Thursday, April 01, 2010
Arggghhh. It may be April Fool's Day, but the joke is on Macro Man. After sailing along all winter as the picture of health, this week he has found himself in the grip of a nose-rattling, ear-clogging cold. Ugh.
Another group that has seen their health deteriorate recently has been that previously jolly group of sterling shorts. Betting against "Betty" has been virtually pain-free until a couple of weeks ago.....but now cable has broken it's year's downtrend and put in what looks to be something like a double bottom (though that won't be confirmed until a break of 1.5382.)
Similarly, EUR/GBP has rolled over smartly, and now looks perched on the precipice of a couple of CTA-rattling moving averages.
What's going on? Is this just a positioning shake-out, or is there something more significant going on here? The real answer probably comprises a bit of both. The last CFTC report showed record short spec positions in cable, some of which have no doubt been shaken out (while others are on the verge.)
At the same time, evidence has also emerged that
thanks to in spite of the efforts of Messrs. Brown and Darling, the economy is finally picking itself up off the ground. Obviously, the recent GDP revisions showed even "higher" (or is that less low?!?!) growth in Q4 than previously reported, but there seems to be something else going on here. The chart below shows the change in market-forecast dividend payouts in the FTSE and Eurostoxx for 2012 over the last 6 months; after tracking pretty closely through late January, over the past two months FTSE payouts have risen by some 10% relative to Eurostoxx.
That's a pretty impressive outperformance. On the flip side, however, is the fact that interest rate differentials have moved largely against sterling. Over an identical six-month window, we can see that year-end expectations for UK rates have move substantially more (in the direction of higher contract prices/lower rates) than in the US or Europe.
Hmmm.... So if we're trading growth, we should like the pound, but if we're just going to be carry monkeys we should hate it. While Macro Man could certainly see sterling strength continue for a bit longer on positioning, the argument in favour of a stronger pound is hardly unambiguous. And you'd feel like a right fool in May if you woke up one morning and were looking at another five years of this.