tirsdag den 8. september 2009

Weaker US Dollar - Strong Gold first warning signal?


Well, it looks more and more like it's up September(risk on) - but what got us talking at todays morning meeting was the changes in fixed income (down), gold (breaking 1000.00) and the US Dollar(Breaking lower)

The main drivers of this upmove has been (in our view):
  • Low global yields - making it impossible to hold cash - hence banks rides the yield curve (lending at ZERO placing at 2-4%).... 
  • The outlook for continued low yields - the QE, then later the Taylor gap....
  • Strong US Dollar - a sign things are good......(although as I have written continuesly about there are also fundamental reasons for strong US dollar: + C/A )
  • Gold has remained in range 900- 1.000 all year (open: 957)...
  • Incoming data improving...
Now in early European trading some of these "conditions" are at risk.....

Gold easily broke 1.000 USD and GBP/USD took out 1.6440/50 and EURUSD took out almost all high bar the June 3rd high 1.4510ish....so now we need monitor the bond market for signs of "wanting more risk premium".... for now bunds looks well offered towards recent low above the  figure 121.00 (Dec contract)......

Why would this, if so, be happening.....Well to my mind this is by-product of the G-10/20 meeting this week-end'.

  • We are going to see continued loose monetary policy well into 2010.
  • We will also have the "stimulus effect" in the budgets. The budget situation in Europe and the US is groteque vis-a-vis the intended Stability Pact....... everyone is looking for more Keynesian help ... the invisible hand is at work, will work and HAVE TO work.... we have several key elections incoming and the how does not want to keep their chaffeur driven car courtesy of the voters? This could be first warning from bond market: IOU's are ok in the short-term, but if this game is going to continue then....we need higher RISK PREMIUM (fact is yields are at, or lower than when S&P was 10% lower.....)
  • Move from real money away from "home bias" - we have seen Denmark and other intra-Europe spreads go out slightly - is this result of the real money moving towards "foreign investments again" after almost 100% domestic exposure - if so... FX impact will be seen....(Japan, EMG looks sweet for these types...)
  • Gold offers the only "tangible" currency (you could add NOK also)... hence the risk appetite

The strategy from us has moved from one of "trying to pick tops"  to "intra day" trading - finding the sweet spot for the day ... .however we remain sceptical on the longivity of the this bull market - but nothing tells the truth better than your profit & loss sheet ;-)

Safe trading,

Steen


1 kommentarer:

Saoirse sagde ...


Well, it looks more and more like it's up September(risk on) - but what got us talking at todays morning meeting was the changes in fixed income (down), gold (breaking 1000.00) and the US Dollar(Breaking lower)

The main drivers of this upmove has been (in our view):
  • Low global yields - making it impossible to hold cash - hence banks rides the yield curve (lending at ZERO placing at 2-4%).... 
  • The outlook for continued low yields - the QE, then later the Taylor gap....
  • Strong US Dollar - a sign things are good......(although as I have written continuesly about there are also fundamental reasons for strong US dollar: + C/A )
  • Gold has remained in range 900- 1.000 all year (open: 957)...
  • Incoming data improving...
Now in early European trading some of these "conditions" are at risk.....

Gold easily broke 1.000 USD and GBP/USD took out 1.6440/50 and EURUSD took out almost all high bar the June 3rd high 1.4510ish....so now we need monitor the bond market for signs of "wanting more risk premium".... for now bunds looks well offered towards recent low above the  figure 121.00 (Dec contract)......

Why would this, if so, be happening.....Well to my mind this is by-product of the G-10/20 meeting this week-end'.

  • We are going to see continued loose monetary policy well into 2010.
  • We will also have the "stimulus effect" in the budgets. The budget situation in Europe and the US is groteque vis-a-vis the intended Stability Pact....... everyone is looking for more Keynesian help ... the invisible hand is at work, will work and HAVE TO work.... we have several key elections incoming and the how does not want to keep their chaffeur driven car courtesy of the voters? This could be first warning from bond market: IOU's are ok in the short-term, but if this game is going to continue then....we need higher RISK PREMIUM (fact is yields are at, or lower than when S&P was 10% lower.....)
  • Move from real money away from "home bias" - we have seen Denmark and other intra-Europe spreads go out slightly - is this result of the real money moving towards "foreign investments again" after almost 100% domestic exposure - if so... FX impact will be seen....(Japan, EMG looks sweet for these types...)
  • Gold offers the only "tangible" currency (you could add NOK also)... hence the risk appetite

The strategy from us has moved from one of "trying to pick tops"  to "intra day" trading - finding the sweet spot for the day ... .however we remain sceptical on the longivity of the this bull market - but nothing tells the truth better than your profit & loss sheet ;-)

Safe trading,

Steen