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.
The stars are aligning for a strong end to the year in both fixed income and equities! Inflation is stabilizing, liquidity is increasing, and growth is only softening gradually—a benign cocktail.
Yellen’s comment on real net interest costs suggests that the trajectory is towards negative real rates over the coming years, but there are still good reasons to buy bonds into year-end!
Chinese GDP trends are being masked by a significant inventory build-up, as electric vehicles pile up in parking lots across China, and to some extent, in the West. China urgently needs a weaker USD to continue its easing efforts.
We have seen a major shift from USD exposure towards European and Asian exposure over the past month or two, but exposure is slowly but surely returning to the US as USD rates and US equities are on the move. Is there anything left to chase in USD assets now?
The PBoC remains underwhelming, while the consumer in the West is showing strong signs of momentum in both the UK and the US. But is that momentum carrying through October? More frequent data is starting to cast doubt on it.
We are starting to see the final signs that the Chinese frenzy is over for now, as briefings have been nothing but disappointments after the first round of stimulus proposals. It’s time to load up on US risk again, as it’s one of the only places on earth where growth is currently rebounding.
While we await the Chinese fiscal briefing, we are beginning to see some interesting tradable trends in USD and EUR assets. The gap is widening again, and EUR rates remain far from neutral.
After the turmoil in the Hang Seng/CSI this week, with the Hang Seng dropping roughly 10 percent, one would expect sentiment to decrease rather dramatically. However, that’s not the case among retail investors, who are still piling into the China trade, while hedge funds appear to have been caught off guard by the sudden increase in Chinese equities.
We’ve seen a significant spike in SOFR-EFFR spreads over the past 48 hours, which feels reminiscent of September 2019, though on a smaller scale. The Fed may be facing a liquidity problem and could feel tempted to address it.
The USD market will be flooded with liquidity in Q4, accompanied by rate cuts, providing Chinese authorities with a window of opportunity to ease policy. However, there is one issue: CNY liquidity is tightening now.
The outflow from US into EUR/GBP assets continues as everything seems to be more or less priced into USD assets, while China positioning continues to soar. How are markets positioned going into NFP?
There is currently an almost goldilocksy vibe in the air, which could continue throughout October. The outlook is brightening short-term and we are loading up on risk.
With the cutting cycle more or less priced in in USD assets, there are signs that markets are now piling into EUR and GBP assets instead to play the cutting cycle of the BoE and ECB. Everything positioning here as usual.
How tight is the liquidity outlook for the month- and year-end? 2024 will bring a tight September quarter-end, but a much more benign year-end. Here’s why and how to manage it.
Is the Fixed Income market repricing rates up on the back of a frontloaded cutting cycle? It’s an interesting dynamic, one that will be impacted by the election cycle and debt ceiling dynamics.
Ahead of tonight’s FOMC meeting, we take a quick look at positioning across asset classes to summarize which ones are likely to move the most if there are any major surprises from Powell.
With Powell taking the stage later, we have scanned through the asset universe to assess which trades that normally perform during a cutting cycle. Enjoy!
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..