Unappetizing options

Hard as it is to believe, election day in the UK is finally here.  The timing is particularly poignant for Macro Man, as it was on the heels of the last one that he boarded a plane for the USA, bidding a fond adieu to both the UK and financial blogging.  Suffice to say that the past five years haven't gone quite as smoothly as either David Cameron or many macro men would have liked; while naive (or cynical?) buyers of risky assets regardless of price have fared well, one does wonder if they, too, will face their comeuppance one day.

Contrary to Macro Man's expectation of a few weeks ago, the race now looks too close to call.  Small wonder, given the unappetizing fare on offer; given the choice between a turd sandwich, ceviche of industrial waste, or plutonium sushi, what would YOU order off the menu?  It seems fair to assume, however, that between a choice of the status quo and "Red Ed" Millbean, sterling markets would plump for the former every time.

An equally unpalatable choice can be found in which formerly profitable position you'd like to be holding.  The clear winner of the current market election is the pink flamingo, which has sent a cascade of red ink across holders of bonds, European equities, euro and oil shorts, etc.  Although Yellen's equity comments yesterday could have had a bigger impact, it's also probably worth noting that Spooz have legged other indices this year, reflecting to some degree at least relative positioning.

Macro Man has been intrigued to observe, however, that despite all of this kerfuffle the front end of the curve has been relatively well behaved.   Although one might expect the whites in particular to drill down to the data and be relatively immune to the slings and arrows of outrageous fortune, ongoing data disappointments from the US have been unable to propel EDZ5 beyond where it was at half a second past 8.30 am on the last payroll day.   Further out, things are rolling over just a bit...Macro Man's EDZ5/M6 steepener has come back from the dead:




Of course, all of this could simply be a "sell in May"/pre payroll adjustment/CTA beatdown that will be swiftly forgotten come payrolls or the next dodgy Greek development or some other shiny headline to distract the market magpies.   Then again, the punishment of apparently clear themes and back 'n' fill price action has been a regular feature of macro markets for the vast majority of David Cameron's five years in Downing Street.   Macro Man could almost (but not quite) countenance voting Gordon Brown back in if it meant an end to ZIRP world and a return to normal markets!


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theta
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May 7, 2015 at 11:14 AM ×

Why would the relatively small changes in government of a small island affect global markets? Are you talking butterfly wings etc?

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Macro Man
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May 7, 2015 at 12:57 PM ×

I am not suggesting that they'll affect global markets per se; nevertheless, I do find UK politics interesting, both in their own right and given London's prominence as a financial center.

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Anonymous
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May 7, 2015 at 12:58 PM ×

Some move. A flight to USD now or a reversal of a parabolic blow off?

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theta
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May 7, 2015 at 2:09 PM ×

MM I agree, my comment was mostly tongue in cheek

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Anonymous
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May 7, 2015 at 2:17 PM ×

Not to long ago we were all oil traders, then we became currency traders....now we're all bond traders

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Anonymous
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May 7, 2015 at 3:02 PM ×

FT:

And in the coming 2 years, as Gold is a measure of the market's trust into the "all powerful CBs" narrative, we will all be Gold traders

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Anonymous
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May 7, 2015 at 3:11 PM ×

and then, in a final spasm of controlled capitalism, the fed will be asked to set prices for all individual equities and every asset, and we won't be trading at all.

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ZH Reader
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May 7, 2015 at 3:24 PM ×

@Anon 2:17 - So is a 300 point move in the Bund 5hrs a big move then? Bwahaha

Good to see the catamite Central Bankers have everything under control...

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Macro Man
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May 7, 2015 at 3:38 PM ×

The daily candle would suggest that the puking has run its course (for now at least.)

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Mr. T
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May 7, 2015 at 5:45 PM ×

Something smells fishy. The activity in the GBL's and ZN's last night was a bit alarming, but the market response to it is downright bizarre. I just don't believe the market here - there are too many cooks in the kitchen.

We have also had 2 voting fed heads come out and say stocks are rich, with the inevitable n=1 comparison to irrational exuberance being used as a way to argue for another 5 years of straight up. 10 year breakevens are 10bp below the feds inflation target. Payrolls are estimated fairly strong with U6 @ 5.4%. Oil is rising, just as the fed anticipated (they got one right!). It seems apparent that the fed is leaking secrets left and right - maybe bond weakness is not just positioning. WIRP has June meeting raise at 0% probability, with only 23% for September. As much as I have been speculating about lower-for-longer being the catalyst for this years rally its starting to feel like the fed is trying to prepare markets for a bump. Looking at the numbers it's hard to imagine what the hell else they could be waiting for.

I'm positioning for this pre-payrolls via ED & ZT.



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Leftback
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May 7, 2015 at 6:11 PM ×

Rotating into REITs and bonds is usually a good move for a lot of punters in May (2013 was the exception!).

We didn't make a move yet. Here's why:

1) Greek default fear premium still in the global bond markets.
2) Auction of 10s and 30s next week.
3) US jobs data tomorrow represents an additional risk to USTs.
4) Chart suggests another drop in the long bond is possible.

However, we think it is probable that it is soon going to be pretty safe to go back into the water in bonds, b/c of the following:

1) Sell-off in German and US bonds reached a climax early this morning.
2) Daily candle shows a strong reversal.
3) TLT (also NLY, AGNC etc) had pierced the lower Bolly band for days.
4) US econ data still soggy.

So you probably nailed it, MM, at least for now. We are going to sit it out and wait for a higher low to develop I think. We are already heavily loaded with rate-sensitive issues so we want to get this right. Some nice yield on offer in REITs and preferreds, to be sure. Today we are probably going to lighten up a bit on a few of the European energy names that have had a good run.

The dollar seems overdue a substantial bounce.

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Anonymous
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May 7, 2015 at 6:57 PM ×

Mr.T - Yellen Lockhart Evans and George have all commented in last 24 hours. Looks like Spoo is going to wait until nfp to react. Or Monday

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Anonymous
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May 7, 2015 at 6:59 PM ×

To add...I think they're testing for a "taper tantrum" style reaction to comments.

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Anonymous
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May 7, 2015 at 8:04 PM ×

anon - what would a passing grade in this taper tantrum test look like, exactly? if the market goes higher they will raise rates a bunch and of it goes down they will shelve their plans?

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Leftback
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May 7, 2015 at 8:48 PM ×

A squeeze in cable might not be out of the question depending on how the UK electorate decided to vote. Any result other than a majority for Farage might be interpreted as market-positive at this point, no?

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washedup
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May 7, 2015 at 9:40 PM ×

Given how much bigger euro/usd positioning is relative to to gbp/usd, and given NFP tomorrow feel like anything election related should be played via euro/gbp.
what do u think of oil here Left?

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hipper
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May 7, 2015 at 9:53 PM ×

Ok it seems bonds are really starting to push all of the equity complex around now, guess there's always a small lag before Mr. Equity catches on.

This might not be a very relevant question for the time being, like a minimum 6+ months away, but since it's so important, one has to wonder how definite the "shelf life" (Sep 2016) is for the bond buying program. I don't have any scientific evidence to support it but only guts to say that ze Germans might begin forcing taper tantrum should the whiff of inflation start getting stronger in Germany. Should they actually start doing so, in that case I don't really think they would care what happens in the periphery, only what happens in core Europe.

The theme of eternal ultra loose monetary policy might not be the dictating theme after all, even in Europe or Japan in light of recent developments. Remember US QE began following a crisis and a more specific event regarding the risk to the banking system. In Europe and Japan QE began with a general purpose to "prop up the economy" lacking any specific or imminent crisis as a reason. Atleast Spain had a big bump in GDP expectations already so maybe the cyclical bounce was coming anyway which is now magnified a bit. Now that governments can spend almost as much as they like for free and anti austerity policy tapering away, this should really support growth further bringing in inflation earlier.

The big question is just what happens when it's evident enough, will CB complacency start rising and will they begin feeling the pressure?

http://www.reuters.com/article/2015/05/07/us-markets-cenbanks-taper-idUSKBN0NS1U020150507

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Leftback
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May 7, 2015 at 10:07 PM ×

Washed, I think oil is like a British banger here, stick a fork in it, it's just about done, as is the Euro retrace.

BBC projecting Tories as biggest party, slightly short of an absolute majority. LibDems look to have been slaughtered and rightly so. Perhaps a coalition with the Monster Raving Loony Party might be appropriate for Mr Cameron? Red Ed following in the footsteps of Neil Kinnock and Michael Foot as genuinely bright Labour leaders who couldn't win the general election.

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Leftback
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May 7, 2015 at 10:08 PM ×

I just made that last comment to wind up Macro Man....

:-)

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washedup
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May 7, 2015 at 10:34 PM ×

got it thx left - ya agree on oil - its flows and cross asset correlations have been highly suggestive of its rather casual use as an 'inflation hedge' by punters in light of recent data in europe/us - if bunds/bonds look like they are bottoming on weak NFP tomorrow things could get interesting for commodities. If NFP is really strong I have no idea what happens, but at this point I am expecting the former.

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CV
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May 8, 2015 at 8:11 AM ×

Hmm, is that a short FTSE 100 position scorching my PnL this morning ? ... It is, it seems.

Tsk, tsk ... I still don't think, as odd as it might sound, that the good'ol FTSE won't break higher here. Carney could be on the move you know ;).

Moving on, LB's banger allegory had me laughing, but I agree. I still think we could see one last gasp for the EUR energy plays, in line with an overall bounce in Eurozone equities.

Not much more to report really. Well played by Cameron. I still think that their policy is like pissing yourself to stay warm, huge twin deficits, help-to-buy goosing the housing market etc. If only it was that simple ...

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Polemic
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May 8, 2015 at 8:34 AM ×

Short ftse too but consider that position a lifestyle hedge against the election.
Ed Balls out. Vince Cable out. Great.
Conservatives should now shut off all funding to the USSR (United Scottish Socialist Regions).

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Bruce in Tennessee
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May 8, 2015 at 1:50 PM ×

hmmmm...last month's job report 126k new jobs revised to 85k? Something about fishy and smelly?

Perhaps the product of my cynical mind, but that seems like a whopping revision..

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