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Macro Views

Dec. 05, 2016 10:32 AM ETGLD, TMV, EURS, DUST
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Macro Views:

Short Gold to 1110 (Now 1165)

Short 10s to 2.8% (Now TYH7 124-05, 10s 2.4%)

Long EURUSD to 1.08590 (Now 1.073)

Italian referendum vote extended the rise of populism across the major trading partners and potentially threatens the construct of the Euro Project. Especially if the latter scenario startles the market, the subsequent flight to quality trade will bring gold, 10s and USD higher. However, elections in other various Euro countries won't happen until next year, so for daily traders, there is a window for a quick rally in EUR. In fact, just as Brexit or US election have not destabilised the world, the market will quickly see the recent Italian vote as an impetus for further sell off in European Fixed Income market (higher yield) and rally in risk assets (stable to tigher spreads).

In other words, there is no need to complicate the trade by pricing in election variables from next year. For now, the global market themes are protectionism and populism driven fiscal spending.

This is not to say that I shorted the market overnight. I was positioned for a risk off trade into Sunday. The immediate reaction to the vote was risk-off but the immense intraday reversal in major asset classes insinuates that, just as in the US, this vote marks the beginning of the end of fiscal conservatism.

Only time will tell if the 30 year bull market for fixed income is ending. But it certainly appears that central banks are finally getting what they wanted all along: Any-Way-You-Want-It fiscal spending.

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