The timing of Bloomberg's Richard Breslow left something to be desired: just hours after he urged traders not to assume that "each event will end badly", the market quickly did just that, breaking virtually every "reflation support line" and then as a cherry on top, Donald Trump flipped on half a year of market narratives, and may have put a final nail in the reflation trade coffin, sending the S&P below the 50DMA for the first time since the election.
24 hours later, in his latest overnight note, instead of raging at the fates, the Bloomberg FX commentator does the wiser thing, and tries to learn from the lessons the market presented to him, sharing them with readers. Or, as he puts it, "Chalk This Week Up to Lessons I Have Learned"
His full note below.
If ever the markets needed a long weekend it’s right now. And if liquidity conditions and the anecdotal lack of interest in new positions are any guides, traders have been heading for the hills all week. Still, there are some lessons to be learned from the past few days, so it shouldn’t be a total loss.
One takeaway, as the last of the weak positions are forced to stop out, is just how the marginal actors have been leaning - a valuable piece of information to have when we get back to work. A characteristic of this environment is that investors’ market opinions change far less frequently than the price action would suggest. And even the most junior algos left in the holiday-staffed computer farms know how to sense fear.
Some important news to file away for the long haul, is that there is actually a chance that the positions of the Chinese and Americans can be set to some mutually beneficial middle ground. That whatever may be in store for us, the campaign is over. And while there are very real issues separating the U.S. and Russia, they do understand that dialogue has to continue.
I found the president’s latest comments on interest rates, the dollar and the Fed Chair uncompelling other than to read them in the context that he will ultimately make choices that suit his current needs rather than ones based on a fixed ideology. That’s going to mean continued, and perhaps uncomfortable, policy “flexibility” but at least with some measure of realpolitik. But I’m not sure, beyond short-term technical discipline, why I’d race to buy bonds on it.
The situation on the Korean peninsula isn’t good. On the other hand, I’ve watched the won rally hard the last two days while the Kospi made its way higher. Traders really need to get their stories straight.
And I won’t dismiss French political risk, nor fault anyone buying some option protection, even at these newly inflated prices. But the euro is in the top half of its year-to-date range versus the dollar and the Euro Stoxx 50 index is trading close to an 18-month high. Lottery ticket options are one thing, base cases another.
The hardest challenge of the day may well be not clock-watching. But while you may have been stopped out more than once this week at least you won’t have tenuous positions when they release big numbers tomorrow with the market shut.