Thursday, February 03, 2011
Today kicked off with TMM mulling over what to really say, whether it is just lugubriousness on returning from holidays or just because they haven't really anything to add to their previous stated views on the world we don’t know.
So far our expectations of the Euro story panning out in a similar fashion to last summer during a STFU respite in the run up to any EFSF announcements are holding true. The Euro news flow has turned vaguely positive re growth and it still feels like folks are fighting the tape yet our own model is still suggesting EURUSD has room to move above 1.4300 (See chart below: EURUSD - orange, model - white). We are not anticipating Mr T and the A Team deviating from the general message of last month. "Viiigiiiilence"...
The UK has been back in play with this morning's PMI (see chart below of Composite PMI - orange line vs q/q GDP - white line) completing a full set of bullish data that challenges the Q4 GDP readings to the point that we believe:
3PMI + Bob Crow + IDS wages - Q4 GDP = + I %
The BoE is likely to be faced with the prospect of inflation being above target at the two year horizon. They may try and wait for the Spring wage round, but we still think that 5bps priced in for a move next week is too little. A 25bp hike next week would do little to hurt the UK consumer, who hasn't been able to borrow anywhere near the Base Rate for years, and would alleviate some of the internal pressure the BoE is under. TMM bet that the Economics PhD community will start to come out over the next day or two changing their rate calls, making March 2011 Short Sterling look like a sell.
Meanwhile we have the Egypt function festering like an unburst boil in the background. Having totally screwed those playing the normal panic trades we are left with the short term market trying to play it like a live televised football match with every new skirmish producing short term responses depending on the direction of play. In normal conflict it's pretty clear which side is which, but the cunning plan to dress Mubarak supporters in the same strip as the away team has caused the casual observer some confusion.
Like all reality TV, the televising of running social unrest does seem to over hype the viewer's reactions and emotions. It would be interesting to know how Egyptian's responded to the recent images in London of the student riots when government buildings were occupied, the police attacked and the Royal Family being mobbed to the point where weapons were very nearly drawn. Did they think that England was going to turn to anarchy and hence trade on the consequences of UK Nukes falling into student hands? We, of course, just considered the whole event as student hijinks.
We feel that a solution cannot be far away when we see this headline that has just popped up:
*PAPANDREOU SAYS GREECE READY TO HELP EGYPT MOVE TO DEMOCRACY
What are they going to do? Send the Ptolemy family in again?