The Week Ahead
And the trouble is, if you don't risk anything, you risk even more.
-- Erica Jong
Good afternoon. I hope everyone has had a nice weekend, we have had lovely weather over here this weekend.
This week will be the busiest week of the year so far, so it’s the perfect week to start the mid-week thought posts again. What is to come this week? QRA, FOMC, NFP and for earnings, we have AAPL, META, AMZN and GOOGL (1/3 of S&P 500 reports this week)! We also have BOE and Riksbank rate decisions on Thursday.
Both the FOMC and QRA come on the same day; I think most can agree that QRA was the main catalyst for the late 2023 everything rally, and I don’t doubt that it could well be a catalyst again. But with so much going on this week, could it end up being a sell the the event vol kind of week? The SPX straddle for the coming Friday costs ~135bp. Struggling to decide whether that’s cheap or rich with all the news that will hit the tape this week. I will touch base on this later on in the post.
Commodities
There's not much to comment on, but positioning for oil remains very pessimistic. I expect more upside to come, but the 80 handle will be a tough resistance to push through.
The CL 72c for Feb, which I gave to all subscribers on here at $2.70, saw $5.75 earlier this week and was trimmed, then rolled to the March 80c when it was trading at $2.15 (now $2.77).
Momentum going into this week was bullish and rather aggressive. After this weekend, I’d expect CL1 to open up around 78.5 (or above). As I just mentioned, positioning should help oil trade higher, but $80 will provide a strong level of resistance in the coming week. Clear $80 this week with force, and $82 could be a possibility.
FX - short one today… (read last week's post)
Another green week for the greenback. There wasn’t too much action and quite a tight range in the past week. Positioning has played a large part, as have yields, but carry continues to work regardless of rate pricing, so the dollar should remain supported. As I said before, hunting for “value” in FX is something to do in 2H24, not now… This week will provide more clarity with direction for the dollar.
I think the Fed's decision won’t budge the dollar much, but I will be watching the BoE. I expect a unanimous decision for a pause by the BoE and cable to trade <1.265 after the decision; I think people will see through what the BoE have to say about future policy (rates staying higher for longer). I think most will be watching for a change in language; no mention of “further tightening” will be on everyone’s bingo card.
Thoughts remain much the same as prior posts.
As I said last week, I think owning USD is a great all-round hedge here. Geo-political risk is USD bullish. Off the tiny probability, the Fed decided to hike again - that is USD bullish. With what betting markets are showing (Betfair Exchange has Trump at around evens money, just shy of a 50% probability of winning) - a Trump/Republican victory is also USD bullish. (Mix these in with positioning and carry, I think USD should remain supported)
Single Stocks, Index & Vol
So much event risk, all in one week…
Let’s break down how it’s coming.