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Sunday, February 3

3rd Feb - Weekender: Views & Comments

Previously on MoreLiver’s:

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Background: The week in short: Europe’s numbers look good, but only because of Germany – everything else is terrible. US posted a lousy Q4 GDP because of incidental one-off items and the Q1 forecasts are already revised up, January employment report neutral. US QE to continue, ECB has room to cut rates because 1) high unemployment 2) slow economy 3) stronger euro and 4) all the other central banks are expanding their balance sheets and 5) inflation number from Friday came in below expectations.

In Italy, a derivatives scandal in a bank that Draghi failed to supervise during his job as a governor of the Bank of Italy. No spillovers expected, but this does not help the pro-Euro posse in the coming elections.

In Spain, a corruption scandal that might limit Rajoy’s support. The economic situation in Spain is terrible and government’s support and thus ability to push more austerity and reform is zero. Also, Rajoy is starting to become a source of embarrassment for the big players: Commission, ECB and especially Merkel. As the big players want to have “one of their own” governing Italy, they might not be willing to support Rajoy much longer – he could be turned into an example for Rome. The Commission has kind of promised more time for Spain to meet the budget limits, but I think Rajoy is running out of favors and friends.

Markets: Stocks were rallying, interest rates continued climbing and so did the EURUSD and USDJPY. I see a correction lasting perhaps 5-10 days coming up. Might be wrong, but would prepare to buy dips. Most likely a range, ahead of the next risk events. If the risk events disappoint, a deeper correction might be coming – if not, then the bull trends can continue again.

The trend in the bond markets has turned in my opinion (see my Charts-page). My long-term bullish view on EURUSD unchanged, USDJPY also has more upside left. But look at the daily chart. Previously the legs have lasted 5 to 8 days, followed by a correction (either 2-3 days fast, or 5-10 days of range trading). The last leg up in the EURUSD has lasted for 8 days now.

Next: ECB’s meeting next key event, followed by the European meetings on the bailout of Cyprus.