Enis’s Macro Wrap – Central Bank Party

by Enis September 14, 2012 7:25 am • Commentary

Bernanke and Co. put the icing on the cake of the ongoing central bank party of the last few months.  Unlimited QE until the unemployment rate is likely under 7% seems to be the new prerogative, unintended consequences be damned.  We are in uncharted waters, where previous historical precedents hold much less value.  Such an environment implies a back-to-basics approach from my standpoint, where my focus has shifted to searching for primarily volatility-based discrepancies in single stock names that will act independently of the broader market.  Expect to see more delta-neutral trade ideas from me.  

Yesterday’s price action was classic risk-on after the 12:30 pm release.  What interests me on news release days is the psychology of the individual participants.  Because for each buyer, there is a seller.  So immediately after the news release, some traders were content with the 1% gain in the index, offering out stocks at that level.  By the end of the day, that gain was closer to 2%.  How quickly the market prices in the future benefits of QE-unlimited will be answered in the next few weeks.

Markets overnight:

  • Asia gapped higher, then stayed in a tight range for most of the session.  Most markets up 2-3%
  • Europe gapped higher in a similar fashion, and has seen little movement since, remaining up 1-3% across country indices
  • SPX futures are indicated up 0.4%.  The SPX index is 7% from all-time highs
  • The dollar is aggressively lower again, trading to 1.31 vs. the Euro.  The Euro is now up 1% vs. the dollar on the year
  • Commodities are broadly higher, and Treasury bonds have had a particularly weak overnight session.