Friday, January 16, 2009
Every time the ECB meets, you can count on two things:
1) Jean-Claude Trichet will come close to dislocating his shoulder as he pats himself on the back, and
2) A cohort of Macro Man's readers will spring to his defense.
Yesterday proved to be no exception. Macro Man is finding it difficult to escape the notion that Trichet is a spectacularly poor economist; what other explanation could there be for his apparent ongoing concern about wage pressures in Europe? And given everything we've seen over the past year and a half, Trichet's casual dismissal of the possibility of European deflation (as well as a European government default) was intellectually cavalier. A good rule of thumb in finance is that when someone says that something "cannot happen", they don't know what they're doing.
In any event, the major defense of Trichet appears to be "well, he's not Bernanke." Talk about damning with faint praise! There is no shortage of commentators, including your scribe, who have taken the Fed to task over the past year and a half. Googling "Fed" and "incompetent" yields neary 900,000 results. The ECB has been relatively unscathed from public criticism, however; the same Google search yields only 30,000 results, and most of them are about cricket. They certainly don't deserve a free pass, hence Macro Man's criticism.
Moving along, Macro Man's trade theme received further support last night with another piece of abysmal data, in this case Singaporean exports, which registered a worse-than-expected 20% y/y decline. Apparently, things are so bad in Singapore that the government is encouraging people to shower less; not exactly what you want to hear in a country where it's the middle of summer 365 days a year! Macro Man remains bearish of the S$ and other trade-sensitive currencies.
Meanwhile, equities and other risk assets finally put in a decent show yesterday after the straight-line drubbing of the previous week. We are entering a potentially treacherous few days in global markets, with event risk in adundance.
This morning sees the release of Citigorup earnings; given that they were teetering on the brink yesterday, the release could be a key driver of sentiment today. Then, of course, we have option expiry on today's opening, followed by a long US weekend for MLK day. And finally, Barack Obama is inaugurated next week. FDR's inauguration speech still resonated today; given Obama's undoubted rhetorical ability, would you be willing to bet against him delivering a speech that provides at least a short-term bump to sentiment? Macro Man wouldn't.
After its sharp downdraft, the SPX is perched just against trendline resistance, a break of which could spur a nice pop higher.
Treasuries provide some confirmation of the easing of "risk off" pressures, as TYH9 has broken trendline support.
It seems quite clear that macro punters at least have been positioned firmly for "risk off"- lower equities and bond yields. The correlation of the HFR global macro index with the SPX has been pretty close to -1 over the past month.
So with these punters having made a good start to the year, Macro Man wouldn't be surprised in the least to see profit taking and risk reduction into the event risk of the next few days.