18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
23,599 Blog Posts

Euro Dollar Carry Arb on Deck

Right wing electoral wins were reported all across Europe last night, as people rejected the “new world order” in droves. Let’s not pretend these right wingers will do anything substantive. However, the idea of shift to the right looks to be manifesting itself in the tape, with leadership in oils at the open of trade.

All politics aside, I really do thing the most important element to this tape now is the euro dollar cross, again weaker by 0.45%. Normally a strong dollar bodes poorly for the market. But I have a suspicion this time is different. With the ECB cutting rates to 3.75% and heading lower, they’re much easier than in America. If you take into account the stronger than expected economic numbers here, there is a strong chance we will not be cutting rates soon, which can set up for a Euro Dollar carry and flooding of euros into our markets.

Caveat: this is largely a fanciful idea, but it has expressly manifested itself in Japan for decades. There is a bull case in America that does not exist in Europe, mostly thanks to our policies against Russia, but alas we cannot delve into everything all at once.

My bottom line is this: bullish on stocks but mindless of where I want to position. The sector rotations can be brutal and earnings season is never fun. Overall however, we can be in for some upside surprises in stocks.

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