Friday, July 27, 2012

US stocks Rally and Euro Getting That bounce.


ECB  will do whatever it takes
For the second time in the space of a week (Le Monde interview on Saturday, and today at a conference in London), ECB President Draghi repeated that the Euro is irreversible and that the central bank will do whatever it takes to protect it (adding: ‘believe me, it will be enough’).
Other comments of note:
1.     High government bond spreads, to the extent they obstruct the transmission of monetary policy, are within the remit of the ECB (Mr. Coere had made a similar point a few weeks ago).
2.     Markets are under-appreciating the progress that is being made in the direction of a deeper banking and economic union.
As we have been highlighting since the end of June (and reiterated at the start of the week), we think these themes should be reflected in narrower yield spreads between Germany/France and Italy/Spain – at least at the front-end of the term structure (0 - 3-year area; we are recommending a trade in the 5-year sector to get some leverage). The summer market is admittedly thin, but these sovereign issuers represent a large part of indexed mandates, and positions are underweight.
The next ECB meeting is on 02 august 2012

As for trades, I was able to exit my euro trade at the target, and added the following equities to my portfolio taking the leverage up to 1.46.
CHK, NBR both natural gas prices recovery plays, KBH finally getting exposure to US homebuilders, SODA for the potential for a large earnings beat and FMG, near the yearly lows on a high beta play if the markets continue to price higher.