As US (and global) economic data has disappointed at a rate not seen since Bernanke unleashed Operation Twist and QE3, so traders are shrugging off declining earnings expectations and weak macro data in favor of the continued belief that The Fed (or ECB or BoJ or BoE or PBOC or SNB) has their back. So, as former fund manager Richard Breslow notes below, it appears the 'data' that everyone is 'dependent' upon is very much in the eye of the beholder…
We’re all data-dependent. It’s not just the central banks that hide behind that aphorism. Traders and investors operate that way too. It’s just that data is a very poorly defined word and concept. The dictionary speaks of facts and specifics. But in reality it includes, biases, positions and a whole lot of other subjective factors. You and I can, quite properly, look at the same data and react differently.
So while it’s a universally held concept that is proudly used to denote dispassionate rationality, it’s in fact a meaningless one.
The European composite PMIs that were released this morning were all misses. Good numbers, but misses nevertheless. But the euro has been up versus the dollar all day. Why? Because while it’s also trading near the bottom of its recent range, people are, for the moment, emotionally invested in desperately hoping the euro will go up and the dollar down.
European politics is now good and U.S. politics bad. Emmanuel is even better looking than Jared. There must be fire behind the smoke of the Treasury flatteners and the ECB’s PSPP is what a healthy, growing economy just does. Whatever it is doesn’t matter, just look at the data. Well, your data.
I’ll be the first one to admit that numbers have both probative and confirmation bias effects. It’s also why a picture really is worth a thousand words. Technicals help us own up to reality. Or at least force us to explain ourselves.
The 10-year Treasury yield hasn’t moved in over a week and has had a two basis-point range so far today.
Yet, when it was at 2.165% I read that if it breaks 2.23% it could really motor. And at 2.145%, it was setting up for a retest of year-to-date lows. Same data, not meaningful, but sang to different people in widely different and visceral ways. Of course the response to both should be, “sit down and be quiet.”
So what’s my “data driven” bias on a, so far, quiet Friday? I’m looking at the bounce in gold as my sentiment indicator of what risk wants to do today.
And I would trade accordingly. But, psst, I still like the dollar and hate bonds, regardless of your data.
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