Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>This year started with curves steepening across EM following the US. However, as the year progressed, central banks in many countries embarked on aggressive rate hikes, leading to curve flattening.</li>
<li>The flattening may have gone too far in some countries as growth and inflationary pressures should start easing from the lagged effect of monetary tightening, leading to bullish steepening.</li>
<li>The short end should start pricing in eventual rate cuts in a few countries, while the risk premium in the long end should persist because of the pandemic-driven fiscal deterioration.</li>
</ul>


This year started with curves steepening across EM following the US. However, as the year progressed, central banks in many countries embarked on aggressive rate hikes, leading to curve flattening.
The flattening may have gone too far in some countries as growth and inflationary pressures should start easing from the lagged effect of monetary tightening, leading to bullish steepening.
The short end should start pricing in eventual rate cuts in a few countries, while the risk premium in the long end should persist because of the pandemic-driven fiscal deterioration.


2022 High Conviction: Thematic Rate Curve Steepening Trades in EM

<ul>
<li>With the market struggling to price in the Fed’s likely monetary tightening path, US rates have become quite volatile and likely to stay that way in the near term.</li>
<li>With US rates volatility rising, it has spilled over to other markets, particularly EM rates whose correlation with the US has increased considerably even on an individual country basis.</li>
<li>Typically, increased volatility in EM rates results in more trading opportunities because it leads to greater differentiation within EM. This time around, that has generally not been the case.</li>
</ul>


With the market struggling to price in the Fed’s likely monetary tightening path, US rates have become quite volatile and likely to stay that way in the near term.
With US rates volatility rising, it has spilled over to other markets, particularly EM rates whose correlation with the US has increased considerably even on an individual country basis.
Typically, increased volatility in EM rates results in more trading opportunities because it leads to greater differentiation within EM. This time around, that has generally not been the case.


Higher Correlation with US Yields but Less Differentiation Within EM Rates

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

iShares Russell 2000 ETF / Technical Analysis

<ul>
<li>The false breakout in the Russell 2000 (IWM) tells us that the mixed market environment is back, and we no longer see a broad-based bull market.</li>
<li>Key supports: 4545 on S&amp;P 500, $383 on NDX (QQQ), $208 on Russell 2000 (IWM), $135 on MicroCaps (IWC), $76.50 on MSCI EAFE (EFA), $54 on MSCI ACWI exUS (ACWX)</li>
<li>If supports hold we expect more consolidation and mixed markets ahead. However, if supports start to break we would turn bearish as we would expect a more significant correction.</li>
</ul>


The false breakout in the Russell 2000 (IWM) tells us that the mixed market environment is back, and we no longer see a broad-based bull market.
Key supports: 4545 on S&amp;P 500, $383 on NDX (QQQ), $208 on Russell 2000 (IWM), $135 on MicroCaps (IWC), $76.50 on MSCI EAFE (EFA), $54 on MSCI ACWI exUS (ACWX)
If supports hold we expect more consolidation and mixed markets ahead. However, if supports start to break we would turn bearish as we would expect a more significant correction.


U.S. Equity Strategy: Major Indexes Testing Critical Supports; Buying Consumer Discretionary Stocks

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

<ul>
<li>Base case call to buy the SPX/select risk in Asia near SPX 4,500 for a rally sequence into mid-December where we see a top and secondary decline into late December.</li>
<li>Key resistance lies at 4,650/70 which is a barrier that capped recent rally attempts. This will define risk in Asia and Europe next week.</li>
<li>SPX daily RSI resistance is the ideal fresh sell zone in mid-December. Risk concerns stems from Omicron, year-end position/tax and euphoria unwinding.</li>
</ul>


Base case call to buy the SPX/select risk in Asia near SPX 4,500 for a rally sequence into mid-December where we see a top and secondary decline into late December.
Key resistance lies at 4,650/70 which is a barrier that capped recent rally attempts. This will define risk in Asia and Europe next week.
SPX daily RSI resistance is the ideal fresh sell zone in mid-December. Risk concerns stems from Omicron, year-end position/tax and euphoria unwinding.


Rally into Mid December - SPX Pivot the Defining Line

<ul>
<li>Barring the spike at the start of the pandemic, US rates volatility is close to the upper end of the 10-year range, which does not bode well for EM rates.</li>
<li>EM rates have sold off relative to the US at a much faster pace than in other similar episodes on a combination of fiscal deterioration, monetary tightening, and political noise.</li>
<li>While the spread of EM local rates to the US is extremely wide, it is prudent to be selective and focus on relative-value and curve trades to minimize risks.</li>
</ul>


Barring the spike at the start of the pandemic, US rates volatility is close to the upper end of the 10-year range, which does not bode well for EM rates.
EM rates have sold off relative to the US at a much faster pace than in other similar episodes on a combination of fiscal deterioration, monetary tightening, and political noise.
While the spread of EM local rates to the US is extremely wide, it is prudent to be selective and focus on relative-value and curve trades to minimize risks.


EM Local Rates in the Line of Fire as US Rates Volatility Spikes Higher

Price Gauge
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US Treasury (10 Yr Generic) (GT10 GOVT)

2022 High Conviction: Thematic Rate Curve Steepening Trades in EM

As a broad theme for 2022, I expect rate curves across EM to steepen. The curve flattening may have gone too far as growth and inflation should...

Gautam Jain, PhD, CFA

Higher Correlation with US Yields but Less Differentiation Within EM Rates

Higher US volatility has spilled over to EM. Typically, increased volatility results in more trading opportunities because of greater...

Gautam Jain, PhD, CFA

U.S. Equity Strategy: Major Indexes Testing Critical Supports; Buying Consumer Discretionary Stocks

Market dynamics have deteriorated along with the major averages, and many are testing critical supports; as long as supports hold we expect more...

Vermilion Research

Rally into Mid December - SPX Pivot the Defining Line

Base case call to buy the SPX/select risk in Asia near SPX 4,500 for a rally sequence into mid-December where we see a top and secondary decline...

Thomas Schroeder

EM Local Rates in the Line of Fire as US Rates Volatility Spikes Higher

With EM rates selling off relative to the US at a much faster pace than in other similar episodes in the past, it is prudent to focus on relative...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)