Investors' bullish take on the Jackson Hole confab is a problem for risk assets, this strategist says.
There is an awful lot of what one investment strategist calls 'hopium' going around the currency markets ahead of the Jackson Hole economic symposium. And Steven Englander, global head of G10 FX strategy at Citigroup, is dubious.
"The sense in the market seems to be that everything will be OK no matter what the Fed says," he wrote in a note to clients. "The possibility that the Fed says ‘there is little more that we can effectively do’ is viewed as trivially low."
That's particularly interesting, Englander says, "because almost no one feels that QE3 will accomplish much in terms of stimulating real activity (if you see an angle by which QE3 will make a first order difference, let us know)." In other words, even if Fed Chairman Ben Bernanke hints at another round of quantitative easing, or some other measure to goose the economy, Englander doesn't think it will change much.
Sitting out the Jackson Hole weekend is one option, but Englander has taken a different tack.
"We have been cutting our long risk positions for a couple of weeks. Our combined position on the heavily risk-correlated G10 currencies (AUD, NZD, CAD, NOK, SEK) is the lowest over the last 2 ½ years, although we are still somewhat long," he says. "We do not see the new new thing that will add to optimism in the market (other than an upward surprise from the Chinese economy or policymakers). We are also concerned that the FX response to the speech will be particularly erratic, driven more by swings in sentiment than by the information in the speech."
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