The Week Ahead
Volume 84 - 2023 playbook
None of us has a monopoly of wisdom, and we must always be ready to listen and respect other points of view.
-- Queen Elizabeth II
Good morning from a windy UK,
Last week was a tad choppy, with some mania on Friday. I had GS TMT MegaCap Tech basket, NVDA, and GS HF VIP all at 3SD moves on Friday. No cut from China, pushback on cuts from ECB and the Fed. I still think fading the US cut pricing for March at 50% probability isn’t a bad trade. So far, the market has turned it down a notch on the most aggressive rate-cut pricing we saw. But March still is pricing in a 46% probability of a cut from a 79% peak.
Earnings season has begun, and this week, we will start getting into the full swing of it; so far, there is little sign of an earnings recession.
Last week, we saw some short covering action in the USD… if you remember from last week, I stated that “my preferred trade here is owning upside on the dollar”. Sure, we have seen some short covering, but positioning still remains short USD. Click below to recap on last week’s post.
The Week Ahead
"Some people grow into their dreams, instead of out of them." Lois McMaster Bujold Relatively inactive last week with only a handful of trades, the main one being the CL Feb14 72c, bought for ~2.7 and currently trading at 3.52. CPI was as expected and rates continue to price in 160bps of cuts.
For stocks, we saw some net-up action, which is something I have been monitoring closely. As for a dip/correction, we need to see a continuation of netting up. Thus, participants will have a reason to buy downside…
The Usual Charts
FX
I still like holding USD long. As I said before, carry still works - trade it. I think being long USD not only provides a solid carry trade against higher beta ccy’s such as JPY but also provides some sort of hedge against any potential tail risks. I also think that the more rate cuts get priced in, the higher the chance of a USD short-squeeze sending DXY ~/>105.2.
EUR vol remains cheap, and I like owning the downside.
6E 03/08 1.07/1.08 put spread costs 0.00246
I am happy to discuss how to implement the idea via spot options or binaries with the guys on desks via the private Twitter DM.
I have been long USD/JPY since the dip in December. It was clear to me the market would eventually wake up and realise BoJ disappointment would come, and that’s now getting priced in before it even happens. USD/JPY is already +5% YTD.
For those wanting to buy Chinese stocks, I can’t see them finding a bid while the dollar remains supported.
Single Stock, Index & Vol
Earnings season is picking up this week, and we could expect more action for the index. As I said last week, SPX