After a three-week period of hope, post Tuesday’s weak Chinese import export data some fear may be returning to capital markets. China reported that imports fell 13% year on year in February and exports by a whopping 25%. Reuters reported this was the biggest drop since May 2009.
The news did not prevent the oil price continuing its recent recovery as the Brent crude price hit $40 a barrel on Tuesday. The recovery continues as speculation increases that the oil producing countries are now beginning to feel the pinch, and discussing ways of trying to stabalise the oil price at $50 a barrel.
For those investors who believe that investment banks have the edge over the rest of the investment community, CNBC reported on Wednesday that Goldman Sach’s, so early in the year, have decided to cut losses on 5 of their 6 calls for 2016. This includes backing the US dollar against the euro and the yen. Other trades include buying US banks against selling the S&P 500, as well as preferring Italian bonds against German bonds.
The interesting thing about these trades is they felt very consensual at the start of the year. The Fed was tightening and the ECB were continuing to loosen, buy the dollar sell the euro. Trouble is everyone knew this and was positioned for the move. US banks were a buy as the yield curve was likely to steepen as the US economy picked up. The yield curve has flattened.
Investing one’s money, no matter what logic is used is a tricky business particularly if your pain threshold is 2 months and 5% as appears to be the case with most of these trades. One has to wonder the height of conviction at the start.
Mark Carney added his voice to those warning of impending disaster should we vote for Brexit. He told the treasury committee that leaving the EU is the “biggest domestic risk to financial stability”. These comments seemed to draw criticism as the Bank is supposed to remain politically neutral. Financial markets appear to be taking a different view. The pound has hardly moved in the last month against the euro, and the FTSE 100, an index of globally diverse companies has been rising, with the exception of a the last few days.