The Week Ahead
You may have to fight a battle more than once to win it.
-- Margaret Hilda Thatcher
Good afternoon from a very bitter England,
I hope everyone has had a lovely weekend.
I posted the Year Ahead last week, so in case you missed it - I have attached it below.
It was a relatively slow week with a risk-off vibe after the euphoria/risk-on/stop-in move into year-end last year. I think this should have been expected. It was a good week for paid subscribers with several profitable index trades, and the Year Ahead trades are already working. The only trade that didn’t work this week was a SFRM4 long. This was after a profitable short, and I thought rates might have been range-bound despite NFP. This year, payrolls/claims numbers are more important than inflation…
There is not much to dig into this week, but a few things to discuss, including CPI (Thursday) and the QRA (Jan31/Feb 1). I will do the usual cross-asset views and thoughts for the week ahead.
FX
I think it was to be expected that we’d see a dollar bid, especially when, at the end of 2023, the consensus for USD/JPY’s next move was 135, and everyone’s 2024 outlook was about the doom and gloom surrounding the dollar. Carry still exists; rates were baked into the dollar pricing, so it was pretty obvious to buy it. Carry strategies were the best-performing strategy for FX in ‘23. For now, carry remains more important, but I expect value to be more important in 2H24.
https://x.com/lord_fed/status/1743088748030533638 - The tweet does a lot of my work for this week’s FX section.
As I tweeted in the week “Dollar positioning is extremely pessimistic, minuscule amount of length added this week after having the most bearish positioning over 1yr, CTAs heavily short. Dollar went from max long to max short in a matter of weeks.”
It depends on CPI, but from a tactical/technical standpoint, I expect more dollar upside in the coming week, all for buying it against higher-yielding or high-beta currencies.
Cable is still screening too rich, and expect 1.25 over the coming week/fortnight.
In the coming weeks, if yields continue to remain sticky and on the up, the yen could revisit its lows without a need for yields to hit their highs. (Looking beyond QRA that is).
Single Stocks, Index & Vol
Pretty simple trading week, if I am honest, a nice one to trade. SPX closed the week -152bps, NDX -315bps, RUT -375bps and DJIA -65bp. If you read the Year Ahead, then the NDX underperformance shouldn’t have come as much surprise.
Here’s some flow graphics from Goldman Prime before I dig in…
Lots of inbounds over the weekend regarding BA, I won’t be chasing the downside.
Index-wise, I think we could see the S&P