Although it’s only the last week in May, markets have taken on the distinct flavour of summertime. Perhaps it’s because it’s the half-term school holiday here in the UK. Perhaps it’s because the Premiership football season ended yesterday, and we mentally associate “no football” with “summer.” Or perhaps it’s because, right on cue, the rains came on yesterday’s bank holiday and have persisted into today (and, in all likelihood, the next ten weeks or so.)
Regardless, activity seems light and markets are reacting strongly to every last bit of news. The end of last week saw a lovely stop-loss run in fixed income, which surely took out all but the most deep-pocketed of longs in Treasuries and Bunds.
This week early focus has been on Korea. It’s seems quite clear that nobody has realized quite how busy Kim Jong-Il has been, as North Korea has conducted a nuclear explosion and test-fired two short-range missiles over the last 48 hours.
Unsurprisingly, Korean asset markets (among the best performers in the green shoots upswing) have suffered, with the Kospi evidently breaking its uptrend line. Some caution is probably warranted, however, as plenty of other trendlines have broken over the past couple of months without producing a meaningful trend reversal.
Interestingly, however, the weakest of the EM carry currencies is also threatening to break its trendline this morning. USDTRY, which has underperformed its high-yielding brethren like BRL and ZAR, is looking a bit ropy this morning.
And that fact that the euro has sold off on this piece of scare-mongering on German banks is probably all the evidence you need that summer is here. While it is almost certainly true that German banks are carrying loads of dodgy assets at farcically inflated values, to date Macro Man has yet to identify the event that will force them to admit that the emperor’s new clothes don’t actually exist.
Any readers with a good idea of what would cause them to ‘fess up should feel free to share. In the meantime, Macro Man is settling in for what’s looking to be a long, wet, summery day.