We have been gone for a long Easter weekend and meanwhile we have had considerable damage done to the favorite trades of Q1 - namely long USDJPY and short US Fixed Income:Nikkei is down close to 6% from its peak, and I think its important to notice that Japan in Q1 provided most of the QE-juice the market enjoyed:
USDJPY the most hled foreign exchange position also got hurt:
but the real damage is in the long-term chart, where uptrend since November has been violated:
Finally, the US fixed income is on something of come-back - and this is a year where EVERYONE and their dog is short and avoiding fixed income:
Meanwhile in event risk land we have this week:
· ECB meeting where we finally will see and hear ECB Chief Draghi
· BOE meeting - now the remit up for discussion will BOE act early on more QE?
- Non-farm - not that the data statistically matters, but market will overanalyse every single number this week
- Spain to revise down 2013 GDP growth target to -1 percent(and once again fail to live up to deficit target)
- France misses 2012 deficit target (as it will again this year)
- IMF says Italy to miss deficit targets in 2012 and 2013
- Cyprus seeks more time to meet targets in talks with Troika - and here I was thinking the talks ended last week :-)
- Italian President still looking for a government in Italy. (Napolitano extends Italian impasse as Cypriots tally bank loses)
- BOJ's new Governors chairs his first meeting: Is Haruhiko Kuroda Japan's Mario Draghi (let's hope not!)
- Who is Draghi? The President of the EU? Draghi apperently stopped the Italian President from resigning - on what mandate please? Link English
Meanwhile in reality-land or where real data and facts are used to confirm trends - We find that growth three month into the year looks extremely weak:
Europe data have disappointed hard:
but the real disappoint is EMG growth....which never got started:
While in the US - the recent improvement is now reversing.....
Call me naive, but I have a hard time seeing the combined news above constituting a positive bias to the market, the "biggest news" is the failure of USDJPY to hold its levels ahead of BOJ meeting. Market seems to be saying all of the news is now priced in, but the actual meeting will prove this right or wrong.
The ECB meeting will be about bail-out and the new buzz word: Template - I'm sure Draghi will also deny knowing the word, as it will not play into his hands, but..... Draghi must be concerned - the bail-in of senior bond holders and the EU Parliaments draft to include bail-in of uninsured deposits effectively removes a lot of his power as the ESM and the whole OMT becomes less likely in future financing models which could be based on someone actually taking a loss. Central bankers loves the limelight, so I excpect Draghi to fight back and try to put himself in focus, maybe by the token promise of a interest rate cut.
Draghi and ECB's problem however is not with the level of interest rates, but with the total failure of low interest rate to benefit anyone but the undercapitalized banking sector. The FT reports this morning: Blow for ECB as wider loans rates hit south
All in all - everyone will expect much action this week but end of the day it will be about the JPY and nothing but as Japan has been the only real QE party in Q1 - should they disappear or fail, we will be back to fundamentals, the last place policy makers and long equity players wants to go.
safe travels,
Steen
Med venlig hilsen | Best regards
Steen Jakobsen | Chief Economist
Saxo Bank A/S | Philip Heymans Allé 15 | DK-2900 Hellerup
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