@Aurelija's

The optimism on the global markets which started last week continued well into this week. "Risk on" was seen everywhere - S&P +6%, Emerging Market currencies over +2%, implied volatilities down and...most importantly, EURUSD left the shorts squeezed.


I was myself very bullish on the USD two weeks ago, but my conviction hot hit after the positive US job market report last Friday. A good follow-up to that was yesterday's US retail sales data, showing consumers are not willing to scale back purchases at all. Since the expectations and outlooks dominating in the markets are gloomy beforehand such even slightly positive news can create euphoria. The same goes to the euro area's debt problems - everyone just got fed up with the politicians procrastinating and took Merkel's and Sarkozi's words the week before for granted. The solution is coming - and it's just a few days away - that's what the G20 message this weekend also sounds like. And that's exactly due to the anticipation of uncertainties resolved that the markets rallied this week.

I'm more positive now. I think the expectations for the global economy have been scaled down too much now and we are set to get some more positive surprises. I don't believe in any recession coming and expect the European leaders to deliver a strong solution to support their banks after an orderly default of Greece. Luckily we still have places in the world where money is plentiful - BRIC economies are at the fore expressing willingness to boost the IMF coffers if needed.

And I think Mr Bill Gross makes a second mistake this year by betting now on lower US yields. Look at the 10-year Treasury yields - already moving higher on risk appetite returning.


The more positive we get, the higher the yields. Given the monetary policymakers are willing to accept more inflation rather than deflation, the risks are skewed to the upside.