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.
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.
We haven’t made changes to the portfolio in a while, but we are seeing signs of reversal in metals space, while the equity picture is a bit unclear at the moment.
Markets are back into soft landing mode, with the perfect landing required for current equity positioning and expectations to be fulfilled. Meanwhile, the price action in commodities is finally impacting positioning data in precious metals.
The local demand in China remains on the floor, which is an issue for the broad commodity bet with China typically being the largest net consumer. China is exporting a lot, but they are not (yet) raising prices. It may eventually arrive and we remain on PPI Watch accordingly.
The market is hellbent on pricing in cuts, even when the data is hawkish. This is an interesting dynamic and the FOMC/BoJ meetings next week will be key to gauging the trend from here. Maybe markets have just ignored anything but crazy Bill Dudley this week?
All it took for markets to unwind their macro-divergence trades was Powell confirming the beginning of a new cycle by hinting at a September rate cut in advance, coupled with some positioning squaring ahead of the vacation season. We’re now seeing the ramifications unfold, with positioning being squared across assets and USDJPY converging back towards fair values. But are we done talking about central banks here? Not really… The market is getting ahead of itself. Here is our FOMC/BoJ preview.
The very mechanical rate path setup of Norges Bank allows us to track the rate path live, and in sharp contrast to elsewhere, it looks like we are ripe for another hawkish revision of the path in September.
The highly systematic rate path setup of Norges Bank allows us to track the rate path live. In sharp contrast to other regions, it appears that we are poised for another hawkish revision of the path in September.
Are small-caps back in fashion or was the rotation short-lived? We have looked at various factors of relevance to this question and the conclusion is that you should not jump the bandwagon.
The equity scare seen throughout July with Nasdaq losing terrain against Russell was likely not the beginning of a longer rotation from large to small cap, but rather normalization of extreme positioning. Markets are still heavily long large caps, while the Russell bid is slowly vanishing.
With the first rate cut now in effect, the Swedish economy has suddenly become an interesting “lab” for observing cyclical growth and inflation trends. All indicators point to a re-acceleration in Sweden, which the rest of the world will likely follow.
Our short metals trade is starting to work very nicely, but we are also sensing the early stages of a turnaround in the consensus on metals. Meanwhile, the oil trade is currently quiet, while natural gas is bouncing for good reasons! It’s time for our Commodities editorial!
It’s been a muddy July, not only weather-wise, but also in markets. The signs of an equity rotation, the turning tide in USDJPY, the metals volatility & softer rates probably align. Maybe the stars are finally gearing up for a risk-friendly 4-6 weeks upcoming?
The CBO has markedly worsened the deficit outlook since the last issuance update from the US Treasury in April. Expect the Treasury to communicate a sizable increase in the issuance target, but also expect them not to follow through on it. Let’s look at why.
Our positioning gauges show that markets fully price in continued equity momentum and 50 bps worth of rate cuts in H2, which means that markets will now need to find value trades elsewhere. There’s also substantial support from AMs towards the short vol trade, but watch out… Is this a recovery, a re-acceleration or a slow-down?