It's Still a Trading Market

Includes: DIA, SPY
by: Macro Man

Well, there you go. The best way to spice things up a bit is to write a piece moaning about how uninteresting things have become.

It all started somewhat suspiciously, as US equities went bid a couple of minutes before yesterday's housing figures. The headline duly surprised to the upside (though in aggregate, the figures were largely as expected), and equities proceeded to go psycho-bid for the rest of the session.

FX duly followed along, the the dollar selling off in line with improved risk appetite. And then, at roughly 5 pm London time, the dollar mysteriously went bid. US government comments telling China "don't expect us to buy as much of your crap moving forwards" may have explained some of the move, but to a market used to an equity-dollar correlation of close to one, it was truly a bewildering development. EUR/USD ended up tracing out the dreaded "witch's hat" formation, then tumbled further after a raft of poor earnings reports after the close.

Although the euro has recovered some of yesterday's lost ground thanks to a solid ifo report, it's nowhere near yesterday's highs. It's all somewhat surprising, given recent inflows into EM and the announcement of another zillion dollars of US Treasury issuance next week. Where's Voldemort when you need him?

Much as it may be tempting to throw his lot in with the "risk-on" crowd full bore, Macro Man keeps telling himself "it's a trading market, not a thematic one." Action in short sterling provides a ready example. While markets traded in considerable sympathy with the view sketched out in this space yesterday, it's all change today after an execrable -0.8% Q2 GDP print, much worse than the -0.3% consensus.

That's taken the y/y figure down to -5.6%, the worst since Bloomberg data begins more than fifty years ago.

Just imagine how bad it would've been if Gordo hadn't ended the boom/bust cycle, though....