The Kamala victory in today’s debate as temporarily paused the dash for cash dynamics in the USD, while other September seasonalities continue to roar in Fixed Income and equities ahead of the US CPI release today. Do markets even care about inflation anymore? A hot(ter) print might not be bad for risk assets here.
This week will host both US CPI and PPI figures, the Trump vs. Harris debate, an ECB meeting, and a UK employment report, which will truly set the tone across the main markets that we track.
Markets have jumped into the growth rebound trades with both legs after they found out the NFP report was likely a bit better than what it showed at first glance. However this doesn’t mean that growth will rebound right around the corner, and it looks like markets could be wrongfooted big time!
The US has been the odd one out for a long time, being one of the only performing economies. Things are now starting to slow both in the US, China and Eurozone right as markets overcame the weak(er) NFP report .
While markets are flooded with sluggish employment data and revisions to the tight labor market, there are no immediate signs of a labor market recession in positioning data, with flows still appearing robust.
Markets are jumping right back into the soft landing trades we saw building throughout Spring and early summer at a rapid pace, while JPY positioning has turned outright bullish ahead of Jackson Hole on Friday. Will Powell destroy the positioning comeback or bolster an Autumn rally?
The positioning squaring phase is over across our positioning gauges, and it coincides with a rebound in the growth sentiment. This is the perfect cocktail for risk assets for now! USD and GBP fixed income is substantially less crowded than EUR fixed income, while Gold (for good reasons) remains the most consensual trade on earth.
Tides and stakes have been high this week in the markets, making it crucial to stay both reactive and adaptable to shifting narratives. Read about our portfolio insights here.
Assets are on the move, and it looks like the worst of the position squaring seen on Friday and Monday is behind us. But how much position squaring is left, and are markets starting to prepare for a bull run?
Today’s spike in volatility across assets means that we have been stopped out of our long metals position, while we keep our precious metal shorts.
Our short utilities and USD bet is not a particularly great risk reward now that recession bets are kicking in, and hence we take the opportunity to get out of some positions.
We haven’t made changes to the portfolio in a while, but we are seeing signs of reversal in metals space, while the equity picture is a bit unclear at the moment.
Markets are back into soft landing mode, with the perfect landing required for current equity positioning and expectations to be fulfilled. Meanwhile, the price action in commodities is finally impacting positioning data in precious metals.
The equity scare seen throughout July with Nasdaq losing terrain against Russell was likely not the beginning of a longer rotation from large to small cap, but rather normalization of extreme positioning. Markets are still heavily long large caps, while the Russell bid is slowly vanishing.
Our positioning gauges show that markets fully price in continued equity momentum and 50 bps worth of rate cuts in H2, which means that markets will now need to find value trades elsewhere. There’s also substantial support from AMs towards the short vol trade, but watch out… Is this a recovery, a re-acceleration or a slow-down?
There are currently no signs in broad positioning data that indicate markets are truly betting on a recession, which poses a brighter outlook for risk-assets than some are fearing.
Markets have been eagerly chasing bullish price action in JPY pairs since Ueda’s appointment, constantly expecting different outcomes from meetings and speeches. But what if BoJ doesn’t want the JPY to strengthen?
While there are still substantial premiums priced into European equities and bonds relative to other regions, it has not truly spilled over to FX, where volatility has barely moved. Are markets starting to board the Europe-train again?
The outlook for USD rates is turning increasingly soft given the latest soft inflation prints, and with PCE consensus Friday looking relatively soft, the trend will likely continue over the coming weeks. Do we agree? No, and neither does fast money.
Markets were allowed to run past the previous line in the sand of 160 in USDJPY, and we are hence stopped out of our position.
The differences in interest rate sensitivities across regions are starting to be highlighted in bankruptcy numbers
The positioning in US Tech is still not out of the ordinary, while commodity positioning continues to stay out of whack with price action.
There are no recessions in sight in positioning data, and it seems like markets are all in on the booming US story, on top celebrating the net dovish outcome of the CPI report and FOMC presser Wednesday.
Our models are signaling that it could be time to re-enter the NOKSEK trade again, as weaker inflation data from Sweden could be the catalyst for a bullish run in the pair.
The market reaction to the European elections does not serve as an indicator to buy into European assets, and we are hence dropping our European FX rebalancing bet.
Despite the ISM figure for May showing weakness, there are numerous signs from both the market and forward looking indicators that we are in for a substantial boom in manufacturing. What should you buy if that’s the case? Find out here.
The positioning remains crowded in Copper, Gold and Silver (and to a certain extent oil). If economic surprises continue to be soft in the coming week or two, we may get an ugly washout ahead of the July contracts maturing.
Our oil bet admittedly didn’t go as planned, and we take the opportunity to take off some of our broader commodity risk, while keeping idiosyncratic commodity bets.
We’re modifying the weighing of risk assets and commodities as the reflation story stalls, whilst the liquidity outlook will turn in early June. Read our portfolio thoughts here.
There are reasons to believe that goods inflation is on its way back with ETA during the summer, but while freight rates are on the move globally, the effects on price pressures should be more of a concern to the ECB and BoE compared to the Fed.
