The world view coming out of this weekend is remarkably bearish and trying to spot a Macro bullish piece in the piles of research coming from banks and independent analysts is pretty hard. This gloom cannot solely be explained by London-based analysts ruing the performance of a once mighty (if you are old enough to remember) bladder kicking team. Whilst we are sure you have seen the press, the most magnificent piece of insightful editorial comment is HERE and is a must read.
No, the gloom is related to the emergence of the Gang of the Double Dippers taking hold of the streets. The double dip theory is now well entrenched to the point that a 1930s-style double dip is now almost mainstream. Doom and gloom-monger pieces are still dominating the wires and Team Macro Man is sure you have them all in front of you. But whilst the macro Eurocrap-out involving piles of toxic waste being discovered in European banks, sovereign defaults etc are still very much part of the longer-term scenario etc, we are puzzled as to why, using the "perfect market prices in all available information" theory, are we not seeing stress extremis pricing in the markets? And no, we don't mean Greek CDS, bonds etc - they don't count any more. And 30yr Portuguese yields don't either.
Western Market positives?
So if divergence is opening up between stress pricing and doom expectations, maybe we should look and see if anything is challenging our normal long-term view of "West to go down the Swanee".
- The banks got off lightly with the Financial Regulation bill, triggering a rally in financial stocks which has been given another lift by the G20 failing to agree on a global bank levy.
- Commodities basing - Copper (see chart below) is refusing to fall and crude is pretty bid. OK, this could be considered as a China commodity argument but it is hard to envisage a Western monster-double dip without a commodity dip. Considering the $3+ rally in oil was blamed on the tropical storm, news that the storm appears to be fizzling out hasn't seen oil fall back far.
- Although Eurozone M3 fell, it appears that new credit is being extended to non-financial corporations:
- The USD looks like it's about to fall - not a stress trade:
But back to that sentiment function. It felt as though the market lifted some of its bearish trades ahead of the G20, in case of an upward surprise, but had been planning on a post-G20 reaction similar to the last one, where a quick rally saw a return to "risk off" pretty promptly. This time, if anything, the surprise is how muted any reaction has been.
For now, TMM are united in feeling that with the lack of of data or comment bombs, there is a good chance of the still-highly popular "risk off" positions being further squeezed. Whether this is something bigger than just a corrective bounce as markets flatten themselves out a tad, or if it really does develop into something more core, we are not sure. But for now, we back the bounce.