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26July Chart Video: As China intervention grows, echoes of 2015 volatility come increasingly to mind.

26July Chart Video: As China intervention grows, echoes of 2015 volatility come increasingly to mind.

*The continued intervention and exercise of control by the CCP over Chinese economy points to their concerns over slowing domestic growth and inflation control whilst dampening down speculation.
*This echoes 2015, which resulted in a devaluation of the CNH which created a big spike in global market volatility.
*FOMC likely to play for time as the Delta variant is key past of decision making; meanwhile in UK it increasingly appears that mass vaccination is breaking the link between infections and more severe illness.
*We view this as a week to be patient; August could see a pickup in volatility but we wonder whether – near term – we could see equities rally with reflation trades grinding higher.

23July Macro Video: As US economy recovery booms ahead, the nearterm reflation narrative can gain some traction

23July Macro Video: As US economy recovery booms ahead, the nearterm reflation narrative can gain some traction

*The relationship between short term market sentiment and the spread of the delta variant is strong, and the UK is a test case as to how the variant will transmit, albeit in a country with high levels of vaccination.
*The Output Gap in the US looks to be fully closed by the end of 2021; the recession itself was “transitory” and Fed policy looks increasingly totally unnecessary.
*The ECB remains extremely dovish but negative rates remain a signal to HOARD, and not spend!
*EURGBP captures a number of narrative we like – EUR underperformance vs UK on rates and reopening; and expression of near term reflation theme.

22July Chart Video: With US and UK rates at unsustainable levels, reflation plays of short EURGBP and downside USDCAD offer value.

22July Chart Video: With US and UK rates at unsustainable levels, reflation plays of short EURGBP and downside USDCAD offer value.

*Increasingly the current levels of long end rates in US and UK are hard to justify given scale of vaccination and fact that delta variant risk appear fully priced in.
*It is likely the Fed will remain dovish due to case pickup in June, but will look to announce taper of bond purchases in September – in meantime the reflation narrative can win out.
*RadarScreens show GBP, CAD, NOK and UK and US rates most “overdone” in the current growth scare. Short EURGBP spot and downside USDCAD added to opportunities screen.
*Charts today : Market Map, US 10years (explainer of past moves), 10year UK rates, Oil, EURGBP, USDCAD, SP500, GBPUSD, USDNOK, Growth-Value ratio.

21July Chart Video: Market trapped in reflation vs stagflation narratives as increasing leverage ensures underlying volatility builds

21July Chart Video: Market trapped in reflation vs stagflation narratives as increasing leverage ensures underlying volatility builds

*The market is trapped between narratives of reflation vs inflation in the global economy driven by policy maker response to the pandemic (not the pandemic per se)
*Whilst the bond market prices in muted inflation and recession, the actual recession in the US last 2 months – the length of the time of the forced shutdown of the economy – there were NO recessionary impulses prior to this!
*Underlying volatility is rising given the growing amount of leverage whilst the move lower in global yields highlights investor focus on return OF money rather than return ON money.
*Charts today – market map, SP500, growth-value ratio, DXY, Nasdaq, Nikkei, VIX, JETS ETF, US 2/10s and 5/30s curves.

19July Macro Video: Stagflation concerns grow as risk of further dollar strength tightening financial conditions grows.

19July Macro Video: Stagflation concerns grow as risk of further dollar strength tightening financial conditions grows.

*The markets are increasingly pricing in a slowdown in the overall recovery outside of the US with the risk of stagflation growing.
*Inflation stimuli look far from transitory which will act as a tax on growth unless wages keep pace with price rises.
*Equity internals looks increasingly poor as the dollar strengthens – any tightening of financial conditions will have a reflexive negative effect on risk assets.
*A dollar breakout topside is on our minds to catalyse more weakness for equities.

12July Macro Video: The bounce in US equities highlights the breaking correlation with global stocks – the bubble inflation is gathering pace

12July Macro Video: The bounce in US equities highlights the breaking correlation with global stocks – the bubble inflation is gathering pace

*The pace of correction in equities HIGHER Friday suggests the pain side for positioning in US stocks could still be higher!
*FOMO and dip buying is driving breakdowns in correlations with global equities as the bubble is inflated still further.
*The competing narratives fitted to price action – especially in fixed income – are causing markets to mean revert as underlying liquidity gets increasingly fragile.
*UST issuance, CPI, Powell will dominate a week which could see more choppy, but ultimately, mean-reverting price action.

09July Macro Video: Bond rally looks mature as data and issuance will put a floor under US yields.

09July Macro Video: Bond rally looks mature as data and issuance will put a floor under US yields.

*The recent buy frenzy in US bonds seems to have run its course as liquidation has driven yields lower; we remain wary of fitting narratives to forced position reduction.
*Treasury issuance, CPI are key next week for the path of rates; we question whether the reflation narrative could reassert whipsawing the bond bulls.
*US Equity internals remain poor and would be vulnerable to a move higher in US rates IF it drives real yields higher from their current very negative levels.
*RadarScreen : TLT downside added o double size of position to express higher US rate view.

08July Chart Video: Price action and narrative continue to diverge as bond rally signals sustained pick up in volatility

08July Chart Video: Price action and narrative continue to diverge as bond rally signals sustained pick up in volatility

*Fed minutes highlights the scale of internal debate over tapering and policy path going forward, but preparedness is a key takeaway.
*The bond rally is really a “no-taper” tantrum pricing in transitory inflation and growth slowdown but household balance sheets suggest this is unlikely.
*China indicating chance of rates CUTS to support domestic economy – they must NOT be caught with policy too tight if/when the Fed does taper.
*ECB to switch to average inflation targetting – the messaging may change but we remain unconvinced how annihilating returns on cash savings promotes increased consumption, especially in Europe.

07July Chart Video: Stoploss rally in bonds as market increasingly concerned over slowing growth; beware hawkish Fed minutes!

07July Chart Video: Stoploss rally in bonds as market increasingly concerned over slowing growth; beware hawkish Fed minutes!

*Large stoploss flows in bonds drive rates yet lower as the market gets increasingly concerned that growth has been “as good as it gets”.
*We question whether this is narrative fitting, or yet another case of the market finding pain points and squeezing.
*If the fed minutes today ARE hawkish, the pressure for a tightening Fed and a market become concerned over slower growth is a red flag for equities.
*We are looking at adding VIX call spreads to the RadarScreen ahead of the Fed this evening.

06July Macro Video: Sustained higher Oil prices will add fuel to the growing inflationary inputs, but at a cost to growth.

06July Macro Video: Sustained higher Oil prices will add fuel to the growing inflationary inputs, but at a cost to growth.

*The lack of agreement at OPEC+ adds an additional volatility input in terms of oil prices.
*Inflation surges are clear and the Fed is likely to be concerned it cannot seem to get real rates higher; Fed minutes 07July will be interesting.
*China growth continues to slow, when does commodity inflation become a growth headwind?
*SP500 put spreads added to RadarScreen – equity market internals look increasingly stretched as price-sales indicates the bubble nature of current prices.

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