It’s been quite a day, and pretty much the second in nine trading days that got me excited at all! Obviously the other one was yesterday, with pretty much an isolated euro-swing (like plus/minus 1%!) stemming from the Greek midnight anti-drama for once. Honestly, voting through the package wasn’t much of a question to begin with. Then again, pretty much immediately afterwards we got the information that Japanese GDP wasn’t falling at just 1.3% annualized pace over the quarter, but 2.3%, and all hell broke loose. Just to be lifted by the late-afternoon volume re-entry Asia-wide, and get Europe into a good start.
The market shrugged that Japan GDP thing off, and now, all fingers crossed for the all-important vote on whether they actually get the bailout which is set for tomorrow. Add toes to the crossing!
Then of course came the flurry of news today. Europe got pretty much rejected across the board and given a cold (sword-wielding) hand (across the ankles) by Moody’s right as the Asia markets were set to open. Downgrades and negative outlooks galore, and one could not imagine a more sour breakfast served to bed! Markets entered submersion mode briefly! Afterwards, it was the BOJ’s time to fall into the arms of the recently popular policy tool of inflation targeting (which in the BOJ’s case has a new meaning of actually targeting achieving inflation rather than merely specifying it), and give some back in the form of increased asset purchase programs. This time it was the yen’s turn to feel the cold, and it’s still simmering somewhere in the sea of tears somewhere around USD/JPY 78. (~1% down on the news.) Related quip, block-quoted if you’re interested in skipping it:
One might wonder how the rest of the world markets might react to this BOJ policy change in due time, but for the time being, other news are moving the markets more. I’m inferring that this is indicating that I) this was already priced in and expected from the “more of the same” bank, or much more likely, II) that the effects are going to be highly local given the effective interest rates/easing policies in the eurozone and US essentially not making the yen that interesting as a carry currency anymore. That isolates the yen outflow from foreign speculation (why bother with the hassle of going around the world when you have zero-interest currency in your own back yard?) and might even have the perverse effect of slowing acquisitions abroad by Japanese companies, acting as a dampener.
Suffice to say, bullish equities but for some reason not commodities. Guess someone expects a lot of those assets to be put to work mainly in China through the QFII program given how Hong Kong recovered. Then following that was the fears that the eurozone fell into recession from European industrial output falling, which is most likely also kinda priced in. Or something. Inflation is turning negative in the UK (so they can shower more of that oh-so-sweet QE-labelled champagne liquidity over markets) and justify their pre-emptive pushing of another £50bn into the market by the BOE. All of this printing in the air, and no massive gold rally? Where is the love? And finally, the most likely contender for biggest market mover of the day, European confidence indexes are going up.
So, yeah, naturally the markets
started accelerating upw wait! What the? This looks like someone is applying one random number generator to another to me! What is there really to be confident about? The next tranche of LTRO? A most likely plunging euro to prop up some exporters (all in the northern part)? Greece? Italy? Portugal? S(pain)? For all of these absurdities, it’s the confidence numbers (which are unlikely to mean much unless we get the “right” decision tomorrow on the intermediate bailout for Greece) that move the markets up, and not the actual output numbers? Wacky valentine world… Next thing I know, I guess the markets won’t move up or down, but outwards from the computer screen in an attempt to make the charts stab me…
On the currencies, well I guess you’re in a race to the bottom of the pond versus the US and Japan, and Japan is a little bit fat and lazy (kinda floaty in fact) while the US keep hitting upwashes given their reserve currency strength. Europe is the only contender endowed with rocks! they might win! But at what cost? LTRO? Call it what you want, it’s still printing, and why would the switch be of any value in this absurd swap structure (lend the ECB assets, get cash in return) and preferable over any blanket guarantee on paper rated level x or above as of y time? And since this structure also makes the ECB claims on the banks senior to anyone else, it’s not as much LTRO as LOTR, where “R” can stand for anything from “repayment” to “rash”.
I can’t be alone on this (issue and) night, I’m now hiring people for the period. Not to visit my bed, mind you, but to sit and cross fingers, toes, and whatever else is available for the purpose of hoping that the bailout gets approved. It would be a pretty nice shorting opportunity when the market participants realize their rejection by reality.
Until then, happy trading of the new monetary liquidity and other liquid assets that are particularly available today. Remember boys, be good always put on prudent stops, no matter how intense the action would otherwise be. Not doing so might be pleasurable at the moment, but set you up for a world of hurt later! If you don’t, be ready for a long term engagement!