*The issue of sequencing of themes remains hard to navigate for investors generally with higher levels of positioning short USD and long equities.
*Notable is collapse in vol – VIX testing 20/24 support zone – when real economic uncertainty remains so high.
*We remain on alert for a yearend meltup IF USD / US rates / Vol remain rangebound
*Increasingly view this final rally as “it” and look for a significant pick up in Volatility and downside equity risk into Q1 2021.
10Nov Chart Video: Long end US/UK nominal rates look too low given inflation outlook – TLT shorts added to RadarScreen
*The continued move lower in long end yields in the face of persistent inflation points to the manipulation of central banks and destruction of price discovery in capital markets.
*The move in US and UK rates in particular looks overdone as real yields returns to extreme negative rates and inflation expectations soar – additional TLT downside added to RadarScreen to express this.
*Softer US indices led by two stocks – 80% of move driven by Tesla and Paypal. This is potentially setting up the modest pullback before a final blast higher driven by seasonality, FOMO, retail option buying, indexation and buyback flow. We are on alert for short dated upside opportunities.
09Nov Macro Video: Bubble valuations continue to stretch as the “No-Rules” market builds momemtum and brings volatility on both sides of the price
*The hangover from the volatility in bonds is set to continue to central bankers attempt to maintain the narrative over patient/transitory policies over inflation.
*The risk of a 1999/00 US equity bubble inflation is growing as record easy conditions persist whilst the Fed starts to express concern about asset prices!
*Higher volatility alongside higher equities is a sign of potential variance on BOTH side of the rate as Greed signals and gigantic option volumes highlight the over-heated nature of FOMO risk seeking.
*A pause of pullback in US indices we shall take as an opportunity to add some upside premium paid US equity plays to the RadarScreen.
08Nov Chart Video: Inflation data and Central Banks increasingly at odds as risk grow of a “Brick-Elastic” incident for policy makers!
*The strong US payroll report was met with yet more position squeezing in fixed income driving bond yields lower on PnL pain.
*The nature of the fixed income moves look overdone and do not suit our TLT short position – but this is a why we use premium paid strategies to limit potential lose!
*Huge week of Fed and BoE speakers who will seek to explain policy particularly around labour markets
*NOTE : VIX and VXN higher with high equities is a Red Flag; is the Gold rally sustainable?
05Nov Macro Video: Markets vs Central Bankers is going to run as senstivity to economic and inflation data grows
*Central Bank credibility continues to weaken after BoE leaves rates unchanged with a confusion confection of weak rationale for doing so.
*The battle between market and central banker will intensify especially if inflation and wage data continues to improve which is our central case.
*The continued suppression of real yields – for now – is maintaining ultra-loose financial conditions and fuelling the extension in US equity leaders.
*The pullback in UK and US rates looks overdone – with this inflation backdrop we see higher backend rates from here still.
04Nov Chart Video: Fed tapers but its “patience” tone on inflation risks huge policy mistake in pursuit of full employment “goal”
*Fed statement and Powell presser indicate immediate tapering by USD 15bio a month but switches guidance that inflation is driven by “factors that are likely to be transitory”
*The “patient” approach from the Fed highlights their lack of risk-management balance and total lack of understanding of the impact of inflation on real people in pursuit of their full employment goal.
*It is noticeable that the dollar was stable and bonds did NOT rally – those markets believe the Fed is behind the curve whilst equities rally fuelled by extraordinary call option buying.
*Oil is breaking supports – considering adding USDCAD upside to the RadarScreen.
03Nov Chart Video: Tightrope time for the Fed as Powell will try to deliver a dovish taper in the face of mounting pressure from bond market
*Fed today will clearly be looking to announce tapering but will be very wary to not signal potential rate hikes but the market is primed for volatility
*Chair Powell has a record of creating volatility at Fed press conferences! We continue to see the risk of a dovish taper as steepening the yield curve and hence hold the TLT shorts to express this.
*Short term technical in SP500 high waning momentum on RSI divergence – the melt up could see some near term choppiness.
*FX pairs driven by commodity inflation are turning as prices moderate with oil losing upside momemtum too – we are watching USDCAD closely for signs of a reversal higher.
02Nov Macro Video: Equity inflows meet the “bond vigilantes” as Central Banks feel the heat from “prejudging” inflation as transitory
*The abandonment of yield curve control by the Reserve Bank of Australia show the bond market is causing policy change amongst dovish central banks.
*The inflation pickup WILL harm growth whilst China continues to slow as zero-Covid bites – commodities look likely to at least pause.
*Equity inflows are set to accelerate into year-end – this potentially sets up for the perfect “EVERYTHING RALLY”.
*TESLA is the ultimate fastest horse and is the Key barometer in equity space for risk seeking / bubble inflation behaviour.
01Nov Chart Video: Huge event week to bring volatility to markets as poor market liquidity, extreme positioning and uncertainty collide
*A huge week looms for markets with RBA / Norges / Fed / BoE / OPEC+ all due to meet along with US employment report and COP-26 summit.
*Weak China data points to consolidation in commodities but many of the supply chain issues are issues of government and not simply due to a lack of labour.
*With market saying to central banks – “we don’t believe your forward guidance” – the prospect for increased volatility remains as Us equity valuations look increasingly stretched.
*VIX 22Dec 20-30 call spreads added to the RadarScreen – can the dollar continue to rally is a key question too.
29Oct Macro Video: October saw elevated bond vol but muted Equity/Fx vol and Growth outperformance – but Central Banks needs to address the inflation dilemma
*October has been dominated by US equity rallies driven by Big Cap Tech and unprecedented pace of rises in frontend rates in Developed Markets.
*Central bank narrative over inflation being “transitory” is being tested severely as markets price in faster pace of rates hikes – but we STILL don’t know what central banks will do.
*This sets up for hugely important meetings for RBA / Fed / BOE /Norges next week as bond volatility remains elevated relative to calm FX and Equity vol.
*We do not view this as sustainable and increasingly see risks for an equity selloff / pick up in vol in early November.
28Oct Chart Video: Hawkish BoC highlights how far behind the curve Central bankers are – rate volatility WILL spill over to equities
*The extraordinary move higher in frontend rates in AUD/CAD/GBP/NZD highlight how far central bankers are behind the curve in ending over-stimulation due to Covid and recognising the persistent nature of inflation.
*The Fed meeting looms large as global rate curves flatten dramatically. ECB notable today – how will maintaining “optimal financing conditions” meet with markets starting to price in higher Euro rates.
*Higher bond vol is NOT being reflected yet in US equities, whilst FX vol remains low too as Oil and commodity prices soften – this looks increasing unsustainable.
*VIX call spreads are being considered for the RadarScreen – charts today : Global rates, VVIX, Bitcoin correlations, SP500, MSFT, TSLA, Oil, Market Map.
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