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.
While macro is constantly moving, the AI wave (primarily NVIDIA) seems to be overshadowing everything else going on, being used as an argument for elevated asset prices. Will equities be wrongfooted by macro? The outlook is still positive, but risks are looming.
We have for a long time been framing real world demand as the reason why real world assets like commodities and real estate have been lagging behind. With the supply side of the equation getting tight, while demand has stayed strong, prices are starting to move, fast! And positioning follows.
Although increasing signs of survey-based economic improvements being a head-fake, it’s still possible to capitalize on the upcoming increase in ISM manufacturing. Here’s the cheapest asset to buy relative to the business cycle in each asset class!
The dovish report today implies a relief in USD-rates, which we try to capitalize on through FX.
The US CPI report came in a tad on the soft side, which is good news for the rate cut crowd, and risk assets will likely be allowed to rally further from here with lower USD-rates feeding into FCIs during May. Meanwhile, real-time gauges of activity already hint of a comeback relative to the soft April patch.
By taking the rolling beta of various assets to the performance of Global Macro Hedge Funds, we are able to generate an approximation of how macro traders are positioned in this environment. A clue: They are leaning towards a CNY devaluation too, while they are short USD fixed income and long the USD (broadly).
While economic data hasn’t been as strong as one would have hoped for, there are plenty of signs that risk assets and equities in general will do well in the coming time, which brings hot inflation prints and higher liquidity. Macro is interesting as always!
The April washout in global equities has reset the über bullish positioning in equities seen pre-April, but that leaves equity positioning more normalized right as liquidity kicks in. Time for further gains in equities? We think so.
Our PCA-tool has recently flagged SEK weakness, and with the increasing chance of a Riksbank hold tomorrow and a dovish NOK CPI report, it’s time to head out on the sidelines.
The overall dovish FOMC message Wednesday has laid the foundation for liquidity bets to perform over the coming weeks, as the hopes of rate cuts are back alive amidst the election year, which is rarely bad for risk assets.
Tonight’s FOMC decision will likely come as a surprise to markets, but the rhetoric and possible acknowledgement of market pricing will be key. We provide 5 things that we look at to understand the situation the Fed has placed themselves in.
Equities are back to winning ways, while USD rates traders agree on 0 cuts this year being a probable scenario. Meanwhile, China is likely preparing for a devaluation of the CNY, and the intervention risks in JPY pairs increases, and the next macro battle in 2024 will likely be found in EM.
Equities are back on track amidst rates traders agreeing on 0 Fed cuts being increasingly more likely. Our short and sweet morning post here.