Global markets are reeling this morning after the US president trumped his previously announced tariffs on $50bn worth of Chinese imports with the threat of another $200bn worth should the Chinese retaliate with penalties of their own on his initial tariffs. The heightened fear of a full-blown trade war has slammed into equities and EM currencies with the usual safe-haven assets – gold, bonds and the Swiss franc – gaining.
Article / 26 November 2012 at 9:04 GMT

Swings and roundabouts, which headline is around the next corner?

Director / Accumen Management
United Kingdom

It has always been a popular adage in financial markets and most certainly in FX, that things overall move in swings and roundabouts, be it macro indicators, a trader's profit and loss, overriding market themes or simply the price of any instrument on any given day (when no other definitive explanation can be found). Never has this been more the case than in the most recent 18/24 month period as the world goes through its peaks and troughs more frequently than most of us have hot breakfasts. A lot, if not most, of this can be attributed to the simple fact that the market as we know it is in a vicious cycle that some have even called a death spiral (Nouriel, you bad boy of economics, you...).

Accompanying this phenomenon of swings and roundabouts is of course the ever present financial media that seeks to duly and accurately inform all of us of what the most current worry in global markets is. This in itself means that every three/six/nine months we get a certain set of market themes/headlines in very heavy and constant rotation. Just when you thought it might be safe to get back in the water, along comes another shark that you’d long since forgotten about to spoil an otherwise perfectly nice day at the beach... As such, below are what in my mind seem to have been the most popular themes that have hit markets in the last two or so years;

Currency wars!
Honestly folks, calling the co-ordinated G7 Central Bank devaluation of fiat currency that we have been experiencing for the last two years a war, is akin to likening General “Stormin” Norman Schwarzkopf to Inspector Clouseau. It is no more a war than it is a race. A race, mind you, where the participants are so worried about upsetting one another that they stumble over themselves as they apologise to each other while running down the road to a worthless currency. Never a clearer example of this “tacit co-ordination” than the post Jackson Hole US, EU and Japan easing efforts (all within 10 days of each other). So for those who believe in wars, I suggest you turn your attention to the Middle East and see how it is really done, as opposed to looking to clueless central bankers asking one another if they are comfortable with each of them having a weaker currency.

Quantative Easing in all its assorted shapes, colours and sizes has been flying off the shelves globally more quickly than the crack team of Big Bad Ben, Swervin Mervyn and Shaky Shirakawa can restock those very shelves. But as far as the market is concerned and the ensuing reactions, it is not just about the announcement of the action, if anything, it is more about a Hilsenrath article pre empting, or the threat of an upcoming central bank meeting, a TV interview, a hint, a wink, an outlying inflation statistic etc. Basically anything that can spoil the party or allude to more (or perhaps even less) money printing and expansionary monetary policy is clearly newsworthy but even more so a reason to strike fear and panic into the hearts and souls of traders out there and cause the market to do triple back flips.

New Acronyms...
If it weren’t for continued utterly futile efforts to fix a problem that no one is adequately equipped to fix, then there would most certainly be at least 10 fewer confusing acronyms that anyone seriously participating in the market would need to remember. I mean, seriously, what the bloody hell?!

We have (and have had) such beauties as;

• ESM (European Stability Mechansim)
• EFSF (European Financial Stability Facility)
• SMP (Securities Market Programme)
• OMT (Outright Monetary Transactions)
• CAC (Collective Action Clause)
• ELA (Emergency Liquidity Assistance)
• LTRO (Long-term Refinancing Operation)

And the list just keeps going, sadly I can also assure you that rather than reducing in size, this list will only continue to grow...

China saves Europe! (again...)
The usual rotation for this particular headline relating to China all of a sudden opening its philanthropic pockets to buy much maligned peripheral European sovereign debt is about three months on average. The net result is usually a spike in risk related assets for about 20 minutes before the usual denial of said rumour kicks in and everything returns to levels experienced roughly 30 minutes before this vicious rumour did the rounds.

A debt ceiling that has become a fiscal cliff
Surely it was only about nine months ago that we were talking about a debt ceiling in the US that simply would put a complete and utter stop to any and all growth in America? And now once that humungous hurdle was overcome, we come straight to the edge of the fiscal cliff. Many, rightly so, would argue that the latter is a direct result of the former. And just like the ceiling, the cliff too, will be overcome, not however, without the usual indigestion that it causes though...

Bank stress tests
Every so often we, the trading public, are subjected to the comedy of errors (underlying assumptions) that broadly constitute the parameters of a nation's bank stress tests. The very essence of the assumptions used in these “tests” are indeed laughable. And truthfully, the only real test that we are faced with in these instances is a test of how long we can suspend our combined disbelief and whether that is long enough to swallow the s**t that these bureaucrats try to shove down our throats. But, even this far-fetched nonsense is substantial enough for the market to stop and hold its breath waiting for results to be printed.

This list is of course by no means exhaustive and I would be interested to hear what you (the reading/trading public) can add to this catalogue of cacophony.

Mark Wogan Mark Wogan
Morning Ken.Just wanted to say that your posts while always having some serious info to impart are nevertheless always engagingly written. Its not what you do its the way that you do it - thats what gets results as Fun Boy Three might have said - my memory of the 80's is fading! Good stuff :)
benlouro benlouro
once again: very good writting.
apothekede apothekede
Ken is the Man! Great stuff as usual and unbelievable excellent writing skills/knowledge/insights. Thanks!
Rcernava Rcernava
Ken, truth is stranger than fiction. As I've joked we've now got paparazzi's chasing down central bankers, finance ministers and politicians to see if their smiling or not while they exit meetings.


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