Well, the latest edition of policy “shock and awe” was released yesterday, with FASB adjusting the mark to market rules and the G20 promising a Dr. Evil-esque “one triiilllliiioonnnn dollars!” for the world economy. Markets were so excited that they barely noticed the disappointment from the ECB.
Well, that’s not entirely true. The euro rallied sharply against the dollar (because in a 16 vol currency pair, an extra 25 bps makes the carry sooooooo much more attractive), and the front end of Europe got butchered. While euribor fell quite a bit, the real carnage was in Schatz. Macro Man stands by the view that German two year bonds are a much more attractive proposition than short-term lending; sadly, the market doesn’t agree with him. Perhaps he can employ new FASB guidelines, as his model suggests that Schatz yields should be 1% rather than 1.5%?
While Macro Man will leave a full dissection of the G20 announcement to others, he is left waiting for Messrs. Brown and Sarkozy to move swiftly on the tax haven issue that has troubled them so much. He is looking forward to seeing a clampdown on noted tax avoidance centers like the Isle of Man, Channel Islands, British Virgin Islands, and Monaco. Or will Gordo continue to turn a (literal) blind eye to his island stashes while Sarko is unable to see over Les Alpes-Maritimes, even with platform shoes? Inquiring minds want to know.
Speaking of dodgy tax havens, the SNB received the green light, from the data at least, to make another foray into fighting deflation. Swiss CPI fell 0.4% y/y in March, lower than the expected -0.1% and the most intense deflation (or is that “extreme disinflation”?) since 1959. Given the reaction to Hildebrand’s comments yesterday, the SNB may decide that for the time being, words are more powerful than trading tickets. But the marginal impact of jawboning will ebb swiftly; the only words that the market will want to hear is “One fifty five bid, your amount.”
And of course, today sees the release of the US non-farm payroll data. Macro Man omitted mention of it over the past couple of days because it feels as if the market just doesn’t care. The market feels like it’s in the modd to shrug off a horrible number; hey, it’s a lagging indicator, China’s recovering, Dr. Evil has saved the world, etc. etc. etc. A “mere” 500k job loss figure, on the other hand, could be met with cries that the “worst is over”. Or so the theory goes.
At this point, Macro Man is looking forward to the weekend. He might pay away a bit of option decay, but at least he knows where that is coming from. It feels like he’s been scuffling for about three weeks now; while the P/L damage has been fairly modest, the intellectual hit has been more considerable. It’s all part of the business, of course, but he’s looking forward to a couple of days where he’s not saying “WTF?”
Originally published at the Macro Man blog and reproduced here with the author’s permission.