Equities +1.4% Japanese equity sectors (megabanks, trading companies)
-4.6% Shorts in S&Ps
Commodities +0.9% Short gold
Fxd income +4.1% Short JGBs
+5.9% Short EDZ7 and TYH4 against Aussie Z4 bills
FX +8.1% About 5% from long USDJPY and GBPJPY positions and the rest from
short AUDUSD and AUDNZD
Overall a good month. I was heavily overweight in risk-on trades (short US and Japanese fxd income, long X-JPY and long Nikkei), partially offset by a significant short in US equities and a long in Aussie fxd income which should have been larger. As of today I'm out of USDJPY, and I've increased the SPX short further (having been stopped on it twice already), so I'm now much more balanced. The easiest trade of the month was definitely shorting Treasuries for a 3% target once the taper was announced.
Looking ahead, I think we're treading water until payrolls (statement of the obvious, I know). I'd expect a healthy number : small businesses are hiring if Gallup etc are to be believed, and the ISM employment indices say the same for larger firms. It's backed up by jobless claims and consumer confidence, so 200k plus is possible for payrolls, unless ADP prints a shocker on Wed. The outlook for Q1 seems to be for more of the same, so we could get a significant move lower in fixed income after cleaning out some positions. Could we approach 6.5% unemployment by the end of Q1 ? The slow bear flattening of the TIPS 5/10 break-even curve is interesting, especially as gasoline has been fairly stable. It suggests deflation fears are overblown, and as I've mentioned before, I think that higher inflation is the only missing piece of the puzzle for a serious bear market in rates. We're not there yet, but I'm watching this closely. I'm taking this rally in fixed income as an opportunity to buy puts structures on short green eurodollars which have great risk/reward if the selloff resumes.
The pieces are also falling into place in Australia. The PMIs are turning lower after a post-election bounce, consumer confidence is taking a hit (gas prices perhaps ?) and there are indications of a slowdown in China again. Despite all this, AUSUSD has rallied since New Year and is now near the middle of Glenn Stevens' 0.85/0.95 range. The biggest moves have been on risk reduction days, despite AUDUSD's usual risk-on behaviour, so I'm putting the rally down to a New Year squeeze. The key level is 0.8850, which has supported AUDUSD since last June. If that level fails to hold it can go to 0.82 I think.