Enjoying Melt-up Day… ?
by Claus Vistesen
There ain’t nothing as good as a good short covering/melt-up rally. The market has been in a flux the past weeks. But today’s move proves, I think, that upside surprises are much stronger than downside ones – and that equities still want to grind higher unless the world really(!) falls apart. On the flip side, we are still some way below earlier highs and, in this sense, it is very un-impressive. But the Bernanke put is very strong here. Good economic data at the zero bound is consequently completely cleansed of the risk that they will lead to higher interest rate expectations, since no one believes that Bernanke will raise interest rates anytime soon, nah strike that, ever!!
As FT Alphaville latches on to, the market is now trying to play the same game of chicken with the ECB – and this time, the stakes are higher. Basically, you want higher equities than we can deliver. But if you disappoint, we will huff and puff and your pretty little house down and all those small piggies will be left without shelter. So, does the ECB plan to deliver then? Well, it seems to be a good idea to cover any short on that prospect alone. But on the other hand, Trichet et al might be prone to sticking it to the market just for the sake of it, even if the macro backdrop leaves them with the least policy option available.
So, lads and lasses … make your bets!