The summer ends here. We hope you have enjoyed your break in the market's road side service station, because it's time to climb back on board before heading back out onto the highway. Remember, tiredness kills.
Unfortunately, too many Macro punters, instead of sitting back and sipping overpriced "beverage-like products," surrounded by screaming kids, have been out playing with the traffic and come off worse for it. Either that, or they have done a Druckenmiller and sneaked off through the emergency exit never to reappear.
I bet the Swiss National Bank, looking at a EUR/CHF that is sub 1.30 wishes they could make such a clean exit. Imagine the headline - "SNB hands back 280 billion euro to investors, who say 'hang on, we gave you CHF...'"
Anyway, back in the middle of July, we asked you where you thought various prices would be at the end of August in order to see if our "high short term-volatility but within a summer range" theory fit right in with your own. And here are the results:
- EUR / USD
|1.2950 - 1.3350||20.60%|
|1.2550 - 1.2950||31.8% Plurality WIN|
|less than 1.2550||30.8%|
- Where will gold be at the end of August?
|> 1350||4% (13 votes)|
|1250 - 1350||12% (41 votes)|
|1150 - 1250||42% (139 votes) Plurality WIN (just)|
|1050 - 1150||27%|
|less than 1050||15%|
- Where will S&P 500 be at the end of August?
|1120 - 1170||13.50%|
|1020 - 1120||42.9% Plurality WIN|
|970 - 1020||25.90%|
|less than 970||12.90%|
- How flat will the 2s/10s US spread be?
|2.40 - 2.60||16.6%|
|2.20 - 2.40||31.3%|
|2.00 - 2.20||27.5% Nailbiter around 2.00, but the only one the plurality lost on|
|less than 2.00||19.6%|
You are a clever lot.
But now we face September. The Kevs and Trevs are returning to their trading desks and looking for something to play with. Team Macro Man are looking forward to a resumption of the old themes, particularly Europe. The US may be in a mess, but the news flow on Europe should start to pick up again, re civil strife and strikes as the summer ends and workers return to errr.. strike.
Whilst it would appear that there have been some tacit agreements in some countries not to stuff tourism through strikes, let's be honest, there isn't much point in striking while you are on holiday yourself and there aren't many more psychologically grim times than finding yourself in September with the grey grind to winter ahead of you. Perfect set up for a bout of "Sod this, let's smash a few windows." And of course the Universities go back soon too. History shows that if a European student stands a chance of getting a First in anything, its going to be in rioting.
But the dirty great fly in the ointment is the current sentiment indicators, which are mostly looking as though the world is pricing in a deflationary disaster and the spring has so much bad news hanging on it, it is going to take a very heavy new weight to get it to stretch much further.
Apart from UK fund managers who look as though they are going back into equities, so far today, European PMIs are trying to be that weight, and even the bullet proof Norwegian safe haven has seen a knock. But not much sell-off.
So the plan is to get back on board the bus and pile on short-term risk - equities, short USTs (oooerrr) and for an esoteric, long nok/chf. But, with a finger hovering over the big red bail out button on the first sniff of trouble and reverse the lot.
In fact, the tightest spring is probably wound up in eur/jpy especially if the BoJ jump in chasing it up rather than trying to catch it as it falls (a la SNB). The risk reversals look interesting too. As for our AUD negativity the other day, that remains in the medium term despite shorter term bounces.
Disclosure: No positions