Tuesday, 30 December 2014

Polls (not so) apart

11:55 Posted by The Thalesians (@thalesians) No comments

In a recent blog post, I discussed the notion of consensus expectations following on from my own views for 2015 which I published for Thalesians subscribers (and given it's Christmas, I've given it away for free download). There are many ways to measure market consensus (or the world the market wants to paraphrase the above picture). Notably we can examine Bloomberg forecasts of various sell side firms. However, very often we might wish to ask what market expectations in a more nuanced way, which are difficult to capture via forecasts. We might also argue that a poll of sell side strategists, might reveal different results to one which includes asset managers and traders, which might be more reflective of market positioning.

As a result, I thought I would  conduct a market survey on Twitter about market expectations for 2015. Despite, posting it over the Christmas holidays, I collected 28 responses, so thanks to everyone who participated! Whilst, I have already tweeted the results, I thought it was worthwhile to collate all the responses in a single article, with a few of my own comments. All respondents were anonymous.

1. Which is your favourite asset class in 2015? The clear answer is that respondents are not keen on bonds for 2015. However, the proportion of respondents who preferred cash seemed to be a lot larger than I would have expected. Admittedly, perhaps the lack of alternatives might have skewed the results.

2. What do you think is most likely to happen in 2015? No surprises here, with higher USD being seen as the most likely event selected from the list. Interestingly, higher USD outstripped higher UST 10Y yields in terms of votes, perhaps reflecting the failure of UST 10Y yields to move higher in 2014. One crucial point I'd like to add, is of course, from an FX perspective, it is the rate differential which is the most important, not purely the move in UST yields. Furthermore, in developed markets, currencies tend to be more sensitive to the front end (eg. 2Y) more than the back end of the yield curve.

3. When do you think the Fed will hike? Whilst the largest number of respondents felt that Jun 2015, would likely be the first Fed hike, a near similar proportion felt 2016 would see the first Fed hike. In the past, the market has been expecting Fed hikes sooner, maybe this time really is different, especially given the pick up in US data?

4. When do you think ECB will introduce full blown QE? Most feel that Jan 2015 is the most likely time when the ECB will start full blown QE, with lower numbers expecting Mar or Apr 2015. The proportion of respondents expecting no full blown QE were perhaps higher than I was expecting.

So in summary, the survey suggests investors are bullish equities, cautiously so given the proportion who prefer cash. Elsewhere, there is an expectation that the Fed will hike, whilst the ECB will ease further, which largely tallies with the long USD view expressed in the survey.

If you found the survey useful, let me know, as I'm thinking whether to make this a more regular project (perhaps once a month or every quarter, if there is sufficient interest). Any suggestions for future macro based questions are very welcome. At that is left is for me, to wish you best of luck for 2015. Luck is more precious than skill in these markets!

My book Trading Thalesians - What the ancient world can teach us about trading today is out in late October on Palgrave Macmillan, has some colour on the topic of consensus in markets (mixed in with a bit of ancient history). You can order the book on Amazon. Also read my thoughts in 2015, in my Thalesians quant note here (given it's Christmas, I'm giving it out for free!)


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