Risk On, Risk Off

If Mr Miyagi, in his self appointed role as pedagogue, moved on from karate and instead guided Daniel Son through the wiles of investing, Risk on, Risk off would surely be a lesson it would behoove the young Larusso to absorb. Ordinarily anyway. In this market, however, he could ace the exam falling asleep half way through. It’s all about Risk On these days, Risk Off leads only to exasperation, disbelief and a P&L hit.

And in that vein, markets bounded from their starting blocks this morning. Ok, there was an initial false start with an opening dip but on the second offing, they did not hold back. Asia was higher on the back of the stronger Chinese PMI and The Sage of Stern, Nouriel Roubini, added his two pence and predicted we will see further rises in commodity prices as the recession abates. All this has seen the resource currencies hit multi month (in the teens) highs. And remember crude, that thing which was heading back to $55 a few weeks ago and to $60 just last Thursday? Well it’s over $70 now. And resource stocks? Just buy them, they keep going up.

Barclays numbers came in light of expectations but Bob Diamond, in the way only he can, assured investors that the underlying business is strong. Listening to him on CNBC, it went something like this…well credit books are always going to fluctuate quite a lot and ours has too and we expect it to continue to do so but if you strip that out, things really are very strong. Anyone remember that (bad) joke from Econ101 about 3 men stranded on a desert island with only tinned food to eat? Alas they have no tin opener. “Never fear…” says one of the men, an economist by trade, “I have the answer. It is easy. Now, assuming a tin opener…”

HSBC numbers were stronger however and markets have liked that. No doubt this will buoy Asian markets too when they open up.

We had some very poor German retail sales numbers, -1.8 MoM vs +0.5% expected and a worse revision too. The YoY numbers were equally ugly. The UK on the other hand has clocked in with a better than expected PMI manufacturing number…50.8 vs 47.8 expected. 50.8! That is above 50, and hence…expansionary. Ok not much, but still, it’s the first time we’ve seen an expansionary number in these data since April 2008. As a result, Cable is rallying hard, hitting levels last seen in Oct 08. EURGBP is being hit too, as the weakness of the German data and strength of the UK double team the cross and with the exception of the mid June fall, we haven’t seen this level since early December 08.

So there certainly has been a flurry of info, activity and price action this morning. Risk On, is on again it seems (having taken a momentary lapse into the US close on Friday). Who knows how long it lasts but who dares stand in its way?