Fed Or Fed? Why One Trader Is Watching Wimbledon Closer Than The Market

Tyler Durden's picture

Bored as you wait for Yellen's Wednesday testimony? Finding yourself switching over to Wimbledown every now and then? Not only are you not alone (Bloomberg has a note out overnight titled "Fedspeak Takes Second Place to Wimbledon Fed"), but you may actually be conducting "fundamental analysis."  As Bloomberg's macro commentator Marc Dumore explains, "there’s some historical evidence that investors might be better off watching the other Fed’s performance at Wimbledon."

Here is Cudmore's explanation why.

You’re Watching the Wrong Fed!

 

Markets have had a quiet start to the week as we await Fed Chair Janet Yellen’s testimony to Congress and then the Fed’s Beige book. While both events have potential to cause some short-term volatility, there’s some historical evidence that investors might be better off watching the other Fed’s performance at Wimbledon.

 

Roger Federer is the betting market’s favorite to win the Men’s Singles tournament at Wimbledon for a record eighth time. While watching his matches will almost certainly provide more entertainment than observation of this week’s markets, his past successes have a curious -- or is it spurious? -- correlation with global asset performance.

 

"The Fed" has won seven of the past 14 championships. In every year he’s been victorious, both the MSCI EM Currency Index and the MSCI EM Equity Index have gained. By contrast, in five of the seven years he hasn’t finished triumphant, both those indexes have dropped.

 

His long-term tennis nemesis, Novak Djokovic, is the most detrimental for EM. He’s only conquered Wimbledon three times, but each of those years was a negative one for both of the developing-nation gauges.  The two players are on track to meet in the semi-finals. Forget Yellen and the Beige book, EM investors should be glued to the TV for that match, if they make it that far.

 

As a general rule, Federer becoming champion is a positive omen for global equity markets, with an impressive 100% success rate from seven years

 

A few other anecdotes:

  • A win by Rafael Nadal has previously been positive for CHF. Happily for the SNB, he got knocked out in a thriller on Monday
  • Djokovic taking the tournament has been consistently correlated with a weakening euro.
  • Success for Andy Murray has been good for developed market stocks, but not necessarily emerging equities.

 

Now, there’s a chance that I’ve got my causation all wrong and it’s markets that are dictating events on court.

 

Perhaps Nadal got knocked out precisely because CHF is slumping, while strong EM and an appreciating euro suggest Djokovic has no chance. In such a world, markets only confirm that Federer is the favorite to make history, while Murray is still in with a chance.

 

This is a reminder that correlation is not causation. Enjoy the tennis, but beware trading off spurious signals.

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Cordeezy's picture

Markets Won't be too volatile till after the fed starts speaking especially if a hawkish Yellen speaks In her testimony

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Cognitive Dissonance's picture

Personally if I wish to gauge the market's direction I just study goat entrails. On the minus side, they do tend to attract bears.

/sarc

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Cognitive Dissonance's picture

I just love these Google Translate ads on ZH.

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pawn's picture

Not really i wanted rafa to win i am broken hearted hope coco wins

Robert Trip's picture

An old Jewish lady still calling the shots for all financial systems.

Amazing if you care to think about.

Our short-hairs are being pulled and are balls are continually being squeezed as we dance like puppets on a string, gyrating, reacting and hanging on her every word.

Robert Trip's picture

I love it when Yellen uses hyperbole, double-speak and myths to make a point.

Last of the Middle Class's picture

At this point, the FED IS the economy, just like Obamacare IS healthcare. Just exactly how far down this cosmic bunny hole must we go before everyone on the planet, including the very last snowflake on earth, realize it is a really stupid idea.

Youri Carma's picture

I think tennis is one of the most exciting sports to watch. My money is on Nadal.

Housicker's picture

What will happen if Muller wins ?

DC Beastie Boy's picture

I'm betting on the Joker

Oh regional Indian's picture

Holy Shite, has ZH truly jumped the sharkanado? What is with this weird linkset above?

MarketWizard's picture

I woke up and my package was pointing right, BULLISH!!