What's the news ? THE PRICE IS NEWS!!
This is good old fashioned psychology and some of Team Macro Man really enjoy these markets. It's when opportunities open up due to timing issues and people having to do things through money management decisions rather than bigger fundamentals. Otherwise known as a STOPFEST. As we mentioned yesterday the preponderance of lines on charts all converging in a holiday week is all too much to ignore and is far too tempting not to run at considering the stops that lurk beneath.
This method of unzipping a market reminds TMM of an old tactic they used to use to arrange boys skiing holidays. As ever the mission was to unzip the invitee's from their partners who may either want to come themselves or resent being left home alone. The method went like this - Onboard the single males first and then approach the weakest linked couples to easily get the buy-in of the guys. Next approach the stickier relationships and when asked by the partner who was going list the other pre-assigned men (normally the most laddish). Realising no other girlfriends were going the partner would relent. Save the toughest couples for last and insist that BOTH are invited and you really really wanted them both to come. The girlfriend/wife would ask who was going (by now 14 blokes) and realise she would hate it and would insist that her partner went alone and apologise with some irrelevant excuse for why they couldn't come too. Job Done.
So it appears today that the markets are employing similar tactics to unzip positions via stop losses. Starting with the weakest and using the building momentum to finally tackle the toughest. This started as an FOMC inspired anti-QE trade. The moves from that sucked in European Peripherals which sucked in Spanish background, which had always been there but was being ignored until prices started to unravel. This started to unzip equities which have now broached some key trend lines. These trend line breaks have seen acceleration which has further helped USD up and Euro down. Meanwhile, European bond markets pick up momentum to the point where, combined with all the above, there is enough momentum to have a crack at breaking the most tough of pairs. EURCHF. Yes the stopfest has now managed to crack the floor in the house of SNB. Or has it?
It would appear that once again those to make the easiest buck in non-exchange traded FX will be the lawyers as debate is already raging as to the validity of prices sub 1.2000 with respect to barriers and stop losses. Credit issues in machines will always mean highs and lows are debated until someone "decides". TMM are very glad they are not sitting in the middle of one of those disputes but, with resolve tested after that sneak attack we think the SNB will be out sticking fingers in the dykes to an extent that CHF is our favoured short against anything we want to buy. You can't do a sneak attack twice.
So we are left here hanging. Holiday ahead, stops driven, is this really the environment to load up new risk off positions? Not in our eyes. NFPs falling on Good Friday is bad enough without all this noise on top of it. So far Price Is News. We will wait for next week for real news to come back to the fore before we take action. And anyway, who wants to get stressed when on Holiday?
TMM wish you a happy holiday and may the Easter Bunny bring you far too much chocolate...
This is good old fashioned psychology and some of Team Macro Man really enjoy these markets. It's when opportunities open up due to timing issues and people having to do things through money management decisions rather than bigger fundamentals. Otherwise known as a STOPFEST. As we mentioned yesterday the preponderance of lines on charts all converging in a holiday week is all too much to ignore and is far too tempting not to run at considering the stops that lurk beneath.
This method of unzipping a market reminds TMM of an old tactic they used to use to arrange boys skiing holidays. As ever the mission was to unzip the invitee's from their partners who may either want to come themselves or resent being left home alone. The method went like this - Onboard the single males first and then approach the weakest linked couples to easily get the buy-in of the guys. Next approach the stickier relationships and when asked by the partner who was going list the other pre-assigned men (normally the most laddish). Realising no other girlfriends were going the partner would relent. Save the toughest couples for last and insist that BOTH are invited and you really really wanted them both to come. The girlfriend/wife would ask who was going (by now 14 blokes) and realise she would hate it and would insist that her partner went alone and apologise with some irrelevant excuse for why they couldn't come too. Job Done.
So it appears today that the markets are employing similar tactics to unzip positions via stop losses. Starting with the weakest and using the building momentum to finally tackle the toughest. This started as an FOMC inspired anti-QE trade. The moves from that sucked in European Peripherals which sucked in Spanish background, which had always been there but was being ignored until prices started to unravel. This started to unzip equities which have now broached some key trend lines. These trend line breaks have seen acceleration which has further helped USD up and Euro down. Meanwhile, European bond markets pick up momentum to the point where, combined with all the above, there is enough momentum to have a crack at breaking the most tough of pairs. EURCHF. Yes the stopfest has now managed to crack the floor in the house of SNB. Or has it?
It would appear that once again those to make the easiest buck in non-exchange traded FX will be the lawyers as debate is already raging as to the validity of prices sub 1.2000 with respect to barriers and stop losses. Credit issues in machines will always mean highs and lows are debated until someone "decides". TMM are very glad they are not sitting in the middle of one of those disputes but, with resolve tested after that sneak attack we think the SNB will be out sticking fingers in the dykes to an extent that CHF is our favoured short against anything we want to buy. You can't do a sneak attack twice.
So we are left here hanging. Holiday ahead, stops driven, is this really the environment to load up new risk off positions? Not in our eyes. NFPs falling on Good Friday is bad enough without all this noise on top of it. So far Price Is News. We will wait for next week for real news to come back to the fore before we take action. And anyway, who wants to get stressed when on Holiday?
TMM wish you a happy holiday and may the Easter Bunny bring you far too much chocolate...
7 comments
Click here for commentsexcellent analogy of what happened this week! Also, the pain in Spain must have been the most well-observed but ignored event ever. Could only come into effect via your pair breaking scenario
ReplyDifferent styles for different tracks.
ReplyIf your going to short, you only get a couple good chances in these markets...feel around the top, sell it hard when it breaks...theres no kid glove trades in this Yennish environment...unless your long.
Now..begone TMM, I've couple extra days to find myself a zennie chick :)
Yeah, I reckon the bears have already killed the slowest walrus in this raid. So it's back to flat today. Who wants to wake up tomorrow with a short position and get a Stronger Than Expected number, then open Tuesday looking at spoos up ten or twenty?
ReplyRight now if LB was going to make a short-term punt, fading the Long Weekend Safety Trade would be my best guess, in our case just hedging fixed income by shorting the long end.
Time for a retreat to Ursine City. We'll be back, though, and with reinforcements. Hope all your bunnies are happy ones.
Anon -- regarding your comment "the pain in Spain must have been the most well-observed but ignored event ever."
ReplySpain Ibex is -10% YTD and was -5% this week. Relative to the DAX, Ibex is u/p by -25% YTD. Reminder, you can not short sell Spanish Financials so this was long selling, i.e. real money must have even been observing as no professional is long this market. In Fixed Income, the 10-yr is 8 handles off the LTRO highs, retraced almost 50% of the last 6-month range and saw a significant yield adjustment this week alone.
This caused DAX and Eu Fins (SX7P) to be liquidated. The EUR even reacted and Bunds made new highs in price.
Just curious what part of the market was ignoring it? My point is that something was discounted this week for sure....
Who would set their EUR.CHF stop at 1.1999? Surely you'd allow a little slippage, to say 1.198.
ReplyJapan forces through its budget. Doubling their sales tax and still funding 49% from new borrowing. How much longer can they get away with this?
ReplyRight Field - what part of the market was ignoring it? You could start with investors in banks. In the week since Mar 30...
Replydbk -5.80%
bbv -6.10%
san -6.20%
isp -7.50%
bnp -7.60%
gie -7.90%
cbk -7.90%
aca -10.70%
ucg -12.00%
BBVA+SAN outperformed the rest by 2.3%.
And since the short sale ban you refer to was lifted mid-Feb...
dbk 3.93%
bnp -10.85%
san -15.60%
gle -15.78%
cbk -15.87%
aca -18.59%
bbv -18.70%
isp -19.48%
ucg -21.56%
Hardly conclusive of anything.
Rajoy's deficit announcement gave the noise-o-sphere something to point itself at, but it's really Italy that's in the crosshairs. Their 2-yr now yielding 30 over the Spain equivalent. The Spain 10 - not particularly a bellwether for a crisis that's happening now - is mostly telling the tesoro that they can't count on cheaply pushing the roll out into the distant future as they have been since the new year.