Well so much for "fading" the moves in fixed income, they came right back down today. Relatively good claims numbers and slightly better trade data was the menu for today.
Trading wise...we got stopped in long FI, small loss, Dax - broke the magic 8.100 in the future (-9 bps).. all in all loss account from overnight was down 15 bps.
We initiated new postions based on our model and general outlook. The Fixed Income sector is clearly doing some reflation we have sell signal from momemtum model in bunds, bobl, 2y, 5y, and 10 y. We now need confirmation for this but going into end of Europe session it looks valid. We initiated short bunds & bobl#s - the theory being short the most aggresive inflation hawks, I.e: ECB relative to Fed.
We also bought some EUR p USD c based on a couple of things:
1. The interest spread differential have moved 2.5 std. dev. in favor of the US dollar without any luck so far - we feel its days is closer.
2. There are some talks that the European trying to get some sort of consensus for G-7 communique next Friday on the weak US dollar. Getting all of G-7 to agree it much tougher job, but the Europeans seems confident they can agree something.
We feel the momentum is strong on the US weaker play, so we bought some 2 week EUR p USD c, 1.41 ish strike for less than 8% vol. (Yes, volatilities are back to almost pre credit crisis levels)
We also added exposure to energy, gold and agricultur through ETF's as this is beginning to look like smooth sailing in Q4 - I have been slow in acknowledging the technical signals which have been there as I have felt fundamentals have been missing, but.... this market is NOT about fundamentals - its feel underweight risk now that the economies are not falling over a cliff.
Finally, we added, although reluctantly DAX which broke its old high - it still looks like a 50/50 whether its going to stay above the break out level into the close but ALL stocks markets are now long in the model....
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