Regarding the divergence observed early this week between the equity market rallying on the one hand and the credit market widening on the other (the wider credit spreads means the credit is considered more risky and the bond prices are lower) I told you that one needed to give. I was right on that, the only thing is my bet was just on the wrong horse ... Friday was the day when the Credit gave with a strong rally in a one sided market while the Equity market after grinding down at around 7900 in the morning (NY) further to the US unemployment figures, closed slighly above 8000. It looks like the unemployment figure showing a 25-year high was in the market expectations range.
I didn't find out how to play the credit spreads on both the long and short sides (maybe the spread-betting brokers will come one day to CDS, mmmh, that's really not in-the-money right now) so the divergence equity-credit had only a tiny tradable value, thanks Sauros for blogging with nothing valuable to say... OK Guys, I'll try to take one point : the equity mutual funds are much more mandated to go long stocks than the bond funds, so they feel more uncomfortable being long cash than them. That could explains why we saw this divergence. That would mean that the main participants in that rally are (or were) the equity mutual funds rather than the short coverers and it could give some more strength to the rally, mmmh not so good for my equity shorts in the short term. I'm still pretty confident that they will pay in the medium-long term, if they survive !
Last week, I was careful as one single comment or remark during the G20 London summit could have throw the USD far south and I had no position on the USD (but my fake one described in the previous post). Actually there was no comment at all on monetary policy and the EURUSD went up to around 1.35 on risk appetite as the stocks were up. I have initiated a small short EURUSD position, playing that 1.35 will play a strong resistance role and the return of risk aversion as the rally will fade or reverse.
For now, let's sit here and see what will happen this coming week, expected to be quiet with the Easter break and before the earnings season. Have a great week!
Last week, I was careful as one single comment or remark during the G20 London summit could have throw the USD far south and I had no position on the USD (but my fake one described in the previous post). Actually there was no comment at all on monetary policy and the EURUSD went up to around 1.35 on risk appetite as the stocks were up. I have initiated a small short EURUSD position, playing that 1.35 will play a strong resistance role and the return of risk aversion as the rally will fade or reverse.
For now, let's sit here and see what will happen this coming week, expected to be quiet with the Easter break and before the earnings season. Have a great week!
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