Wednesday, July 02, 2008
Well, we're 24 hours before the most important market day of the year (tm), and stuff frankly feels a bit nervous. Liquidity seems to resemble most of the participants in financial markets these days: poorer than it used to be. Another chapter was written in the story that Macro Man began yesterday, as the Bank of Korea responded to the economy's inflationary impulses by intervening heavily to strengthen the won near the close of the domestic FX session.
Macro Man's heard varying reports, but consensus seems to be that BOK sold $3 bio or so against the KRW, which helped to push USD/KRW nearly 2% lower. BOK has plenty of ammunition- $258 bio in FX reserves as of th end of May- and it's frankly refreshing to see them being deployed in such a manner. (Macro Man has no exposure in KRW, and hence no axe to grind here.) Quite a contrast to our friends round Moscow way!
Elsewhere, it was pretty interesting intraday price action in US equities yesterday. Who knew that the news that GM auto sales were crap, rather than really crap, would be good for a 24-point rally in the SPX? All Macro Man can say is that any market dependent on General Motors for upside leadership is in pretty serious trouble.
In any event, the rally was not altogether unsurprising. Many market punters are fond of military analogies, which perhaps draw their inspiration from the volumes of Clausewitz and Sun-Tzu that grace many a bookshelf (though how many of those books have been read is another question altogether.) In that vein, once 1300 gave way in the SPX, it seemed likely that the bulls would withdraw to the 1255-65 region and shore up their defenses at this critical level.
Sure enough, 1260 (plus or minus) has withstood the bears' initial assault. Macro Man cannot help but think, though, that this last line of bullish defense is little more than a market Maginot Line- an area designed to repel the hardiest of adversaries but which is ultimately (and comprehensively) overrun.
The FTSE in the UK (where Macro Man retains some short exposure) has a similar type formation. The FTSE's up today, but the underlying sentiment in the UK is dreadful- Marks and Spencer guided lower this morning while the construction PMI was an absolute shocker. It appears as if the "special relationship" between the UK and the US is about to get taken to a whole new level.
Finally, it's perhaps worth looking at continental Europe, home of the original Maginot Line. The Eurostoxx has plummeted through the early year lows, as well as the well-flagged longer term head and shoulders neckline. The next couple of days are likely to be very noisy indeed, and there's nothing to say that stocks won't end the week higher.
High frequency traders may be able to make some money from the long side. But for a guy like Macro Man, the money is still to be made betting on an ultimate (and ugly) breach of the market Maginot Line.