Richard Breslow, a former FX trader and fund manager who writes for Bloomberg, summarizes what has been a particularly confusing week for traders in his latest overnight note.
Jeez Louise, it’s only Thursday and it’s been quite the week. We’ve actually learned a lot amid the deafening noise. Primarily because not all noise is equally deafening. The conclusions of Monday were called into question Tuesday and mostly repudiated Wednesday. Now we sit wondering if we’re about to resume old trends or this is as tasty an opportunity to sell what most people were afraid to buy a mere three days ago.
- So we need to ask, is there actually “new” news, after only a very few days, we should we consider before flipping our coins anew? It really matters when updating your priors to sift through signal versus commotion. And accept that error terms haven’t been shrinking.
- Well, we’ve actually had an interesting insight into the potential direction of yield spreads between different sovereign curves. That’s actually a biggie. Probably needs greater trader focus.
- There’ve been a bunch of Fed speakers this week and they’ve stayed on message for rate hikes. Two more exceeds the one and one-half priced in. They didn’t seem derailed by last Friday’s events.
- On the other hand, a rising euro and higher yields got someone’s attention. Reuters reported that ECB sources say the hawkish rate interpretation from their March meeting was “way overinterpreted”. Euribor futures have now taken out the extra 10 basis points of tightening added on March 10
- And anyone thinking the BOJ is on the cusp of a snug should consult BOJ’s Iwata comments in parliament earlier today.
- The death of health care reform in the U.S., or more importantly, the entire fiscal agenda if you believe the armchair experts, has apparently been somewhat exaggerated. The Republican caucus is busy twisting arms and is reportedly preparing to have another go. Politicians don’t suffer embarrassment and slink away. It’s a who’s left standing last enterprise.
- Article 50 got invoked. I heard a lot more chatter about the crowded pound short trade than the acrimony that’s going to proceed any meaningful progress. All I’ll say is, it won’t be easy, no matter that the world didn’t come to an end yesterday. The key to where the whole thing ends up will be what the Chinas and Indias of the world have to say about bilateral trade and investment, not the posturing of the EU and UK over the next months.
- And if you wonder whether dip buyers are still there in equities, you need to consider the impressive 55-day moving average in the S&P 500. And not forget how stock people behave when it’s quarter-end.
- All in all, there has been actual news worth considering. Now see if USD/JPY can get above that safe-haven pivot at 111.70.
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