Why The Senate Deal Now Has Bears On The Run

From the ANZ this morning, a great chart on global “risk appetite”, which is essentially whether traders and investors are bullish or bearish on stocks and the economy.

What we see above is that developed market risk appetite is strong and emerging market risk appetite is recovering strongly.

This means that investors in the developed world are outright bullish and happy to take on more risk, while traders and investors in the emerging markets are increasingly happy to take on risk, although they’re not yet outright bullish.

To express this view in actual trades, what traders and investors do is take money out of safer markets – like US Treasuries or Japanese yen – and place it into assets that are leveraged to global growth and risk. Things like the Aussie dollar, Brazilian real, South African rand and so on in Forex markets.

Stock markets in general benefit in an outright sense in this environment and then within stock markets, smaller and more speculative stocks usually outperform the “large caps” – at least as a rule of thumb.

A bullish back drop like this tells us all why, in the midst of the US Government shutdown and the messy argument over the past few weeks, stocks and the Aussie dollar held up okay.

Now with a deal on the table and resolution looming, the bulls might want to have a run and the bears are going to be, well, grizzly for a while.

So stocks and the Aussie are biased high, maybe much higher it would seem.

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