We’ve been talking a lot lately about the “seismic battle” between those who fall into the reflation camp and those who, like us, are inclined to believe that something is fundamentally broken in the narrative.
Lately, our camp is winning. Sorry, it just is. 10Y yields have been under enormous pressure, USDJPY wants to head lower and so does the broad dollar (a continuation of Q1’s trend). As for stocks, well, they’re the sacred cow, but if you look below the surface at the “Trump trades,” cracks are indeed emerging.
Well on Tuesday, former FX trader Richard Breslow is out with his daily missive and he’s playing on Monday’s theme which in turn speaks to the above. Read below as Breslow explains that “investors seem to have more confidence in their longer-term outlook than on what is going on now.”
The markets would like to break out. But they keep being told they’re getting ahead of themselves and promptly back-off. Typically, traders have a pretty strong opinion of how they think things currently stand and then try to craft a narrative of where they believe asset prices may be going. In today’s environment, investors seem to have more confidence in their longer-term outlook than on what is going on now.
- It’s hard to position beyond the short-term when you allow the very foundation of your thesis to keep being pulled out from under you. And it doesn’t appear to matter whether you’re a peppy Pollyanna or a gloomy Gus
- We’d like to believe that current prices reflect all of the known facts. But we differ on the facts. Primarily because we can’t agree on what so many important things mean
- Will financial deregulation augur the next banking crisis or free up banks to lend? Can we live with or will we die by looser environmental laws? We can’t even settle on what the term “fair trade” implies for the global supply chain. The economy is strong but growth weak. Then throw in the latest geopolitical events and red-lines and everyone channels their biases. Analysis to follow later
- One thing I’m sure of is that 30 pips in USD/JPY or three basis points in the 10-year are no way to draw conclusions about these topics. Hence we stay violently in quiet ranges
- Last Friday’s non-farm payrolls was a disappointing number that was interpreted positively. After all, won’t the mix of the labor participation and unemployment rate mean wage pressure? Sounds very plausible. There are just as many people looking at it and saying so how come no one’s showing me the money. How can I be more productive with that robot staring at me?
- You can’t plan on what you’ll be doing at your destination with no clue as to how you’re going to get there. Investors are struggling more with the known knowns than the unknown ones, and won’t make headway until we sort this out