Since I’ve returned back to my birthplace Hong Kong, and have been busy getting acclimatized after getting out of quarantine, I will go the short and fluid route for this weekly note and give my take and talk my book as well ;)
Market in Turmoil?
Looks worse than I had imagined, completely in the realms of normal as they say, and charts are showing some signs of steadying…
EMXC (Emerging ex-China) and EEM (Emerging in blue) at year-beginning ranges and if yields show more life, this is not a bad sign — as will be see in charts below…
Technicals
Dots are hi/lo’s of the prior week and lines are for the 2nd week prior — notice shifting momentum away from USD over 3 week period, as well as futures bouncing strongly from recent dips — strong sign of returning risk appetite.
Are we really worse than a year ago or more?
Russell1000 Value/Growth ratio reaching back into the post-crash lows and bouncing off January lows, IWM/QQQ pushed lows to last seen in Nov last year. If we are truly worse than we were last year, looks like we should be crashing lower.
We’ve seen a a quick recovery in the 5s10s steepening…
Higher breakeven inflation…
Small caps tends to perform when inflation expectations turn up (I’m looking for in my long RTY short NQ spread trade I’m building).
USD (inverted) weakness tends to follow on firmer inflation expectation and fits the pro-cyclical narrative.
Reflation and pro cyclical trades
USDOLLAR FXCM index some change in momentum for the USD.
While the spread trade has developed nicely, AUDJPY AUDUSD longs is a concern and may pay the price for the somewhat contrarian take… some EURNOK shorts which has been dull and looks worth holding on the carry.
Bitcoin surge… could be something… or, it’s nothing… maybe nothing…
Going forward I stay long on the reopening and selective on the reflationary trade. Yields and inflation/growth expectations are my core indicator to maintain view.
