Investing.com - Financial Markets Worldwide

Normalisation In The Markets Faster Than Anticipated

ByDanske Markets
Published 01/26/2013, 04:33 AM
Updated 05/14/2017, 06:45 AM

First ½ position was opened at 1.195% on 10 January. The original strategy was to add risk at 1.40%. As the normalisation process is coming faster than expected, we will not add risk at 1.40% but we keep our first position open as we aim for better exit levels.We keep stop at 1.55%.

Normalisation in the markets going faster than we had expected
The second entry level for this trade (1.40%) has been reached today but we have decided not to add risk here A key theme for 2013 was the ‘low for long’ theme, which implied that major global central banks would keep monetary conditions as easy as possible to support the global recovery. While the Bank of Japan has actually accelerated its easing policies, the ECB has done the opposite by ruling out further rate cuts. . While we had expected global macro data to improve going in to 2013 we had not expected the normalisation process in the financial markets to move this fast.

The ECB decision has fuelled a sell-off at the short-end of the EUR curve. We now see the curve flattening amid an improving macro picture, something we would otherwise not have expected in a scenario of ongoing central bank easing.

Today’s announcement of the first 3Y LTRO repayment (EUR137bn) was larger than we had expected (EUR75-100bn) and this has only fuelled further selling pressure as a big repayment is interpreted as a positive sign.

To sum up, we had underestimated how fast the normalisation would occur and we do not want to increase exposure against this normalisation process. Hence, we do not add to the ‘low for longer’ theme at the current stage.

We keep the first ½ position open, as we aim to exit that at better levels.

To Read the Entire Report Please Click on the pdf File Below.

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