A fair amount, actually. We learned (again) how fickle market opinion can be. A week ago we were all fretting about a double-dip recession and how lousy earnings were going to crush the stock market as the the S&P put in a head and shoulders top.
This week, we’re all lighting cigars with $100 bills after buying cheap Goldman calls…
Seriously, on balance, earnings have been stronger than expected, the commodities slide appears to have been arrested and equities look set for a 5-day winning streak. Share prices are near their highs for the year and bond yields have settled into a range either-side of 3.50% in 10s.
Concerns about a rapid selloff in the dollar on reserve shifts have abated but the dollar maintains a weakish tone as the reflation trade prompts traders to shed safe-havens for sexier assets. Last week’s JPY panic has subsided and USD/JPY and EUR/JPY have retraced substantially all their losses from last week and head into the weekend on the 94 and 133 handles.
Cable retraced about 61.8% of its slide to 1.5985 before getting cold feet and dipping a bit today. UK debt woes and a bad case of the Swine flu are taking a toll on the pound.
Looking ahead to next week, it all comes down to the mood of the market. There is not that much data to set the agenda, so external factors like earnings and the odd bank collapse could come to the fore. Ifo on Wednesday and US jobless claims on Thursday will be highlights.
My guess is we see a continuation of the reflation trade, with modest dollar losses ahead as any global recovery still looks tenuous at best.
