tells that can be too late..
to resume: we'll see what happens!!
however, hawkish: only two options.

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Quarrel
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January 10, 2008 at 5:29 PM ×

Meanwhile the alternative school of thought to the BoE:

"
The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.
"

What a marvelous game..

Pop go the equities.


--Q

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Peter
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January 10, 2008 at 5:43 PM ×

I wont finish this year without some permanent dammage to my health (on top of the already suffered permanent damage in my career so far)

What Ben said was priced in, but the S&P had to have a correction from 1380 which was a major support. so now its coming off again. it closed the gap after the big fall on the 8th of Jan.

im just surprised how the market is stil playing the weak$ game, as if it wasnt clear that ther rest of the world is also kneed deep in it...

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CV
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January 10, 2008 at 7:03 PM ×

@Macro Trading Ideas ...

Trichet is on cruise control I feel. The thing is; I agree with MM that the ECB is waiting for more data to come in before being able to justify what are inevitably going to be cut(s). But when will it happen that is the real question.

In the end however, talk is becoming increasingly cheaper I think but so far we are stuck with the same discourse. Ever since the ECB and the FED parted ways back in the Summer/Autumn 2006 and the longer the ECB decided to stand fast it was of course difficult to suddenly come out now and say, oh wait, we have just discovered that growth is tanking. Yet, this was of course obvious I think from the start apart for those who had blind faith in the de-coupling thesis. So, it is difficult to say whether the ECB actually bought the de-coupling argument or whether they always and only were looking at inflation.

No-one in their right mind would argue for complacency against inflation but I think there are some major disconnects in the ECB's analysis. I mean, what is their official target for the M3 again? 3-4%? And it is running at 11-12% so clearly this is a little beyond something which can be tweaked with the refi rate (even if they decided to hike) which perhaps suggest that those instrument rules should be applied with caution. Also, if we are really looking at stagflation it could easily turn into deflation and then we are moving into a much more serious game with Italy, Portugal etc having leave the Zone just to name but a few of the ghosts which could emerge.

Then there is the Euro of course which just goes to show the whole de-coupling argument. I mean, so be it ... de-coupling it is but how long can Europe muddle along with a EUR/USD at 1.50?! :).

I respect the ECB for their vigilance I really do; most of all because I ultimately agree with what MM has previously voiced in the sense that you do not send a Macro Man to do a Micro Man's job (if you can forgive me my pun). However, as Caesar said 'Alea iacta est' and as such this financial market mess was always going to turn into a macroeconomic problem since the cycle was tipping anyway I feel.

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Anonymous
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January 11, 2008 at 3:23 AM ×

Another attempt to jawbone the market by Ben, today, here in the colonies. As others MUCH brighter than yr.hmble serv, have said, the Fed hasn't got a whole lot of arrows in the quiver to work with. Awaiting the Jan. meeting with bated breath.....

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January 11, 2008 at 9:29 AM ×

@ CV:
I agree with you, CBs have lost their rein, they can't control money creation because a lot of external players are now in the game..
However Trichet isn't so worried (maybe) because he has his put: his mandate!!
And he is confident that he can distinguish liquidity problems from macro problems.
However he's behind the curve, as always!!!
However some opportunities in CDS sovereign space: Italy 10yr 35.5/37, Spain 30/33 and Belgium only 21/24!!
Long italy & spain versus Belgium!!!!

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