Understandably exhausted from a week of lambasting traders for their lack of empathy and general naïvety (see here, here, and here), former FX trader Richard Breslow took a minute to breathe on Friday.
Eschewing the characteristic sarcasm and stinging indictments, Breslow used his final missive of the week as an opportunity to step back and look at where things stand.
Think of the following as a kind of retroactive journey through this week’s price action, but don’t forget to note the now ubiquitous reference to equities being the sacred cow that lives in its own bubble (both figuratively and literally).
Via Bloomberg
I’m torn between putting today’s price action down to the start of a long weekend and being amazed at how downbeat everything feels. Both are probably true. Volumes are low across all assets and idea generation even lower. Where did the feel-good vibe of equities making new highs every day and we’re all getting rich go?
- We’ve gotten used to markets that traded happy even when no one felt that way. Now that the global economy is starting to gain momentum, something in the back of our heads tells us that we should be starting to see a reversal rather than continuation in asset prices. Such is the lot of investors living in a world of consciously derived bubbles
- We’re gloomy when theory says we should be relieved. We can judge what, in theory, the latest news should do for prices, but we really have no clue what intrinsic value is. Then add in the fact that the appetite for carrying risks over weekends has become anorexic and you have days like today
- Thursday’s capitulation to momentum has given way to Friday’s blues. Which should be ironic given that today’s full slate of economic numbers in the U.S. are likely to surprise to the upside. If only anyone cared. Traders are far more concerned about some random attack on the superior quality of German cars than a potential upward revision to first quarter GDP
- So where do we stand going into the weekend? The dollar has spent the week consolidating. Which is a plus given last week’s caning. But in fairness, it needs to hold the recent lows near 96.70 in the dollar index or could face another leg down. Good risk reward if you like it, but the onus is all on it showing some strength — and soon. The washout in USD/JPY today is not a hopeful sign
- U.S. bond bears need to be concerned. To my mind, there’s been nothing from a fundamental economic news flow that justifies bunds and Treasuries plumbing the lows as we head out. It’s a real problem. It’s one of those situations when I can’t help wondering if someone knows something I don’t. Watch this very carefully. Ultimately sovereign yields are the most important driver out there for other prices
- Commodity prices look like they are under pressure, but, please, accept that whether you are looking at oil or the broader Bloomberg commodity index they are locked in a range. Don’t let the news story of the day convince you otherwise. Which is easier said than done
- Equities are equities. While they remain the best idea for sovereign wealth funds there isn’t much to add
- Other than that, have a great weekend and we’ll figure this all out next week
