I have been really scratching my head the past week or two trying to figure out just what in the hiell is going on in the world.
I have not been a believer in the economic recovery story all along (and missed out on some huge PL as risk got put back on) but at least April, May, June (a little less so) and July had a clear theme - risk got bid up. During the process the underlying economic data, at first a mix of horrible and merely bad news, became progressively and steadily less bad. OK, so I think the rally is overdone but I see the logic.
But since mid-August I am seeing some confusing signs in the market which only became worse just lately. In short, I don't have a clue what is happening.
Economic data has been better and better, but the news that would have propelled the markets back in July is having no impact at all. This morning I show up to work with the stock markets down all around the world despite some pretty good PMI numbers all around stocks and commodities were broadly down. Is the re-stocking of inventory story fully baked into asset prices now? Appeared that way. Even a solid China PMI couldnt lift up copper. Then the market looked like it was back on bull run when US PMI and existing home sales came out. I am not sure which news mattered more but they were both positive surprises.
Fast forward 3 hours here we are with risky assets getting destroyed all around with no particular bad news. Did the final week of August mark the turning point for this bear market rally?
In commodities, I had been bearish since the WTI broke 75. I split my risk budget 50/50 between outright short and a steepener (short the timespread). The directional short has worked out well but the spread has gone nowhere. Looking to shift out of short and into the spread bet as risk/reward is better there I think. I am looking to ride Nat Gas down to two bucks and then hop out. Out of lead but keeping short ally.
In FX, I am getting hurt on long scandis. Long JPY and short NZD are helping to buffer the losses on but not quite enough.
Have no bets on equities or rates at this point. But maybe not for long.
