Global Market Thoughts (GMT)

And so the Equity Markets continue their nice run (drivenmainly by US), as it looks like the cliff-hanger will not be that scary ! Obama& Boehner seem to be moving closer to some sort of compromise, and theEquity Markets are “Risk On”. This has been our core view for a while, and let’shope there is a ‘deal’ done before New Year’s Eve – so that we can party on !

Today, decided to square my T-Note shorts around 132-10 –mainly on reaching the first 20 bp objective (not because there is a likelyimminent bond market rally), and more importantly, doing this in view of myimminent holidays ! Will be away for a few weeks !  The T-notes paid for my hols – so why mess itup ?! Think also getting close to T-note supports around 1.8%+. Key thing isthat as Bernanke is gonna be buying bonds (once this 2-week supply ends), andthe market has already gotten around to pricing a ‘fiscal agreement’.  So probably time to pare back shorts.

The key thing is that data (retail sales, factory data,employment) – esp. in the two majors – US & China – is supportive of an ‘improvingeconomy’ scenario. Very importantly, housing in US is perking up (and will getbetter with turn of the year into spring), and is a precursor to a sustained USeconomic improvement. Europe is stabilising (but will be mired in a recession),as will Japan (with or without LDP) – for the next year; while the rest of EMdoes ok. So I still harbour bullish views about US & China equities – and withthese as drivers, of commodities (used by China), as well as being positiveabout Asian econ prospects (except India which me thinks will continue tostruggle, esp. as we get closer to election year). Still long ChinaInfrastructure/ Equities, and with Bernanke keeping rates low, and corporatebalance sheets looking better (esp. in Asia), will continue being long AsianCredits (China Property & Infra), even on a leveraged basis.

RBI inaction today means the ‘bulls’ have to sit onside-lines (with equities having already run up 20% ytd in 2012!), and thepotential INR bond-rally is still not here, as inflation is still a major concern(in food/transport, but also esp. in Property Prices – why they never seem tocome down, even as transaction volumes are low, is a mystery to me).

And in FX land – think continue with crosses like AUDJPY orKRWJPY, though usdjpy seems to be nearing a temp ‘rest’ area. Does Japan needJPY continuing to weaken through 2013 – yes , of course! Will BOJ & LDPoblige – they will try their utmost! Positioning is getting large, and we willsee p/t into year-end holiday book-closures – but this trend of yen, likelycontinues into next year. Happy 2013 for us all, and hopefully our Japanese friendstoo ! What does this China-Japan conflict over some barren island rocks meanfor usd/jpy?  Waves of weakness … !

Happy Holidays !