This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. The Carry Trade as Risk Driver
- Risk appetite is undergoing a cross-asset carry trade-driven panic and a bottom is near. The equity market is sufficiently oversold and poised for a relief rally.
- Barring some unexpected exogenous event, downside risk is limited at these levels.
- Expect a short-term relief equity rally into August, led by small caps and value stocks.
2. Market Watch: Forget about emergency cuts. Here is what the Fed will do next!
- Good evening from Europe.
- I will keep this analysis short and sweet as I know you are all trying to deal with these nasty markets and time is of the essence.
- We have thankfully made our way through this turbulence clearly in the money, but we are starting to see interesting counter-trends arising now.
3. Portfolio Watch – What can we trade in this weak labor environment?
- What a crazy day (week), starting August off with a somewhat disastrous NFP report.
- Private sector jobs are trending down, government payrolls are trending down, while manufacturing and goods-producing jobs actually improved in July despite the recessionary ISM manufacturing report.
- This is a clue that the manufacturing sector is rebounding, as we have been alluding to, which is something that will likely become relevant for markets in the coming months.
4. BOJ and Carry Trade: THE BUTTERFLY FLAPPED ITS WINGS
- The crowded JPY carry trade will not unwind quickly although future unwind episodes may not be as dramatic.
- The size of the carry trade is unknown, however its correlation to various asset classes is predictable.
- The largest question for global markets is whether the unwind of the JPY carry trade is a harbinger of tighter monetary conditions globally as markets decline and leverage tightens.
5. Quant Signals – Here is THE steepener to own in a cutting cycle!
- 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!
- In our Saturday Portfolio Watch, we discussed the potential value in steepeners and promised to more thoroughly backtest the curve in order to find the optimal steepening expression in a cutting cycle environment.
6. The Week At A Glance: On Credit Watch While Liquidity Is Turning Nasty
- Welcome to our weekly “The Week At A Glance” publication, where we dig into the most important key figure releases and tradeable themes for the upcoming week.
- Everything is about assessing the USD economic cycle and the potential for rate cuts of the magnitude priced in after a crazy week last week.
- We ultimately have our doubts (especially as the labor market report on Friday was heavily impacted by the storm Beryl), but we are still waiting for potential triggers to bet on it.
7. Steno Signals #111 – More or less liquidity? More or less recession? More or less real?
- Happy Sunday! What a week, and what a few months we have ahead!
- To use the words of my friend Boris Kovacevic, “it’s like 2024 never happened.” Everything we learned about the re-acceleration of inflation in H1 and the “high for longer” narrative has just vanished into thin air over the course of a few days.
- While it is hard to disagree that a cutting cycle is commencing, it is still very much up in the air whether this is a normal cutting cycle.
- We spent last week examining returns in various asset classes around the commencement of cutting cycles, and the saddening truth is that it very much depends on the type of cycle.
8. 6 Major Signs of Market Downturn and Strategy for Outperformance Amid Market Convulsions
- In this insight, we discuss strategies for outperformance amid market convulsions and downturn.
- In particular, we highlight six reasons why it may be a wise move to position one’s portfolio more defensively (at least for the next several months).
- Warren Buffett slashed nearly half of his holdings in Apple, which was probably one of the main triggers of the tremendous market sell off in Asian markets on Monday.
9. Sajith Pai: Unpacking India – [Making Markets, EP.40]
- Sajeet Pai, a VC at Bloom Ventures, provides insights on the Indian market, discussing unique features like low levels of debt and lack of trust.
- India’s massive population presents challenges and opportunities for investors, with a large segment of the population having low per capita income.
- Cultural differences, such as the prevalence of cash on delivery in e-commerce, highlight the need for a nuanced approach when entering the Indian market.
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10. Asia Economics: The Market Panic Does Not Alter Medium-Term Trajectory
- Fears of a US recession and higher Japanese rates have sparked a market panic that may hurt Asian economies and markets in the very near term.
- However, the Asian region should weather the storm so long as the US avoids a recession, as we believe it will.
- Not all Asian central banks will follow the Fed in cutting rates. Improved growth in Asia and stable inflation yield a different set of tradeoffs than that facing the US.
