But just for today, tomorrow normal service resumes. Why….firstly market sentiment seems to have turned. The market (only equities matter) chose to ignore the Italian downgrade which could have easily fed the bear. The Bernanke “we stand ready to act” was taken as bull food. This comes just before payrolls and historically such statements would be bearish as the market would have interpreted it as a signal that – “he knows something – it’s going to be worse”. Today I believe the BoE will add to the ?200bn and say “we stand ready to act if and when necessary” – a bias towards easing type scenario. There a lot of “next meeting” people but next meeting these are the folks who will say “next meeting” – in this way their dilly dalling is seen as decisiveness. Now to the big one, I believe the ECB will cut (not the house view). This is not based on some fancy macro economic theory we are back to basics and even the ECB know 1+1=2. In essence in the end they will do the right thing. On a risk-reward basis we have been crushed lower and if they disappoint well we could go a bit lower and will await payrolls but if I’m right that we will see an almighty bounce. The combination of belief and market positioning is what makes me massively bullish. For FX – KRW, CAD, AUD, NZD will go nuts.
David Bloom
HSBC Global Research