The plethora of news headlines ending ‘as/because of Paris attacks’ is hugely infuriating.
The best one must have been the The UK Sunday Times with 'Paris attack rattles markets as ECB readies cash injection’ written on Sunday. Sunday, before the markets had a chance to show any rattledness through price. Pure speculation.
The subsequent move higher in global stocks has had journos scrambling to fudge away their expectation of financial meltdown, but we have to remember that those selling are not selling on the Paris event but how they think others will react to the Paris events.
'Buy the rumour, sell the fact' is better phrased today in a glorious 'Sell the fact, buy the hope'
Moving swiftly on, the moves lower in ‘stuff’ have fitted with my feelings expressed in my last posts at the end of October (Sorry for not posting since then, I have really had nothing to say) as the bullish momentum finally faded. Back then I was surmising that dovish expectation from the FED and ECB were at an extreme and any change would wobble things lower. So it has been with the Fed, where we are now back to expecting a December hike with confidence levels, as represented though Fed futures, at levels not seen since the Fed last moved. So it is very tempting to now think that market disappointment at a hint of no move would be worth playing.
My basic rule is that if we consider this game theory where H= Hawkish Fed and h = hawkish ECB and 'D' and 'd' the dove versions. Dd and Hh are equity trades whilst Dh and Hd are FX trades.
So since last commenting when we were at Dd we are now at Hd and indeed the equity trade has unwound a fair chunk to more neutrality and the FX trade is in play via EUR/USD. ECB expectations appear to be stuck in ‘d’ for awhile yet but there is another chance of Fed to move from H to D.
China - Xi says China GDP will be 7%. Really? Either he has more control of the economy than I thought or he is playing King Canute
Oil.- If ever there was proof that the world isn't expecting the Middle East to blow up to an extent that oil supply would be effected then the price of oil is it. Supply is assumed to be safe. I am surprised that the Saudis are being allowed to get away with such supply aggression. I am surprised that the Saudis are not being leaned on by many western allies to do something about it. I am surprised by many things that centre upon Saudi Arabia. Quizzical too.
All in all I am worried about the state of the world but that doesn't easily translate into market prices as bad can mean good and good bad. It get's more complicated when I still feel that inflation is the end game and though central banks are shaking hard at the inflation bottle, it contains a genii that will screw everything.
There are charts of doom everywhere but there have been charts of doom everywhere for the past six months and markets have only oscillated. Nothing grabs me. So though I have been running short risk for the pat few weeks I am taking a lot of those shorts back.
When in doubt do nowt.