Monday, March 31, 2008
At last, we've reached the end of the month and quarter (or, if you're Japanese, the fiscal year.) Depending on your positioning, it's been the best of times or the worst of times so far in 2008; indeed, for many managers, it's been both (if the stories of horrible macro hedge fund returns in March prove to be true.)
Macro Man retains a pretty risk-averse stance at the moment; while there's a lot of pain out there, there is nothing to say that the passage of month end will prove to be a panacea for risk-taking. Indeed, while managers may well choose to re-deploy their risk budgets tomorrow once the MTD P/L slate is wiped clean, Macro Man retains a lingering concern that those eager to re-enter trades may prove to be April Fools.
Japanese fiscal year end came and went without the massive hullabaloo that has accompanied the 31st of March for most of the past couple of decades. It's ironic, really, when you think about it; after all, this was the year when the yen actually did move, which one might have thought would have required some action near year-end. If anything, however, it was demand for dollars that prevailed in the Tokyo fix, which may be as good a signal as any that something really has changed with respect to the USD/JPY dynamic.
Elsewhere, the ECB's ongoing hawkish stance was justified this morning with the release of the flash estimate for March CPI; this printed 3.5% y/y, well above the consensus expectation. The euro has unsurprisingly benefited from this out-turn, rallying back above 1.58 this morning despite more rumours of trouble in the European banking sector this morning. Eventually, the ECB will be forced to capitulate, and there will be some superb trading opportunities when they do. Until they do, however, the best trade you can do is to sit on your hands and not trying to front run them until the data turns.