Into 2009 - Some comments

First poist if the year with some of my thought some days into the new year where we after the first risky assets euphoria have settled down a little bit. The market now waiting for Fridays non-farm pay-rolls where the expectations are the widest in a long time of between -350k to -750k according to Bloomberg. The reaction to tomorrows numbers could go a long way in deciding the fate for the quarter. Will the scare of "missing the Obama boat rally" show up again as in the first three days of the year or will a more - in my judgement - sober view prevail and drive us in a more bearish direction and therefore more resembling a 2002/2003 outcome than a 1930 Q1 rally. The dilemma for me could be that such a outcome could be more positive for later in the year than a continued rally in Q1 rolling over later. See my - What will 2009 bring? - from last week. As the former would indicate a bottom for the year in Q1 and a better market later in the year indicating that government and central bank intervention could be more effective than how I see it for the moment. Interesting both of my simulations for Q1 2009 showed a positive first few days in line with what we have seen.

In fixed income land longer dated government bonds in both US and later EU have been under some pressure as we have the usual beginning of year supply, but with credit doing a little bit better. In Europe the government and swap curve have moved to the widest levels in strong expectations for ECB to lower rates next week against the talk in December indicating that they would stay away in January. The curves seems a little to stretch here and looking to go the other way/go long bunds, but not before judging the reaction to the expected weak data on Friday. Further judging by my performance on Fridays last year, I should probably wait until Monday before doing any trades.

(click to enlarge on chart here and below)

Interesting to see how some of the credit related ETF's just before Christmas traded very strong with premiums to underlying markets. Two of them have fallen back, but the high yield fund still holding on to a premium. This is also the markets with the best underlying move.

European Investment Grade Credit (IBCS)

Emerging Markets ETF (EMB)

US High Yield Fund (HYG)

In foreign exchange markets we have seen the expected initial strength in Sandi currencies and with EUR/USD trying to figure out which of the leg is the weakest.

Gold tried the up-side early in the year on the Gaza situation, but have settled back in the middle of 800 to 880 range. Biased to be bullish on gold. Oil also tried the upside above $50 after holding above 21 dma, but is now back under again and yesterday also showed the positive correlation to equity markets and I would expect that correlation to continue unless the situation in Gaza deteriorate.

To sum up bearish bias equities, credit and oil and bullish bias bunds and gold, not so sure on eur/usd. But waiting to see the reaction to Friday's numbers before jumping in big time on my biases as I think Friday's move could have implications for the rest of the quarter.