Live from the Asia Pacific!
A very good morning to everyone and wishing you all a positive, uplifting & most importantly profitable week.
Overview
Short one this week, as the Rosetta stone was already set forth in last week’s Macro Take, with not only a Risk-on and Risk-off button, but also KVP’s Santa Macro Wish List for year-end finishes…
Last week
Let us not speak of Greece for at least six to 12 months, as we finally got to a conclusion last week. So it seems that the Eurozone equities rally from the previous Wednesday was spot on. Plenty of things to jump on.
I would still keep Greece on the radar list – just because things seem to be in the all clear, does not mean they cannot unravel in three to six months down the line. One thing is for sure, they (Greece and the EuroGroup) will not be able to go through the same scenario in the future and get to a deal.
For those of you that chatted with me last week, you know my thoughts on Iran – this is a big deal, not just in rewriting the oil industry (negative skew downwards for prices, a “Yea” for consumers and “Nay” for oil producers) and putting more pressure on US shale oil and even more pressure on Canada and Norway.
But it's also going to be one of the best investment opportunities over the next few decades. Early days? Of course. But that does not mean you should not get all over it and dedicate some resources to watch the theme and of course keep it on the to do list.
Potential INILs
Last week’s INILs (invest now, investigate later) – airlines, Baidu, Tencent – all did well over the week whilst GREK underperformed big time – but I expect that to revert this week, once the Greek banks reopen and the Athens stockmarket gets back to trading this week.
Overall, risk-on environment should be the theme going into the end of July, and note that we are still not through US earnings. I am expecting Fed hike focus in September to start gaining ground in August, and do note July 30 sees an FOMC meeting.
Tactically (zero to three months) I am thinking about the following, in random order:
Currencies
Long ATM USDJPY (124.09, +1% WK) calls, it has lagged the last month's big depreciation that other currencies have had against the US dollar. We should take out 125 this week and see new highs before end of Q3 and before the Fed hike.
USDJPY weekly
Long USDRUB (56.95 +94bp WK). C’mon oil has been smoked, the central bank is cutting rates and the Fed is going to move, we should be higher, above +60 before the Fed hike. I was asking my traders about this and they say a lot of people have been smoked on both the long and short side of the fence on DollarRuoble. Perfect! That means no one is paying attention to it now.
USDRUB weekly
GBPJPY (193.531+1.6% WK): Yes the move up over last few sessions have been crazy, but trend is your friend here and again the yen has been too strong and GBP is finding its legs. I reckon we break 200 by end of the month.
GBPJPY weekly
EURAUD (1.4694 -1.95% WK) again should have come off more… I am not a fan of either currency but here the AUD should prevail (yield diff. should hold for many years), I am thinking puts. Still liking shorts on EuroDollar (1.0830 -3.0% WK), EuroSterling (0.69446 -3.5% WK), – those were big moves & significant closes last week, as you all know I am a big fan of delta hedging options and moves like last week allow one to potentially monetize volatility.
EURAUD weekly
Bonds
Short US 10 year governments (2.35%, last week range 2.35%-2.45%), I am going to look at puts on IEF (7-10yr ETF) – albeit there are ETFs that are structured to be short US bonds for those delta-one preference types.
US 10 Years daily
Meanwhile the yield compression trade is back in vogue in the Eurozone - go go peripherals! Watch Portuguese 10 years get 2.0% again and this is before the quantitative easing reload that we will see in 2016.
Portuguese 10 years weekly
Commodities
Is it just me, or does copper (5480, -2.0% WK) seem to have a lot more downside to it that a lot of other commodity names following the GFC?
Copper has held up well vs. other commodities; capitulation in the making or bounce?
Gold is getting absolutely destroyed, any guesses where Gold was trading the last time the Fed stopped hiking rates? C. 650 in 2007
I would not buy gold, not even with your portfolio – yet!
Gold came a long way through the Sub-prime bubble and the GFC…
…where to now in a world of multi-year US dollar strength? $990?
Equities
Again, really only Japanese and Eurozone equities that to me are sticking out as lagging – in the Eurozone whilst not the easiest to get exposure to, PSI20 still has the most upside to recent year highs. Meanwhile, new all-time highs set by the Nasdaq and its hot side kick, that biotech ETF IBB.
NASDAQ Composite Index weekly
Is the $400 price level on the IBB just another ribbon or a line in the sand? Price action and momentum still pretty strong, it's going to take a broader market shake-out to move this – for now post-Greece, all I can think of is the Fed. We’ll know soon enough, but damn what strength: IBB at $397.59 is now +6.7% on the week, +31% YTD and +59% in one year and yes, this is a US listed ETF not a mainland China stock.
IBB monthly
Volatility
Volatility got absolutely annihilated this week across the board, yet most sharply in equities. The VIX saw the lowest print for the year on Friday and closed down about -30% for the WK at 11.95.
Hmm… I wonder if it will stay at that level going into September Fed hike? You know my views here, it's worth putting on a clip and scaling a little more aggressively as we get closer to lift-off date. VDAX is the EZ also fell off by about the same amount, but still need another 12-15% deterioration to mark new YTD lows.
VIX daily
Reflections, rants and other stuff
Looking for fuel? Here is some inspiration…
Came across this gem, long but worth every minute: The Chain with Kyle Bass, by Real Vision TV’s Raoul Pal. They talk everything from position sizing, to risk, to idea generation, to running a team and you also get an insight into how Bass came up in the business. A must watch for the macro boys and girls out there.
Homefront…
All quiet and enjoyed the long holiday in Singapore given Hari Raya Puasa on July 17. It's worth noting there will be no Macro take for the first two weeks of August as we have a few public holidays out here, celebrating Singapore’s 50 years as a nation – I just had to arb that.
Key macro data points to watch over this week: July 20-24
CENTRAL BANKS:
Speakers/Other: Monday Jul 20 – Sunday Jul 26
Fed Speak – Fed Governors meeting on capital surcharges on banks (July 21)
Other Speakers – RBA governor Glenn Stevens (July 22)
MEETINGS and MINUTES THIS WEEK: Mon July 20 – Sun Jul 26 (Minutes galore week)
BoJ minutes (July 21), RBA minutes (July 21), BoE minutes (July 22), RBNZ 3.0%e 3.25%p (July 23), TU 7.5%p (July 23), SA 5.75%e 5.75%p (July 23), SL 6.0%p (July 24), NG 13.0%e 13.0%p (July 24)
MEETINGS NEXT WEEK: Mon July 27 – August 2
BZ 13.75%p (July 29), FED 0.0%e 0.0%p (July 30), RU 11.50%p (July 31)
Economic data flash
Trading floor calendar
Lastly, life is very similar to investing/trading, you end up with what you put up with – so set your standards high, focus on the process and a profitable trading/investing to you all. Be successful and don’t forget to enjoy the journey. The effective use of our time is the most valuable commodity we have.