Risk rallies again

February 2, 2012

FOREX, Global Macro

Markets keep you humble don’t they! I got it wrong on the Aussie Dollar and risk assets yesterday – there is no hiding from that. Even though my Double Bolly band strategy was still long Aussie I was hopeful for a pullback – or at least calling it. This is a good example of why trend following strategies can be better than subjective analysis. Because even though I’ve always been pretty good at the subjective analysis it is by definition prone to biases, time frame differences and even when bullish, as I am presently for risk assets generally, hopes of a pullback to buy as yesterday.

And so it is that we see a sea of green this morning as markets look to have been buoyed by the better than expected manufacturing data out of China, Brazil, the US and even Europe.

Looking first to China we see that the data wasn’t brilliant it just wasn’t poor so hopes are that hard landing can be averted. The official PMI rose to 50.5 from 50.3 in December when the punditry had been looking for weakness. Indeed the HSBC PMI reading did show contraction printing at 48.8 for the second month in a row. HSBC said that it’s number,

confirmed the still weak growth momentum of manufacturing

But in a world recovering from the extreme pessimism of the middle third of 2011 and exhibiting pessimism fatigue stabilisation is very positive for markets.

In Brazil things are on the improve as well. (HT friends @macromon for the snapshot below from HSBC)


So more good news for risk and a nice reversal of fortune – I’ll post on the Aussie Brazil cross during a break later today for those interested.

In the US Bloomberg reports

Feb. 1 (Bloomberg) — The Institute for Supply Management’s U.S. manufacturing index rose to 54.1 in January from 53.1 in December, the Tempe, Arizona-based group’s data showed today.

Great news!

Europe even had some ok data for a change with the Eurozone manufacturing PMI rising from 46.9 in November to 48.8 in December. Clearly, below 50, this data is still overall in contraction territory but with Germany at 51 and Austria at 51.8 it’s not all bad. Following the usual theme of Teutonic north v Club Med south though we see Italy at 46.8 and Spain 45.1 – still deep in contraction territory.

But for the moment risk is on – to quote a phrase I dislike – and the Aussie Dollar has roared higher and sits above 1.07, the Dow is up 123 points to 12,756, the S&P 500 almost 16 points to 1328. These rallies are more subdued than those in Europe for the second day in a row with Europe up around 2% to the US’s 1%. Strangely, unless my commodity feed is delayed, both the CRB and GSCI commodity indices are down.

My overall biases remains for more positive price action over the next few months. Will we see a pullback? Of course, and I’m not committing any fresh cash at present, but for the moment markets look like they are still washing off their pessimism and grabbing anything positive rather than focusing on the negatives available. That is an important behavioural trait for trader types to acknowledge – it helps not to make the silly mistake I did yesterday in the Aussie Dollar of trying to call a pullback so I can then buy it.

Have a great day.


Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation

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