Naturally, if there was one party that would be disappointed by today's action, it would be Goldman Sachs: on one hand because it is nowhere near enough to actually fix anything, and on the other because it delayed the moment when the 2-3 European banks which we have been saying for over a week would keel over and die leaving a power vacuum for Goldman to fill, has just been delayed. As a result, Goldman dissatisfied note makes more than enough sense: "Up, up, and away for stocks after the coordinated ease this morning. USD funding just got cheaper, which is of course a good thing. But the difference between OIS + 50 and OIS + 100 isn’t enough to save anyone or solve everything. It’s the symbolism of policy-makers again acting in concert that I find most encouraging." But, and there is always a but: "Although there is the obvious counter: why act now – is there something lurking around the corner? Those are worries for tomorrow though." Indeed, and when the worries resurface, as they will, especially following the resumption in European record yielding auctions, which incidentally the Fed's action does nothing to fix, following France and Spain bond auctions. And who knows what else. Oh yes, Goldman just cut its GDP forecast for Europe from +0.1% to -0.8%: hello, recession, the very same catalyst which S&P said a month ago will be sufficient for it to downgrade France. As usual, Egan-Jones was way ahead of the crowd.
More from Goldman:
If the FED is giving the world dollars, then sell your dollars. Less reason now to hold USD longs to cover your USD funding. EURUSD trade to a high of 1.3533. Stops the whole way up. A steady drip lower for the rest of the session though yesterday’s high providing support. Just missed out on a bullish key day reversal – that was what started October’s rally. Still 1% higher in EURUSD is nothing to sneeze at. AUD the day’s best performer though. Up 2.8% vs. the dollar. USDBRL back to 1.80. Amazing that just last week we were testing the top of the 1.70 / 1.90 range. So much for EM being an elevator only on the way down.
The rates market finished unchanged in the front end but 7-10bps weaker in the long end as risk assets rallied on the back of the news of the central banks cutting the swap line charge by 50bps and the better US data. Much of the sell off in rates came early in the morning and interestingly our flows were skewed to better real money buying, possibly taking profits after we saw this account base better selling all yesterday. Focus will remain on the data as skeptics claim this move higher in yields is short lived, but optimists see the possibility for a further sell-off especially if NFP comes in strong on Friday.
We out with our top trades of 2012. A round-up: 1. Short European high yield (long protection iTraxx Europe Xover index, Target 980bp) 2. Short 10y German bunds (target yield 2.80%) 3. Long EURCHF (Target 1.3500) 4. Long Canadian Equities (S&P TSX) vs Japanese Equities (Nikkei), fx unhedged (target 120) 5. Long Global Rebalancing Basket (Long CNY,MYR vs GBP, USD) (target 107) 6) Long July 2012 ICE Brent Crude Oil Futures (target $120)
Commodities lagged the broader risk rally but metals fared the best - Silver up 2.9%, Gold up 2.0%, and Copper the real winner up 5.4%. We just released our new energy forecasts, maintaining our Brent forecast of $120/bbl and WTI of $112.50/bbl for 2012 and introducing a 2013 forecast of $130/bbl for Brent and $126.00/bbl for WTI – overall theme of Brent-WTI spread compression as we move rail economics toward pipeline economics. On the day: WTI up 0.7%, Brent down 0.4%. In Ags, Sugar up 0.9%, Corn up 0.4%, but Cotton down 2.0%.
In credit, index products massively outperformed single name CDS. We are seeing the liquid hedges outperforming illiquid hedges. IG and HY outperformed Equities, with IG making the largest one day move of the year.
Tomorrow brings PMI data across the globe starting with China tonight, CPI numbers for Korea and Indonesia, France and Spain bond auctions, and in the US we have ISM and initial jobless claims data.