The “Watch Series” is a collection of individual series such as Europolitics Watch, Inflation Watch, Real Estate watch and much more. Stay tuned for in-depth coverage of your favourite subjects.
A portfolio needs a “soft USD rates” lean to perform in the current environment, a dynamic often seen around the first Fed rate cut. Here’s how we plan to reshuffle the portfolio.
The Fed is not going to cut by 50bp given this report, which contrasts somewhat with market expectations. The initial response may not be risk-negative, but if we continue to see weak labor markets and growth paired with sticky inflation, it’s time to run for the hills!
With the CPI report just around the corner, we examine whether markets may have become too positioned for a complete meltdown in both growth and inflation.
With the lukewarm NFP report out, we share our portfolio watch, update you on last week’s allocations, and offer some thoughts on where assets may be heading next!
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!
Two overwhelming themes are at the top of our watchlist for September: fading USD liquidity and a sudden halt in Chinese activity. Here’s how we plan to address them.
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.
The Chinese rebound story is losing momentum fast, which has important implications for Western economies and assets, while the impact from freight rates on inflation might not be as large as previously feared.
The cutting cycle is now a done deal, and Powell is urging you not to resist it. The question remains whether this is positive or negative for risk sentiment. A lot of negativity is building beneath the surface in our models as we approach September.
The outlook on interest rates is exceptionally tricky, yet increasingly predictable. Everyone seems eager to cut rates, and it’s generally unwise to go against a trend without a compelling reason. Enter the debt ceiling!
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?
There is still a substantial weakness in the Chinese domestic cycle, which impacts the overall commodity cycle. Gold is one of the few commodities that hasn’t been a victim of the Chinese cycle, but is the sell-off broadly over in commodities? Doubtful.
The short metals trade seems exhausted..
Retail sales have once again alleviated immediate recession fears, but signs of cracks are appearing in sectors that typically lag the business cycle, including construction. Consumers remain concerned about the economic situation. Bonds are holding steady for now.
The usual inflation culprits, shelter and transportation, are back, but this also means that PCE inflation will print at softer levels than CPI inflation. This report is weak enough for the Fed to continue shifting its focus to employment.
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.
The inflation reports are incoming over the next 24-48 hours and markets are in a wait and see mode ahead of them. We forecast another hot PPI report today!
As European gas prices post a weekly jump due to Ukraine giving Putin his very own “Operation Citadel” moment, we delve into the data. Is this Nat Gas rally solely a supply story?
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.
Growth and inflation are taking a final dip before potentially rising throughout autumn, while liquidity is the dark horse in August with risks of weakness as the ON RRP becomes increasingly attractive. Read our allocation thoughts here.
We see a strong risk/reward case on the low side of consensus in July. The trillion-dollar question is whether markets will celebrate it or hate it? We are honestly in doubt at this point.
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?
Recent US labor data presents mixed signals; while the ISM and SLOOS indicate no recession, rising long-term unemployment rates may prompt the Federal Reserve to consider rate cuts. We are of the view that the Sahm-rule was not actually triggered, as the rule doesn’t account for the current labor market mix.
We have examined the quantitative data surrounding the cutting cycle to optimise the curve steepener trade for hit ratios, carry returns, and ‘max contributions.’ This is the steepener trade you want to own in a cutting cycle!
Markets consider gold trading a safe bet during the cutting cycle, but Chinese flows will dictate the trend. Currently, they are not crystal clear from a directional perspective now that the USD/CNH tide has turned. Meanwhile, the outcome space of energy looks asymmetrically interesting.
With the release of the SLOOS survey and the ISM Services data, we can conclude that meltdown fears are massively overstated. Here is how the Fed will handle the situation should the market continue to sell off.
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.
Recession chitters are certainly running the headlines after yesterday’s NFP report, which was not at all what markets were hoping for a few weeks back. September pricing is now showing 70% probability of a 50 bps cut, and people are starting to pile into recession bets. Our allocation thoughts here.
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.
Markets are currently acting as if they know the true ramifications of a Fed cutting cycle, while a look through the historical lens, examining asset returns around previous Fed cuts, show that most trades are more of a 50/50 return wise. There is however one safe trade that has worked during most previous Fed cutting cycles.