Perched On A Precipice


Was it really less than a week ago that the market and Macro Man were saying “I ♥ risk”? Suffice to say that the enthusiasm has petered out pretty darned quickly, and everything now looks quite ugly.

Friday’s payroll number was execrable, though perhaps not as execrable as it might have been. Karma dictated that having moaned about never winning a sweep, Macro Man triumphed last week with a cheeky -575 guess. The worse-than-expected unemployment was not particularly surprising, given that it looks likely to eventually exceed 9%. nfp+outturn.GIF

Regardless, the uninspired price action following the figure has left equities looking vulnerable. Not only did Friday’s close leave the SPX down on the year for the first time, but it also left the index perched bang on both the 55 day moving average and the uptrend from the lows.


Not that the vulnerability is confined to US equities, mind you. Technically, the picture is virtually identical for the Eurostoxx….the price is perched on both the moving average and the uptrend line.


Given ancillary price action in other “risk tells” such as the yen, at the current juncture risks appear skewed towards a deeper “risk off” environment. Macro Man has adjusted his portfolio in a way that will hopefully de-sensitize him from such slings and arrows of outrageous fortune.

Elsewhere, at least one punter seems to be allocating a significant amount of premium to the notion that the ECB will see the light and slash rates this quarter. A literally unbelievable amount of option strategies have traded in March euribor over the past several days, with the end user doing a dazzling array of spreads that essentially look for euribor to settle at 1.75% in March, give or take. That would require fairly aggressive ECB easing, down to somewhere around 1.25% – 1.00%, depending on your basis assumptions.


Now, perhaps the end user has had the proverbial tap on the shoulder from moles within the ECB; to be sure, the airwaves have been dominated by dovish comments from ECB voters so far this year.

But it begs the question; if the ECB really does take rates down that low, shouldn’t the euro be a bit lower?

Originally published at the Macro Man blog and reproduced here with the author’s permission.