Keep Calm and Carry On.


RBA leave rates on hold. Ok this was as expected but the hawkish swing within the statement with the suggestion of "stability" in rates was a big enough surprise to give AUD a rare lift. There must be some wag out there other than us wondering if the RBA is praying that the odd over-excited EM speculator doesn't decide that as AUS is an EM currency and push it further south than even the RBA would like. But in a way that trade has been done. AUD shorts were well and truly on the 2014 consensus shopping list and it was probably only a matter of time until that trade too took its turn around the back of the woodshed.

That US data was not a nice surprise for TMM and the resultant precipitous move down in US equities was not the most pleasant of rides. But, on a technical basis with S+P500 1775 pierced the technical move lower would have needed some pretty decent bounce elsewhere to counter it. Flag breaks and measured moves should have seen us near the highs of September.





Instead we had the ISM from Hell. Not only hell in the number it produced but also its reliance. Weather weather weather Etc. We never anticipated climate change having the added distortionary function of casting a veil of opacity over all our data. The outlook for this month's data is ... foggy.

UK data however continues to be encouraging with construction PMI topping estimates. We expect the normal barrage of "wrong type of good data" to come from some quarters, no doubt dragging up housing bubbles. Housing is such an emotive debate as in simple terms half the population want prices to go up as they own it, whilst the half that don't, don't so that they can. All arguments seem unwinnable so why bother.

If we hark back to our first post of the year, where we mentioning a wash-out needed to bring the bears back out of their caves, then we have been rewarded in spades. But we are the first to admit that we caught the knife far too early. Remarkably, our dalliance into EM has actually been the least of our pains (with sub-sahara Africa actually showing a profit). It's the DM sector that has hurt us most and so we should step back and have a look at how the land lies today.

A quick check on the EM barometers -




Stabilisation and even recovery with TRY and HUF up 1.5% each.

So the day starts calmly after momentum and fear gauges were running high yesterday (highest volume of stocks traded on NYSE yesterday since the Flash Crash). Now one of the products of fast moves in markets is to see short term players applying long term arguments to support their short term positions and the preponderance of EM tourists is interesting. As we know tourists need momentum as their attention spans are limited and carry is a killer in slow EM markets (don't be short a quiet market).

TMM imagine that their is bemusement in the camp of the goldbugs. Here we have EMs going to pot, US markets tanking and yet, their trusty crutch of Gold has done pretty much zip. (below is gold vs SPX)







Which leads us to believe that Gold is more concerned with continued tapering rather than asset meltdown. So this might suggest that markets are pricing slowdown in US markets and no slow down in tapering. But isn't that not what Yellen is about? Surely if growth turns then the Fed will respond (as we have said before). So in a bizarre twist perhaps the EM's are praying for a US slowdown!

Meanwhile debate over the responsibility of the Fed to act responsibly continues with a call for actions to be coordinated. Which To TMM appears pretty rich as you have a large group of countries calling for coordinated action from one of the very few countries that is willing to take any action, whilst they themselves do nothing. Echoes of "Benefits Street".

We are keeping calm and putting some carry on, but we are also fully prepared for another trip to the proctologist.


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Anonymous
admin
February 4, 2014 at 2:21 PM ×

"Housing is such an emotive debate as in simple terms half the population want prices to go up as they own it, whilst the half that don't, don't so that they can."

What those in the 50% who own, that need a larger house? If prices rise they have to pay more. If that's with a mortgage they also have to pay more mortgage interest on a higher value mortgage.

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Polemic
admin
February 4, 2014 at 3:18 PM ×

yup .. those wanting bigger houses also want prices to fall. But I don't know anyone who buys a house hoping it goes down in value.

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Anonymous
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February 4, 2014 at 4:09 PM ×

C says
Join the club ,you're not the only one taking a smack this year .My mistake hanging on to winners just a little too long.

The way it is shaping up reminds me somewhat of 2011. Some different players ,but underlying that the basic concerns appear to resonate the same way. That is what happens when policy is too tight in too many of the wrong places.


As to the UK that's one of those I got right earlier than most ,but as it stands it verges on a sell the good news going forward for me. Domestic policy focussing on housing is fine ,but no better than the US other than I think we have lagged them by 12 months or so. In other words I think by mid year we will already be on the upside of what is possible from that sector. External policy for want of a better term I see hinged to the fortune of export markets where our currency gains are not exactly going to be working in our favour.
I was on the otherside of those issues 12 to 15 months ago when flavour of the month was how GB was so weak and doomed I tell you.

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Gnome of Zurich
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February 4, 2014 at 4:23 PM ×

I am still very happy with my PIGS, especially Greece and Italy. Fundamantals turning into the right direction, valuations still low and the crowd is very slowly warming up to them.

Gold is true disappointment for any gnome, should be up way more.

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Anonymous
admin
February 4, 2014 at 4:39 PM ×

It is time for the nonfarm payroll play. If you believe the weather excuse last month, you have to buy this excuse again this Friday. What will Fed/Yellon do if there is another crap payroll number? Will they chicken or will they not? It is going to be interesting.

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Leftback
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February 4, 2014 at 6:47 PM ×

First we get the rehearsal for the non farm payroll with the ever-optimistic ADP number. We were set up for an apocalyptic number based on rates, so the odds are we will see some relief in equities and USDJPY if the number comes in at 150-200k.

Trading in US 10s has been extremely volatile lately, as people unwind God knows what trades linked to USDJPY. It's all rather like those old Star Trek episodes where the Enterprise is hit by photon torpedoes and then the bridge wobbles and all the actors run from one side of the bridge to the other a few times......

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Leftback
admin
February 4, 2014 at 6:48 PM ×

Btw, the blog may be becoming far too sophisticated when the Capcha includes an "accent grave...."

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Polemic
admin
February 4, 2014 at 6:53 PM ×

Love that star trek picture LB

Welcome Back C

Stick with it Gnome

And why can't I get excited about NFPs? I ve tried but my eyes glaze over ..

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abee crombie
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February 5, 2014 at 1:26 PM ×

Interesting thoughts Pol, I guess now is the time to start adding some risk, we bought a little on the first move down, I am hesitant to buy much more yet, especially in DM equities, as it feels like we are going a bit lower. ISM shocker I expect to take a few weeks to figure out with all the regional surveys, so the risk is on from now until then.

The bigger question for me is EM and interest rates, which I think are closer to reversal points. I cant think of a more consensus trade than to be short CAD currencies. Also US 10 year at 2.6 is looking very tempting. Thinking about a short position with a stop at 2.4% yield or so.

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