Last week we wrote about how we flipped from bearish to bullish in a span of a few days, and how we were right about our last call, albeit for a few days before it all fell to pieces courtesy of central bank inspired ire. You know what, screw all of that because we're on the sidelines. As we write, we have but a few small positions open in the market, but those are event specific plays.
Bottom line, we don't see how it's plausible to bet on short and medium term moves in today's markets. Everywhere you look there is choppiness the likes we haven't seen since August last year, where the story then was about China's forced devaluation of the yuan.
The story this time is different. Very different and much more complex. So complex that having big directional bets will almost certainly backfire in no time. As such, we've massively reduced or exposure and adopted a preference for cash until we see more clarity as to what these dynamics want to achieve.
About risk, we're slightly bearish to neutral. We don't however feel comfortable betting on either side for now. A wait as see approach is much more appropriate in our eyes. Equities are the hardest to trade. Technical traders can allude to this; charts have made little sense lately with spikes all over at illogical levels.
The currency markets. That's where the action is really happening. The parabolic decline in the Japanese yen seen last Friday after a shocking BoJ move into negative rates has now been completely reversed; yes, the yen is stronger than it was last Friday! Talk about crazy moves!
Besides the yen, the dollar has been another high beta mover recently. There is already brooding concerns over the Fed's decision to hike rates in December last year. Atrophying economic data has led to even the most hawkish of FOMC members to doubt themselves.
January's NFP report is due later today and this time, markets will be ever more intent on surfing the ephermal moves stemming from this news event. Of mentionable note is yesterday's BoE (Bank of England) interest rate decision and inflation report. For the past few months, there was one MPC (Monetary Policy Committee) member who voted in favor of raising rates (8-1 vote; 8 unchanged, 1 hike). Yesterday, this very member voted for the first time in months to keep rates steady.
Inflation expectations and macro economic health has declined so substantially that even the BoE has retracted any subliminal rhetoric of hiking rates.
Be prepared for more choppiness and difficult market conditions, crazy moves and wild swings that make no sense beyond the hour. Trade accordingly.