- We started today as planned, with both safe havens and risk asset relatively flat, before risk-on sentiment dominated early trading with yen breaking out the 107 level and equity indexes holding their gains/ in the green.
- However, at apprx 10am GMT BBC Radio 4 reiterated the 3wk old sentiments from BOJ govenor Kuroda, which downplayed the chance of helicopter money/ took a hawkish tone - which in turn then shifted markets into a mildly strong risk-off rally, with yen falling 150pips straight down and equities failing to hold in the green.
Where do we go from here:
1. The easiest thought, with Yen up 1% and gold up 1% is to think "the risk rally/ recovery is materially over, we should start positioning for the material risk-off downtrend that has dominated 2016 and get net short safe havens again" however by steeping away from the fundamental intraday signs for a moment/ looking at the technicals from a macro perspective, there is a promising underlying trend that has developed this past 2wks (since the risk rally began) which MAY mean this is NOT the case.
2. Firstly look at the daily of USDJPY below (my favourite Safe haven indicator of risk sentiment given FX being the fastest asset to process information) and SPX above (my favourite risk-on indicator of risk sentiment due to its nobility) - what do you notice?
- For the past 9 trading days (since the risk-recovery started) SPX has traded one day higher, then one day lower EVERYDAY and today seems to be no exception - we are on the lower day. 9-days is particularly enough to be certain but it is definitely something worth thinking about when considering if this is the doom and gloom end of the risk rally or merely an interday correction that the market has been happy with since the rally started.
- Correlation at 97% confirms this view - and high correlations are usually markers of a trend (e.g. one up one down) and harder to break so i definitely think this could be an interday trend lower for risk (before resuming higher again tomorrow) - rather than a risk-off reversal.
BOJ Kuroda's reiterated comments:
1. Kurodas reiterated comments today from 3wks ago was certainly the driver for the aggressive sell-off however, we have since moved 50-70pips higher than them levels so there is definitely something more macro at play as to why risk is struggling today e.g. the one day trend that has held.
1. It will be interesting to see if that pattern continues to hold true e.g. tomorrow is a risk-on day. Though the odds are against it with friday historically being the WORST day for stocks due to end of week book clearing - so before making any moves on Friday it may be even best to wait until Monday to decide if the risk-off sentiment is here to stay before switching your trading sentiment (as i said last weekend) - unless we were to see some aggressive selling off tomorrow e.g. UJ to <104 - this to me would confirm that the risk rally was over and I would turn a net seller of USDJPY and cut my risk holdings
- It seems weird that the ECB dovishness was enough to send EUR$ lower (never happens) but not enough to give risk a prop up - so it could well be that the macro trend of 1 up/ 1 down on the daily takes precedent no matter what + the BBC R4 Spat with kurodas comments earlier was just an emphasiser of the already established marco pattern?
- Time will tell.
I think next week, given how "Live" this BOJ meeting is expected to be (its the Central bank meeting of the year imo), i think we will either see 1. UJ trade flat as the market waits in anticipation; or 2) we see aggressive positioning higher/ lower depending on what the consensus view is (like EUR$ did back in december)... I have a bias to the first option given that CBs have tended to disappoint expectations + with BOJ being one of the leading culprits in this regard.
Though, the speculation of a big package has moved us from 100 to 106+ so i certainly wouldnt be surprised to see us trade up to 109-111 based on pre-meeting expectation/ big delivery pricing as markets always tends to over price these meetings then sell-off aggressively on the disappointment.
But we will see.