Article / 03 December 2012 at 6:53 GMT

The holidays have come early this year

Chief Economist & CIO / Saxo Bank
Denmark

This week's set of Stress Indicators is the most 'positive' ever reported. It seems the market is heavily betting that Ms. Merkel and Germany will do absolutely nothing between now and the General Election in September. This may be right, but things rarely prove to be so simple.

We have also entered the best 'seasonal month' of the year for equities, as December is up 80 percent of the time. But this year includes a US "fiscal cliff" which needs to see some sort of resolution.

Here a few charts from a review of the various indicators (see attached PDF) that caught my eye:

Club Med rates have tanked on the apparent bet that Europe will need the German election out of the way (next September) before the next round of real tension:

Club Med 10 Y rates

But money is still flowing out of the same countries!

Demand Deposits

The US Dollar sentiment is changing  - All year, the market makers have paid more for EUR puts than EUR calls, this is now much closer to neutral than it has been in a long time - indicating a more balanced market consensus on the next direction of the EUR:

Risk Reversals

and finally in terms of valuation, the market is still as far from the 'fundamentals' as it was in 2000:

 

Market Valuation

Safe travels,

Steen Jakobsen

 

Download document

Stress Indicators.pdf

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