Wednesday, July 06, 2011
Our 36 hour "wait and see" has thrown up some interesting factors over that period. There has been a growing consensus that the background economic picture is picking up, led by the shipping times of Japanese components to global production centres. But against that has been renewed dung chucking in Europe. Yesterday's European PMIs were soft but interestingly pretty much ignored at the time, only to be wheeled out as ammo post the Portugal downgrade. Just as interesting is that this bombardment of Eurowoes has remained pretty much Eurocentric with little knock on (so far) into the usual risk suspects.
This leaves us thinking that either:-
A) This is a last death-twitch of the bears as they try their utmost to reverse the recent rallies using Euro ammo, but failure to make advances in non-euro risk components will mean they finally capitulate and everything rallies again.
B) It's all going to go Pete Tong (wrong) again and our "sell last Friday" theory is about to be rewarded.
Which is back to our heads vs hearts problem again. To us it is becoming clearer that there really is a supply chain led recovery coming via lorry or ship to a factory near you, which is good news for the private sector and equities. Against that, the public sector is still in a mess with western debt structure on a life support machine hoping the private sector pick up can come to the rescue before it dies (highlighted specifically by today's minor Euro-panic).
Our heads say buy equities, sell vol and buy commodities for a bigger recovery, yet our hearts know that it won't take much to burst the euro-rescue bubble. But even then we need to ask how contagious Europe is to the rest of the world at the moment. If, as we suspect, the US markets are getting numbed to the European noise and are now getting more introspective towards their own recovery then we should see them come in and buy again today.
We may be sounding very short-termist when perhaps we should be being long-term Macro, but that's only because we believe we really are on the cusp of setting the next serious direction. Hold the line for another 24 hrs.