Friday 3 February 2012

Markets push on higher in thin volume as everyone waits for the turn...

"Slow-motion" would be one way to describe price action in equities and FX at the moment.
 

Q3-4 2011 was defined by record volatility and headline risk. Q1 sees us stuck in 1st gear, grinding higher and higher with most market observers in disbelief at the sheer persistence of this technical trend in the face of largely unchanging EZ fundamentals. Free money for Momo funds and trend chasers - and we can only blame ourselves for expecting an imminent correction every week for the last 3 or 4.

We weren't alone in this belief. Whilst the Feb LTRO was (and is) expected to support the market in the short term, it defies logic that the long end (5yr+) of sovereign bonds and coroporate credit should also rally as hard. Considerable bets have been made that the LTRO is not a simple "kick-the-can" policy that will stare out economies into growing, but a real game-changer.


But most depressing is the unbelievable tear in Gold, which we called and were positioned for - unfortunately in not enough size as we took further fund injections. Our gains here are offset by our losses in JPY as the USD has weakened into the risk asset highs.
 
 
The turn will not only afford us more Gold but also support our flagging JPY trade - not low enough to cause intervention but not high enough to be pain-free. Testing times..
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