Thursday, 23 October 2014

Economist Cover Alert

We have just been treated to an indicator that out trumps any such voodoo as Hindenberg Events (Heisenberg Events are different and involve Breaking Bad), Golden crosses, moving averages or Fibonacci levels. This is the Ace of Spades in the pack of indicators. The mighty Economist Cover Alert.

The lull in the market battle that occurred around the 50% retracement level for US equities was brief and though it looked last night as though the fibonacci sellers were going to have their way with a rollover that was shaping up to dump again, it's now looking as though it was an ambush and the move back through this week's highs has followed through with a final bayonet charge that might carry all the way through to 2000 on SPX. I pity any poor soul who has just returned from a nice 10 day half-term break in the Maldives or such distant delight to be informed that they were stopped out 7% lower.

Of course that's just the US. The European markets have been languishing behind and that's why this Economist Cover alert is all the more interesting. Their full Europe story is here but though they paint a picture based on recent history,  it is hard to see sentiment turn much more bearish on Europe without a real fracture in structure rather than just bond vigilante attacks. Today's European data (released after the Economist piece) was a pleasant surprise and falling on such abject pessimism may be enough to turn some marginal sellers into buyers.

Please don't think I'm a raging Euro bull. I am just of the belief that with sentiment placed where it is, a lift in RoW sentiment out of last week's disaster zone, the US breaking higher, a bit of better Euro data and an Economist Cover Alert, it's worth buying the 'worst of the worst' and they are anything that contain the words 'Growth' and 'Europe' in the same title.


Anonymous said...

Is it a Norwegian Blue?

Anonymous said...

You made me wonder if my trade is consistent. I am short EUR vs a basket on long term policy divergence but also short bunds on the belief that there won't be sovereign QE. and, what do you trust more, IFO or PMI ?

Polemic said...

I am always wary of playing Euro FX on a long term view on rate divergence especially when the swings around US rate expectations has been so wild over the past couple of months. Everything can change so fast.

More to the point, the expectations are so far swung at the moment it makes the trade look very crowded. Part of that expectation is geared around the expectation of dramatic ECB policy even if it doesn't extend to full on QE. With that all priced in and there being little room for any further shock on the slowdown side, any sign of growth could do to Euro rates what happened to US rates a couple of weeks ago only in reverse.

PMI vs IFO? I guess I'm looking at PMIs beyond just Germany where IFO just gives us Germany. Pick up in peripheral PMI's should also hit Bunds via the spread trades. In Germany we have had the PMIs last week with IFO next week so a partial lag but agree in general that IFO have an old statistical advantage.

Anonymous said...

i mentioned PMI vs IFO because the (flash) euro PMI came stronger due to the German PMI being stronger last week. France PMI was weaker than expected and prior.