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. Portfolio Watch: We Dare to Say the Bottom Is In for Risk Assets
- We have successfully navigated our macro portfolio through yet another week of high volatility, especially following Monday’s (in hindsight) outlier event.
- Risk sentiment has turned, and recession fears are muted for now.
- With position squaring largely completed, equities have regained momentum.
2. Positioning Watch – Positioning Squaring in JPY is Complete
- This week likely marks the end of the positioning squaring phase, as multiple positioning gauges now signal that trades are no longer as extended as they were 2-3 weeks ago across various assets.
- This shift provides an opportunity to revisit our strategies and assess where macroeconomic trends might be steering global assets next, now that the worst of speculative activity has subsided.
- As we all know, the CFTC report is always a week behind in updating markets on positioning, making last Friday’s report particularly interesting.
3. Global FX: Weeks where decades happen
- Carry strategies experiencing drawdowns, wiping out YTD gains
- Market expected to stabilize after recent shocks, carry strategy appeal diminished
- Yen likely to take a breather, BOJ stance unchanged, market normalization ongoing.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
4. Modern Monetary Theory (MMT) Revisited
- The inflationary implications of Modern Monetary theory have finally been exposed in the aftermath of the COVID-19 pandemic after 2022
- The risks of inflation were underplayed due to prolonged disinflationary impulses stemming from decades of globalisation. Recent US practice of MMT could force the Fed to raise its inflation target.
- Japan pursued an MMT framework since 2013, but the continuation of quantitative easing and arrival of rising inflation is undermining the yen. The Eurozone faces the same predicament as Japan.
5. US Rates: July Morning turns into Cruel Summer
- Weak employment data led to a shift in Fed forecast, with projected rate cuts in September and November
- Rates have backed off from lows, with markets pricing in a less dovish path
- Treasury market in transition, with dealer balance sheets at bloated levels and auctions showing poor results due to lack of demand from traditional investors.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
6. Can Ukraine drive to Moscow?
- Welcome to this week’s Great Game! Once again, we’re focused on the two big wars going on – Ukraine and Gaza.
- What are the risks, what will hit markets and what’s the outlook?
- Last Tuesday, Ukraine launched an offensive into Russian territory in the Kursk and Belgorod Oblasts.
7. Steno Signals #112 – Liquidity is BOTTOMING
- Happy Sunday, folks!I hope you’ve enjoyed the weekend.
- After a bizarre week, starting with the rug-pulling in Japan on Monday morning, it was time for a well-deserved break over the past two days.
- We’ve encountered tons of questions about the size of the USDJPY carry trade, and here’s what we’ll say on the topic: Those claiming that the carry trade is 10-20 trillion USD have very little understanding of the netting of derivatives and/or the FX hedging policies of international investors.
8. EM Watch: The Chinese race towards 0% interest rates
- Welcome to our Weekly EM Watch, where we look at China and other large EM countries through the lens of Western macro investors.
- Over the past week, we received the latest quarterly update on Chinese foreign direct investments and the situation went from dire to abysmal.
- There is a net negative inward FDI flow, and despite a significant $190 billion surplus in customs goods and services, the basic balance, which comprises both the current account and FDI, recorded a substantial deficit of $30 billion for the first time.
9. Walker’s Weekly: Dr. Jim’s Summary of Key Global Macro Developments – 16 Aug 2024
- Japan’s Q2 economic rebound may be misleading due to annualized reporting; future slowdown is a concern.
- Political instability in Japan and Thailand, with both countries’ leaders stepping down amid economic challenges.
- We maintain a cautious market outlook, especially on Thailand’s struggling economy and currency.
10. Assessing the Damage: It’s Not Just the Carry Trade
- The recent disorderly risk-off episode can be attributed to the unwind of a series of trades that depend on a low-volatility and complacent environment.
- Historically, such unwinds have resolved in volatility spikes and higher equity returns soon afterwards
- The current environment is supportive of a quick market recovery, though the risk of a LTCM-style blowup could see a longer and more complex market bottom.
