We have a full release schedule this week, including manufacturing surveys, price data (PPI / CPI), Industrial Production, and housing data (Starts and Existing Home sales). Key - Response will be muted for any news that might otherwise cheer the markets; market reaction to any disappointing reads will be exaggerated.
It is important for traders to understand this dynamic, which is driven by 1) the view that last week’s Sales and Claims reads were telling (they were not) and 2) that recent events in Europe greatly expand the threat of a world slowdown by the way of contagion (doubt it). Fine.
Still, it’s awfully easy to be right, but, at the wrong time.
Therefore, the approach we recommend will be to let strength alone. Clients should already be set for that anyway, including worrying price data. However, exploit weakness either through FX, or FI perhaps (although distortions there have left us a tad bored). Or, even equity if you are so inclined providing you are doing this tagged to surprising US vigor ahead.
To be more specific, assume that Thursday’s Dec Starts are far inside of expectations. The market has been abuzz past few weeks with the surprising strength in Starts (attributed to multis). And most analysts see a genuine recovery hinged only on a housing recovery and related activity. So now that all eyes are on housing releases, and for the first time in a year, the market crowd will be greatly disappointed. Therein resides opportunity. Pause on a weaker dollar or, much stronger10yr, or much flatter curve, or narrower Mar - Mar Euro calender spread, and then strike before the week is out.
Robert Craven
It is important for traders to understand this dynamic, which is driven by 1) the view that last week’s Sales and Claims reads were telling (they were not) and 2) that recent events in Europe greatly expand the threat of a world slowdown by the way of contagion (doubt it). Fine.
Still, it’s awfully easy to be right, but, at the wrong time.
Therefore, the approach we recommend will be to let strength alone. Clients should already be set for that anyway, including worrying price data. However, exploit weakness either through FX, or FI perhaps (although distortions there have left us a tad bored). Or, even equity if you are so inclined providing you are doing this tagged to surprising US vigor ahead.
To be more specific, assume that Thursday’s Dec Starts are far inside of expectations. The market has been abuzz past few weeks with the surprising strength in Starts (attributed to multis). And most analysts see a genuine recovery hinged only on a housing recovery and related activity. So now that all eyes are on housing releases, and for the first time in a year, the market crowd will be greatly disappointed. Therein resides opportunity. Pause on a weaker dollar or, much stronger10yr, or much flatter curve, or narrower Mar - Mar Euro calender spread, and then strike before the week is out.
Robert Craven
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