Thursday, June 13, 2013
Thought of the day - "The Market giveth and the Market inserts red hot pokers before dicing you into small chunks and spreading your remains to the four corners of the earth"
We know it's hard but we will try to move away from Emergegeddon for a moment, though we are fully aware of its dominant influences, to wonder about the JPY again.
Abe's bungee rope better hold as the asset plummet off the bridge is getting close to the critical point. TMM admit to being disappointed that there hasn't been anything more concrete from the Wizard and our fear that the spread between future expectations and reality would collapse has materialised. But though the percentage numbers being cited for falls is impressive, TMM like to look at the other axis of time when looking at corrections to longer term plays and on that measure we are only back to March on NKY. Oscillations around the mean of a reality maybe, but with confidence the key we do wonder what is needed to turn the short term tide? A friend of a friend of Kuroda whispering about burning JGBs perhaps?
Whilst we think that the Wizard of Abe's road to growth is long and tortuous and we are not sure it will ultimately reach the intended destination (debated before), the Wizard's horizon is long-term so he won't be chucking in the towel as swiftly as we have seen from money managers in this last move down. So feeling that the market is back either at (or below) the reality/expectation line, TMM are donning their Kevlar gloves and are looking to re-enter the Abe trade. But where? Nikkei? A bit maybe. but selling JPY currency again? Yes, but what should we sell it against?
USD? We are afraid that USD is about to remain soft as tapering is pushed further back across the table as markets and hence confidence falls (we think all this media talk blaming all the market falls on Bernanke's tapering certainty is the wrong way around) and we invoke our ISM rule of FED action. This leaves USD vulnerable.
EUR? Though we like Europe and the Euro in the medium term, once the German court case is behind us Dr Aghi can put down his Teutonic Monetary dictionary, stop talking German and revert to speaking Italian again, resulting in an overtly dovish Dr Aghi at the next ECB. This should temporarily undermine the Euro FX though give European assets a lift. So let's pass on Euro.
GBP? It's had a good run up already and is at risk of being Carneyised despite gently improving data so we'll avoid that too.
Now, here's a brave call. Aud. Our longer term outlook towards it remains bleak but we are watching with interest as there are a few signs that there may be a shorter term turn due. Despite an appalling jump lower in everything Chinese on its reopen, the Japan exit tsunami and the continued Emergegeddon, AUD/USD is about 200pts off its base of 2 days ago. High intraday volatility is also often a sign of a turn. As there is nothing that TMM like more than batting against a consensus, especially one that has moved so far already, despite our longer term fears towards Aus which remain intact, we chose to hold out our Kevlar gloved hands towards AUD/JPY and buy here.