Positioning Watch: FX market positioning is completely out of sync with the rest..
Happy Saturday and welcome to our weekly positioning assessment. Central banks, academic economists and bank representatives have flocked around a soft-landing narrative in recent weeks with the Bank of England as the almost hilarious case in point. They have highlighted the recession ahead for almost a year and have now suddenly removed the recession from their base case.
We find that namely the overwhelming consensus of a recession may have played a part in preventing one into this year as a recession needs an external shock or trigger that gets increasingly unlikely the more conservative decision-making is. Now that central banks have started to soften up on their growth projections, they may end up hiking right into a crisis they will take part in creating themselves.
The question is, have markets followed along in positioning? The answer is BOTH yes and no. We consider current positioning extremely schizophrenic across assets. Let’s have a look at it.
Equity positioning is slowly turning more positive again, while bond markets price in a recession. FX markets have started positioning in carry currencies (such as BRL and MXN) that only perform during low volatility environments, while commodity markets are heavily short everything cyclical. A big mix of outright contradicting signals.
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