BOSTON, Nov 3 (Reuters) - In the weeks between the establishment of market consensus that QEII would become reality and the event itself, the key trades were short dollars, long T-notes, short T-bonds, long commodities and long equities.
These trades generally worked into the FOMC's announcement, despite a bit of profit-taking.
Now that the Fed's near-term direction is known, the question is whether the 'prequel trades' will continue to work, or whether different approaches are required.
It appears the total quantity involved is in line with expectations, as is the duration of the assets to be purchased.
While the Fed might do more if required, $600 billion is now a base. The Fed is also lifting limits on how large holdings of individual bonds can be. Any curve flattening trades thus need to be reversed, and steepeners - long 5- to 10-year notes, short bonds - should continue to work.
Currencies and equities are more difficult, as they appear to have accurately discounted the Fed's decision.
Still, the Fed won't do less, but can do more, while Chinese growth seems likely to continue to be reasonably strong.
Buying currencies where rates are trending higher seems likely to work, as does selling dollars into rallies. Stocks of companies benefiting from a weaker dollar or lower rates also seem likely to benefit. Keywords: USA MARKETS/FOREX (Kevin Weir; kevin.weir.reuters.com@reuters.net; kevin.weir@thomsonreuters.com Telephone: +1 646-223-5527) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
These trades generally worked into the FOMC's announcement, despite a bit of profit-taking.
Now that the Fed's near-term direction is known, the question is whether the 'prequel trades' will continue to work, or whether different approaches are required.
It appears the total quantity involved is in line with expectations, as is the duration of the assets to be purchased.
While the Fed might do more if required, $600 billion is now a base. The Fed is also lifting limits on how large holdings of individual bonds can be. Any curve flattening trades thus need to be reversed, and steepeners - long 5- to 10-year notes, short bonds - should continue to work.
Currencies and equities are more difficult, as they appear to have accurately discounted the Fed's decision.
Still, the Fed won't do less, but can do more, while Chinese growth seems likely to continue to be reasonably strong.
Buying currencies where rates are trending higher seems likely to work, as does selling dollars into rallies. Stocks of companies benefiting from a weaker dollar or lower rates also seem likely to benefit. Keywords: USA MARKETS/FOREX (Kevin Weir; kevin.weir.reuters.com@reuters.net; kevin.weir@thomsonreuters.com Telephone: +1 646-223-5527) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.