QEasy Street is over… that’s the message from former fund manager Richard Breslow, but traders are yet to admit this new reality to themselves.
Via Bloomberg,
There are a lot of traders grateful for the populist scare going on in Italy. Not that they support the draft governing platform nor think this will provoke true fiscal reform and integration within the euro zone.
Rather, it remains a buy-the-dip world and people spent much of the last few days just trying to figure out where. They have decided to give it a try this morning.
For all of the understandable hand-wringing over what is a mini-BOT, I got little sense that fear has been the dominant partner of greed as we’ve watched Italy and emerging markets beckon the buyers by selling off.
Frankly, traders have been even more aggressive, dare I say impatient, in picking their spots than the news flow might suggest. Which means one thing. Whether it’s prescience or simply wishful thinking no one yet believes the central banks have gotten meaningfully out of the market manipulation business.
This issue, far more meaningful than whether futures should be pricing in 2.5 or 2.75 more rate hikes this year, will ultimately be the biggest communication issue they need to deal with. How do you keep the put firmly in place while denying its continued existence up and down. It all comes down to a game of who blinks first, but it is clear from the latest buy-side commentaries that wider parameters for when intervention occurs isn’t a threat but a greater perceived opportunity when the cavalry arrives.
It’s tempting to spend the day transfixedly watching BTPs or the Turkish lira flying around. That’s fun but not an easy way to make money. The noise is deafening, slippage cruel and randomness maddening. But we do know that how the euro, dollar, bunds and Treasuries trade will ultimately tell the tale you need to follow. And they all have legitimate and fairly economical levels to key off of. The roadmap drawn during the last few days is pretty clear.
There is, however, one important difference between markets during QE and now.
During the former, everything worked on the assumption of asset price inflation.
We are now in an environment where without bottom-up growth, the whole house of cards is demonstrably unsustainable.
Yes, many of the recent problem markets have their own sui generis stories. But the larger market concern comes down to growth anxiety fueling questions about debt sustainability and servicing.
Bank of England Governor Mark Carney has been getting beaten up over his insistence that he is data-dependent and won’t give the rock-solid forward guidance so many demand. Even today, he got taken behind the woodshed over this issue. The disconnect is investors want to simply be told what and when to buy. He realizes that monetary policy must now reflect growth not just financial asset prices. And growth is something that he and his global peers have a lot less control over. And why suddenly, markets care about geopolitical problems
via RSS https://ift.tt/2IGqaa4 Tyler Durden