Well as far as the first trading day of 2016 goes, today was a very erratic one. A lot of events transpired together to result in all the liquidity that returned to the markets being focused on haven bids. So what caused this today?
- Against the expectations of virtually every analyst and in contradiction to the official Chinese PMIs released just 24 hours earlier, the Caixin Sponsored Chinese Manufacturing PMI posted a far weaker result than expected (48.2 vs 49) and prompted renewed concerns about the rate of growth of the words second largest economy. What followed was absolute chaos as investors sought to avert risk by investing in the JPY and CHF haven and driving shorts against these currencies even further out of position.
- Then to compound things even further, the Shaghai Composite collapsed by 3% causing the government to step in and freeze the stockmarkets for an hour. Following their unfreeze, they collapsed a total of 7% and were then frozen for the rest of the day. Total panic ensued, as you can all see.
- To make matters even worse, the Geopolitical situation in the GCC worsened as Saudi and Iran continued to be at odds and cut all political ties. This was followed by Bahrain and others following the same path of action as Saudi Arabia.
In short this represents a 4th week in a row that Chaos has interfered with the FX markets. Starting with Russia and Turkey last week, a global rout in commodities to decades low prices and now this. Not fun at all for the first day of trading.
Anyway regardless of this, we reacted in the best way that we felt possible in the interests of the community. We closed the AUDNZD buy in profit (15%) short of our target in order to free funds to protect the other positions. I felt this was the most responsible thing to do as I believe in the positions and know that it would have been very demoralizing to see them all wiped out by a spike, only to be green later in the month. The fact that in the face of these ultimate disasters, we are still around shows you the resilience of our positions, regardless of all the negative comments we get about our management. We have achieved 4 figure returns in months while keeping the account safe, while seeing many others have the same exposure and drawn down, not having any positive returns or blowing their account completely and we must keep faith in our system and not be shaken by people who only have the face to comment when we are down. Anyway, moving on, my views for the year in a nutshell:
A.) I maintain that, as data has shown since the BOJs last bullish comments, the situation is far worse than they are willing to admit. Production and growth are down, inflation is flat (even the BOJ will have to revise down its estimates later this month – wait and see!). And more easing will be needed.
B.) With regards to the CHF, it is too strong at the moment as even the SNB comment and they want the EUR to be roughly 1.22 CHF. They will act on this, this year. I firmly believe that.
C.) With regards to the USD, I believe that we will see solid data this month and while the FED will not act in January, on the back of this data, they will imply they intend to move to raise further in March and we shall see more divergence in Monetary policy.
D.) The British economy is stronger than many people are giving it credit for, I see decent growth, decent PMIs and good employment data. I believe that the market assumption that there will be no rate increase before FEB 2017 is misguided, and that the time for a normalization in monetary policy is coming closer.
As always, these are just my views and you can agree or disagree as is your right. I only post them as always to show my intentions and thoughts so that those who are not comfortable with the direction we are going in or my intentions are fully informed and can leave whenever the want as always. Could I be wrong? Of course, we all know I have always claimed that I am likely only right 33% of the time and lucky another 33% for a success rate of just over 65%, but these odds have served me well so far and I hope they continue to do so.
Thanks for reading and as always, best of luck to all of you,