MEUM DICTUM PACTUM

Not sure I need to say much about today's chart du jour.  But let me put it this way; If I were locked in a room from some point last year, and, emerging blinking into the beautiful EC4 sunlight this morning, were presented with the following chart (labels removed)  and asked to guess which one is a horror show Sub Saharan economy held together with duct tape and the residual goodwill from the 1995 Rugby World Cup and which one was a Eurozone economy I'm pretty sure I'd have guessed wrong.

This chart (2 year Greece minus 2 year S.A.) should quite literally be upside-down. But it isn't. Something is though. It's called the world. I'm off now to go hide under my desk.

GREECE ME UP.....

So, after what must be potentially the shortest bridging loan since the kids hanging round outside my local newagents gave an old tramp a few quid to nip in and buy them some marlborough lights, it looks like Greece is finally going take the free goodies from the nice gentlemen at the IMF. Well you know what they say about taking sweets from strangers. Not generally advisable. This time will be no different.

While the single currency has of course had a kneejerk rally on this, longer term I don't personally see this as a huge positive for anyone, not even Greece.

How to play this is of course the million dollar question. Having been scouting around this mornig, I have to say 3m EUR/JPY vol looks cheap to me. Gamma should aid the pain of the premium, with short term realised vol indicating that the nimble will do well regardless of overall direction. Add in all the usual caveats about having Yen exposure and it starts to make sense to me. Plenty more scenarios see this trade higher than those that see it trade lower and short term implied / realised correlation indicates a dislocation (of sorts....)

Bouncebackability

Well post the initial reaction to the volcano (and the carnage it caused, not least to the travel plans of both Pascoe and Mrs Pascoe), BA shares seem to be exhibiting a surprising resilience. The "glass is half full" part of me says that this is a good thing, and that their statement, made yesterday, regarding the fact that they have cash reserves sufficient to enable them to withstand a more prolonged period of disruption was a positive not only for BA, but for the downstream UK economy as a whole.

The cynic in me however does wonder about how it can be a good thing for any company to be losing £15-20m per day and be relaxed about the long term impact of this. Especially one in as precarious a position as I think BA is right now. Strike related loss of goodwill suddenly risks becoming a much bigger problem once the whole of the country, forced to actually do something about the total lack of air travel, suddenly rediscovers how nice the trains can be when they're working well. So why so relaxed?

i) Quite probably they have to put a brave face on things precisely to avoid their share price taking a battering.

ii) How much is it a situation where they claim 'Force Majeur' over some (if maybe not all) of the cancellations, rebookings etc, in which case the metrics of a grounded fleet become very different. Like I said, cynical......

Nevertheless, looking at a longer term chart I have a feeling some will see value here. Adding volume into the mix definitely makes for interesting viewing. Daily chart looks a screaming buy to me if you were a pure technician (which I most certainly am not). The only question is (and of course, it's the $6m one); is everything currently reflected in the price?

Compare the (jobs) markets.com.... SIMPLES!!!

So all and sundry seem to be eyeing usd/jpy upside now. And 1m riskies traded at flat last week for the first time in a good long while. Throw in the fact that year end effects are of course a very finite phenomenon and whaddayaget?

Well, in the end, probably not as many fireworks as people think. No-one on the street seems to want to be caught short gamma from what I can see, so that will have a natural dampening effect. And of course today's ADP print took a fair bit of the starch out of the (pre NFP) market.

For those that follow the usual path of talking about correlation (or lack thereof) between ADP and NFP headline numbers, while many naysayers have bemoaned the short term lack of a hard, fixed link between these two measures, just taking a step back and having half an eye on the long game shows that ultimately it's still a close enough relationship. 12m correlation runs in the high 90s at present and with everyone geared up for both an illiquid day and a positive print in a couple of days time, we may well yet see a 'Freaky Friday' if things don't turn out the way they should.......

Pole Dancing - it's fine till you fall off!!!

It seems that the powers that be in Warsaw have reverted to type of late, and are jawboning the euro / zloty rate. Skrzypek (CB chief)'s comment that "The current FX market situation isn't justified by the fundamentals" isn't hugely helpful against a backdrop of their starting to talk openly about European integration again.

H2 2008 / H1 2009 seemed (to me) to be to be mired by constant changes in their stance on timing of any move towards their eventual nestling in the bosom of monetary union. Sometimes seemingly on a daily basis the target / projected date would move by a factor of years until the market basically gave a huge collective yawn every time they (he) were quoted on the wires. Then all went blissfully silent as realisation dawned that at this stage in the proceedings, with the markets the way they were, you could stick your finger in the air as many times as you liked and the results still wouldn't be meaningful.

In the meantime, EUR/PLN currently sits pretty much bang on the 61.8% retracement of the move up to the 4.93 highs last year that saw all the corporates, playing the convergence 'punt' that had bought hefty downside options structures squealing 'foul foul' and calling for the banks to be stuck with the positions, a move that PM Tusk eventually (although not immediately it has to be said) rejected, and quite rightly so.

So where exactly is the problem with the rate? The move hasn't been at all excessive in it's velocity, there is doveish noise coming out of the rates world that should certainly slow things for now, and the exchange rate is still only sitting at levels that we saw in 2006.

Be mindful what you wish for I say.

House music...

RICS housing data today, and frankly a disappointment. Anything North of around 40 / 50 indicates solid housing market health, of the type that will re-inspire consumer confidence in the UK (where we all have short memories and TV stations are still full of re-runs of 'Location Location Location' and 'Grand Designs'. 30 (consensus view) would have represented a level that, while a little short of the excesses of the early noughties (where frankly the housing bubble, in the end, became couter productive) still equates to 65% of surveyors reporting a rice in prices (vs 35% a fall). What we got in the end was a slightly flaccid 17%

Given the structural make-up of this country, that is likely to ring alarm bells at the BoE in my opinion. Consumer confidence, and, by association, consumer demand, is fairly heavily influenced in this country by our trust in our bricks and mortar, and the nascent green shoots that were starting to be seen in Q3 / Q4 last year (at least anecdotally in my street where there was a sudden proliferation of estate agents boards with SOLD notices) may well turn out to have suffered from blooming too early in one of the hardest wintes in recent times. Would it were not so (especially as one 'talking his book') but the balance of probabilities seems to be shifting that way.

A quick look at sterling on a trade weighted basis seems to spell out that in periods of sharp housing decline, sterling's fate takes a similar path (on a lagged basis). Certainly the currency is quicker to sell off than to recover. Next month's print could be crucial, and it's tough to see sterling doing anything but remaining a sell on rallies for now.

Testing Testing

Ok - lets see what we can see. Typing...check! Posting test chart (RUB vs crude)....

Ok - what else do I need to do......