Monday, January 12, 2009

Perched On A Precipice


Was it really less than a week ago that the market and Macro Man were saying "I ♥ risk" ? Suffice to say that the enthusiasm has petered out pretty darned quickly, and everything now looks quite ugly.

Friday's payroll number was execrable, though perhaps not as execrable as it might have been. Karma dictated that having moaned about never winning a sweep, Macro Man triumphed last week with a cheeky -575 guess. The worse-than-expected unemployment was not particularly surprising, given that it looks likely to eventually exceed 9%.

Regardless, the uninspired price action following the figure has left equities looking vulnerable. Not only did Friday's close leave the SPX down on the year for the first time, but it also left the index perched bang on both the 55 day moving average and the uptrend from the lows.
Not that the vulnerability is confined to US equities, mind you. Technically, the picture is virtually identical for the Eurostoxx....the price is perched on both the moving average and the uptrend line. Given ancillary price action in other "risk tells" such as the yen, at the current juncture risks appear skewed towards a deeper "risk off" environment. Macro Man has adjusted his portfolio in a way that will hopefully de-sensitize him from such slings and arrows of outrageous fortune.

Elsewhere, at least one punter seems to be allocating a significant amount of premium to the notion that the ECB will see the light and slash rates this quarter. A literally unbelievable amount of option strategies have traded in March euribor over the past several days, with the end user doing a dazzling array of spreads that essentially look for euribor to settle at 1.75% in March, give or take. That would require fairly aggressive ECB easing, down to somewhere around 1.25% - 1.00%, depending on your basis assumptions.
Now, perhaps the end user has had the proverbial tap on the shoulder from moles within the ECB; to be sure, the airwaves have been dominated by dovish comments from ECB voters so far this year.

But it begs the question; if the ECB really does take rates down that low, shouldn't the euro be a bit lower?


Anonymous said...

MM, any predictions for the JPY & likelihood of MOF intervention this year?

Anonymous said...

EUR/$ is ALSO treading very close to the 55 day m/a at 1.3405 lvl for what it is worth.

Macro Man said...

Anon # 1...I think the probability is higher than last year, particularly if and as the yen continues its independent strength against everything. In that sense, EUR/JPY is probably more important than USD/JPY to intervention at USD/JPY 80 is much more likely with EUR/USD 1.20 than it is at 1.50. The former is yen strength, the latter is dollar weakness. In any event, there's a chance, hence its omission from this year's non-predictions.

Anonymous said...

MM, am missing the more detailed trade analysis we used to get, esp since we can no longer see your book. I know there's not too much to do at mom, and always appreciate the commentary (and with impressive daily regularity), but...
Fwiw dipped a toe to short USTs and waiting to go long 2nd WTI contract (or a Brent-WTI compression), also short indices. Think €$ risk is to upside.
Just a fan, JL

Mr Risk said...

Absolutely one week ago. Loving risk to hating risk. Perhaps to love again soon. And hate thereafter.

Maybe all this is a prelude for 2009. Like a nasty soap opera or two fisted Shakespearean play.

"Thou art a fool, a coward, one all of luxury, an ass, a madman."

Mr Risk said...

ECB is another name for extremely credible bureaucrats. Not.

There are too many Germans in the Union still fighting their inflationary Great Depression of the Weimar era. Always one step in the grave of a liquidity party.

Anonymous said...

The entire market might get a bounce once Obama takes office.

Think market can rally to 10,000+ before resuming the big leg down.

Oil has low risk at these levels, might test 28 or so, due for a counter rally in the next month or two. Negative press is a good indicator.

MM, any take on oil at the moment?
is gold on the cliff or head faking?

Yohay said...

Well, as you asked at the end of the post, the Euro is going lower, now at 1.32.