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.