Enis’s Macro Wrap – European Remix

by Enis June 29, 2012 7:44 am • Commentary

First things first.  I wish I still had my weekly SPY calls for my European summit hedge.  Foolish me.  Hindsight is of course 20/20, but it was the right way to protect my positions in this type of scenario.  It would have been particularly effective since I have little confidence in any of the European measures on a longer-term basis, but wanted to protect the headline risk. In any case, no use crying over spilled milk.

So what’s the plan as of this morning?  It’s a standard risk-on rally, with dollar lower, stocks higher, Treasuries lower, commodities higher across the board.  The main positive surprise was removing the seniority of the European bailout funds, which reduces the risk of the private sector in buying Spanish or Italian bonds.  The other measures were mostly expected, in the form of a stimulus program and pan-European banking supervision for the ECB.  European banks are up about 5% on the news, and around flat on the week.


However, as I noted in the CotD yesterday, this is not 2010 or 2011.  The main issue for global markets is not in fact Europe, but global economic weakness.  NKE‘s earnings last night was another large multinational confirming our suspicions that global demand is rapidly slowing.   The European situation mainly involves the tail risk of a systemic banking crisis, but an old-fashioned recession is a separate scenario.  That is where our view lies.

I am probably just going to sit on what I have today.  I booked some profits in AZO yesterday and added a new JPM position, but as is my general preference, I bought August options as opposed to July as I want more time.  I think a down move below 1300 is coming soon on the SPX, but I’d rather not have my options decay before then.