Thursday, March 12, 2009

Savage Thoughts

Today was one of only four times in history for the Swiss National Bank to intervene alone, that last time being in the mid-1990s. So for that extraordinary action we receive an extraordinary move in many markets a veritable reversal of fortune for emerging markets, banking shares, commodities and the USD. For US equities it was a three-peat three up days in a row surprising many technicians with the break of S&P500 741 leading to calls of 768. A 4% up day for equities had other drivers the retail sales drop was modest and in fact it suggests the return of the US consumer something that may mean trouble on other fronts. The commodity market saw an early rally in oil extend to a dramatic one with oil up 10% and breaking from recent correlation gold rallying $15 to 925 up nearly 2%. But the surprise result on the day may really be in fixed income where a bid equity market, a weak USD and a higher energy complex along with $11 bn in new supply all this left the 30Y US 4 bps lower with an auction notable in its foreign demand. The underlying driver of why todays SNB action had such a broad effect rests with the G20 Finance Ministers meeting ahead. The talk for the week has been that the IMF will get promises for more money targeted to aid the emerging markets. This was followed by the Obama, Yang pledge for more global stimulus and by the push of some emerging markets to intervene or promise to intervene. What remains to the day is sustainability. Headlines persist about the trouble ahead BOE Barker warns on the economy and the danger of a swift recovery leading to a swifter removal of stimulus. The US jobless claims continue to show the vulnerability of the US consumer and the GS research team like many others just cut their view of European GDP to -3.6% in 2009 worse even than our US outlook. The global great recession remains despite the extraordinary actions. So its going to be difficult for many to get beyond the charts and reversal momentum to actually believe in something different. There are dangers in the SNB action as well as it could lead to another set of devaluations elsewhere. JPY moved back over the 97.80 level on back of the SNB action and despite fiscal year-end flows the risk may be for 100 over 95. The EUR from 1.2730 to 1.2940 today helps the US but risks trouble in Europe. SNB needs both EUR/CHF and USD/CHF weaker. The world also needs to see a rebalancing of the global trade game and the US consumer and credit cycle arent the answer but the problem. Sustainability wont be found on this roulette wheel today but perhaps in the confidence boost of a real, globally planned, coordinated policy plan from the G20.

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