The one thing no one expects

Alex Cowie

Brexit dramatically wrong-footed the market, and then the US Election did it all over again. On both occasions, consensus was on the wrong side of the trade. And now we have total consensus that the Fed will hike in December. So. What if consensus is wrong again? Not hiking would represent a big reversal of Fed guidance and would no doubt spook the market. Gold bulls would have a field day. But why would the Fed hold off? With Trump unexpectedly in, the Fed may want time to get clarity on his proposed fiscal policies to better co-ordinate monetary policy? But the 'why' is perhaps less important than just considering the possibility. Particularly given the market now prices a near 100% chance of a hike. The Bloomberg article below articulates why the market has formed its consensus view. But as pollsters, betting odds and market forecasts have demonstrated for us in recent months: it can pay in spades to trade the other side of the consensus view. (VIEW LINK)


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James Rees

I believe it's a flawed approach to select a couple of individual events that went 'against the probabilities' and suggest that this is now more likely for future events. Furthermore, I don't see how recent events have shown us that it can pay in spades to trade the other side of the consensus view. To trade for a Brexit Trade, we most likely would have been short stocks, but unless we took a very quick trade, this would not have worked out. The Trump Trade was to be long gold, short stocks, and yet markets reacted in entirely the opposite direction. So even if we could pick events which are more likely to go against the consensus, judging the market outcomes from those events and being able to profit from them has been incredibly difficult.

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