tisdag 21 augusti 2012

Bob's world

Bob Janjuah på Nomura har idag uppdaterat sin marknadssyn från knappt en månad sedan. Han börjar med att kommentera hur rätt han haft (vilket är lite en försköning, men i stora drag ändå korrekt). Huvudbudskapet är att efter risk on som gällt i några månader nu så är det från och med idag dags för risk off. Han siktar på 20-25% nedgång i S&P [vilket betyder minst 30% ras i Eurostoxx 50, min kommentar] fram till årsskiftet då nya monetära stimulanser kan ge en ny uppgångsfas.

This is a very brief update of my most recent note published on July 25th. Referencing back to this July note the key takeaways were:

Firstly: ‘In terms of markets, the route map I set out in early April and which I affirmed in early June continues to play out extremely well. After correctly calling the late March/early April 1420 high in the S&P500, and also the early June (1270) low, we have also now fully captured the risk-on rally in stocks and credit that began in early June…’

Secondly: ‘Tactically, we have not yet hit my targets for the risk-on phase I called in early June – my S&P500 target was set at 1400/1450 by late July/early August, and my iTraxx Crossover target was set at 600bp. And as I also said in June, this risk-on phase was likely to be a struggle due to headline risk and volatility, market illiquidity, and the general lack of strong investor views/willingness to take big risks. Nevertheless, stock and credit markets have indeed climbed the wall of worry. Over the extreme short term, over the next two to four weeks, I would not be surprised to see my targets ultimately hit.’

And lastly: ‘However…I now think the correct thing to do – as I also said in April and June – is to prepare for a serious risk-off phase between August and November…over the August to November period I am looking for the S&P500 to trade off down from around 1400…by 20% to 25%...to trade at or below the lows of 2011... For iTraxx crossover, this equates to a spread wide for 2012 of – in my view – 800/1000bp (from 550/600bps)… investment grade cash corporate (non-financial) bonds remain a core (relative!) safe-haven. This coming major risk-off phase will, in my view, also be very USD bullish (my expectation of Fed USD1trn QE in December should eventually alter the bullish USD trend of course) and bullish core government bonds (USTs, Gilts, Bunds) – perhaps we could see 10yr Bunds at 50bp all-in yields, with USTs and Gilts at/close to 1%. By late 2012, based on my Fed December QE view, my tactical call will likely turn bullish/risk-on – let us see about that closer to the time.’

My July note thus held out the prospect of further Risk On over late July and August, where 1400/1450 has been my long-standing target ‘high’ for Q3 2012, but it also warned that in August we were likely to see the beginning of the next risk off phase, which would likely be the ‘biggest’ move of 2012. Whilst in the extreme short term – days – more risk on is possible, we now feel comfortable in flipping from risk on to risk off and positioning for this major risk off phase.

Just in case something genuinely new and unusual is happening – we note that the risk on phase has, time wise, extended for a few more days than we had originally forecast - and in the interests of prudence, my stop loss on the risk off call effective immediately is a consecutive weekly close on the S&P500 at or above 1450. As the Global Macro Strategy team is looking for Mr Bernanke to disappoint markets at Jackson Hole next week, and also because we are confident that markets will soon discover that neither the ECB nor Eurozone politicians will actually be able to deliver on their ‘promises’, we are hopeful that our stop losses will not be triggered. For now we are happy to risk 30 S&P points against us, in order to potentially pick up 300 S&P points in our favour.

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