We have recently played the energy trade from an equity perspective, but now risk/rewards favor the underlying commodities instead.

We have recently played the energy trade from an equity perspective, but now risk/rewards favor the underlying commodities instead.
The reliance on Muftis and Zars in the energy policy reminds us of the 1970s and 1980s. Steepeners, higher Natural Gas Prices and tighter fiscal policy will likely be the end game in that order.
The USD wrecking ball haunts again and several Asian Central Banks now actively intervene. The issue is that the USD is not the trigger of this move. Energy is.
There are signs of a pick-up in German activity in the details from the IFO survey. A long in Nat Gas looks increasingly compelling, while US Manufacturing keeps rebounding as well.
The EUR-inflation numbers will be helped lower by substantial base effects while we see weakness spreading across services-inflation. The bottom will likely be found in Nov or Dec at levels close to the target.
The IRA has saved the US from entering a recession alongside peers this year. If the appropriations negotiations this week lead to a bye bye to Oprahnomics, then we consider a recession a done deal for 2024. Buckle up!
A crucial week is ahead of us in global macro as the only remaining bastion in the global economy may be heading into a shutdown. Meanwhile, we are watching for signs of an emerging restocking cycle in Germany.
Is the current energy crisis reminiscent of 2022? We compared the energy crisis 2.0 to the 1.0 crisis of 2021/2022 and díscuss the trading playbook in such a scenario. Enjoy (the crisis)!
How do you trade the tight energy supply with increasing consensus in the oil market? We see various interesting proxies and have started to add them to our portfolio.
Japan is one of the most energy sensitive countries in the world and the BoJ is not (truly) willing to underpin the JPY. We aim at exploiting this in a RV trade in Asia.
The Russian curbs on diesel exports arrive at a bad timing with already low inventories ahead of peak demand season. Central banks trying to pause amidst this will feel the wrath from long bond yields.
Ueda has got the situation under control and managed to orchestrate a whole string of positive market developments on the back of his monetary policy mix. There are no major reasons to change course. Steepen the JPY curve slowly, while accommodating the short-end.
Is the divergence between energy stocks and oil markets worth noticing? And could the risk/reward be shifting towards other parts of the energy space?
Ultimately markets got the memo from the Fed. The rate hikes are not necessarily over, but they will not promise anything at this stage. USD bullish (again).
We flip our exposures in the Energy space and find value in adding a lagged proxy trade to the current oil price spike.
We have closed 3 positions as the risk/reward from here has weakened.
Given the information received since the last update of the dot plot in June, inflation has surprised to the upside, the growth gauges have surprised to the upside, while the labor market has surprised to the downside. Net/net no reason to alter the dot plot.
Did the Biden admin send up a trial balloon on the SPR strategy without major success? Meanwhile, energy- and foodflation sadly continues across traded markets. It will not be an easy afternoon for the Fed.
Our expectations for the big central banks this week presented in a one chart + one-paragraph format!
It’s a big week in global central banking and both the Fed, Norges Bank, the Riksbank and the BoE will decide on rates this week. Some of the trends towards weakness/softness in European FX and rates seem a bit exhausted ahead of this week (confirmed by the market opening this morning), but with a few days of consolidation we may be back in a scenario that allows for renewed bets on weakness/softness from European central banks. Overall, we see a decent risk/reward in expecting European central banks to sound somewhat more balanced after the ECB made the pause the explicit base-case, while the Fed is likely not willing to accept a notion that a pause is a base case from here with the recent reacceleration of inflation numbers. Fed pricing hints of a roughly 40% chance of a hike in December, which is probably also the timing of the still intended rate hike from the dot plot in June. We expect Powell to solidify the expectations of that hike still being the modal outcome from the Fed. Chart 1: Fed fwd pricing BoE market pricing has been falling off a cliff lately with March-2024 peak SONIA pricing falling from 6.50% down to only 5.54%. We have earlier labeled UK rates pricing to be the biggest misallocation in global fixed income and we continue to lean that way given the weakness seen lately in services related gauges in the UK. We ought to remember that the smoking hot wage growth numbers […]
I am getting increasingly concerned about (at least) four things in the current global macro setup, which leaves prudent risk management in investing more relevant than usual.
Betting against Europe is becoming increasingly popular, but the energy trade is yet to become overcrowded. Here is the weekly positioning report.
The short Europe bet is getting increasingly crowded but for good reasons, while the energy bet, impressively, is not overly crowded yet. That is comforting for EUR shorts as energy is a main driver of European versus US allocation.
The ECB seems closer to softening up than the Fed even if they delivered a hike yesterday. An almost explicit pause was promised in the written statement. ECB pricing for 2024 looks ODD compared to Fed pricing still.
We consider the ECB assumptions to be off and see a much “weaker” ECB commitment going forward compared to the Fed. Here is why the ECB is off in 4 charts!
Energy keeps performing against all peers and it seems like positioning is still underweight despite the recent bullishness. European positioning is getting short, but data keeps backing up that view.
The Fed is likely to conclude that the cocktail of rising headline inflation and dropping core inflation is enough for a skip, but by refusing to act on emerging renewed price pressures, they will likely let the market do the dirty work!
Rhetorical intervention in JPY and CNY helped risk assets and high beta stocks perform yesterday, but is the stabilization sustainable or still fundamentally challenged? We lean towards the latter.
Ueda giving an exclusive interview for the first time since April trying to talk up the JPY but will he succeed? We doubt it. The global steepener pressure remains intact.
It is no secret that we have never been major fans of the overfitted ESG narrative in investing, but the market is now starting to chime in. Windmills suffer while Oil gains. Who would have thought a few years ago?