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5 Jun 2013
Flash: The Longest Day - Societe Generale
FXstreet.com (Barcelona) - Using a masterful analogy, Sebastien Galy, Senior FX Strategist at Societe Generale has described the challenge of tapering QE which lies ahead.
He writes, “In a dusty village off the coast of 1940s Bordeaux, a man smoking his pipe steps in his post office to find the Wehrmacht raiding it. He rushes for his hidden box of tobacco, gone, the horror, tantrum and a shamed officer lines up his troops to find the culprit before leaving. The hidden radio transmitter repeatedly triangulated by a specialist unit would survive another two raids on the chain smoker. The pipe is at home, the radio and camouflage equipment came from the OSS. The longest day originally planned for the 5th of June 1944 was a certain event, yet neither its timing nor consequences were obvious for those involved even if the odds were very good.”
Galy feels that this fog of war permeates our wonderful, if dying QE world, the strategic road ahead is clear enough. He believes that some leadership has been lulled into overconfidence by past success, yet others remember well errors made ahead of Lehman. The outcome is that rising UST yields will continue to be the dominating theme. Further, he adds that ECB easing or not, some better UK data, all are deeply secondary to the main UST theme ahead of NFP. More Fed speakers continue to prepare the way out of ultra easy monetary conditions. He finishes by writing, “We know where we are going, the only debate is speed and the brutality or not of this process. USD vs EM are only corollaries in this process, tightening conditions in EM as easy money disappears with its usual consequences. We are USD bullish, helmet resting on some English grass, waiting and waiting in a far more civilized world.”
He writes, “In a dusty village off the coast of 1940s Bordeaux, a man smoking his pipe steps in his post office to find the Wehrmacht raiding it. He rushes for his hidden box of tobacco, gone, the horror, tantrum and a shamed officer lines up his troops to find the culprit before leaving. The hidden radio transmitter repeatedly triangulated by a specialist unit would survive another two raids on the chain smoker. The pipe is at home, the radio and camouflage equipment came from the OSS. The longest day originally planned for the 5th of June 1944 was a certain event, yet neither its timing nor consequences were obvious for those involved even if the odds were very good.”
Galy feels that this fog of war permeates our wonderful, if dying QE world, the strategic road ahead is clear enough. He believes that some leadership has been lulled into overconfidence by past success, yet others remember well errors made ahead of Lehman. The outcome is that rising UST yields will continue to be the dominating theme. Further, he adds that ECB easing or not, some better UK data, all are deeply secondary to the main UST theme ahead of NFP. More Fed speakers continue to prepare the way out of ultra easy monetary conditions. He finishes by writing, “We know where we are going, the only debate is speed and the brutality or not of this process. USD vs EM are only corollaries in this process, tightening conditions in EM as easy money disappears with its usual consequences. We are USD bullish, helmet resting on some English grass, waiting and waiting in a far more civilized world.”