The Week Ahead
Good afternoon all,
It's a bank holiday over here today, hence the thin volumes and me having the day off. Last week was great for subscribers. We got long AAPL at 5% weight at $166.60 recently and closed it at 185.3 post earnings, intraday index trades working and a top tick bear-call on TSLA. Quite a few ideas and thoughts to share in this week’s post.
Intervention from the BoJ worked… but for how long? I pressed the USD/JPY long on Friday at 152.8. 152 remains solid support, and until either central bank makes policy changes, the carry trade should continue to work. Unless, of course, the BoJ makes a proper intervention.
For now, indices remain in a trading range. So far, there has been a mixture of mega-cap earnings, Powell eased hiking concerns last week, and soft NFP/ISM prints. These all ease concerns regarding the CPI print. There is a lot to talk about in this post… But we will start with FX, followed by rates, single stocks, index & vol and some thoughts on China, as China's move to the upside seems to be the talk of the town at the moment.
FX
As I expected, there was some pushback on the dollar. Do I think the trend has changed to down? Not really. As I have said all year… carry is attractive; own it. While Jay Powell might have calmed markets down on the prospect of a potential hike, he also reminded markets that there’s a high bar to cut, too. The whole US exceptionalism theme, for me anyway, is about USD exceptionalism. I don’t think there’s anything more attractive in the currency space other than owning USD. Not only because of yield but because of the hedge it provides against inflation shocks and geopolitical risk. To me, it still looks likely that there won’t be any cuts this year, and at most, one.
Last week’s unconfirmed interventions from the BoJ have bought some time for the BoJ, but as I said above, carry is attractive; own it. Back in April, Ueda seemed unphased by FX and could indicate that FX is not at the forefront when it comes to hikes. One can’t really expect much of a change in trend until the BoJ hikes rates more, as I said before. The move in yen also moved CNH, which is something I will talk about later in the post. Are the BoJ selling treasuries to fund their interventions? I don’t think so. I think the BoJ are well aware the Fed are on hold for a while, which will provide no relief to JPY, so the interventions slow the CCY depreciation down. Japanese Golden Week holidays are over so expect more volume and more upside pressure to come this week. I expect that the recent dip in USD/JPY has found enough support and could head north of 155 in the coming week.
There is no change in my stance on GBP and EUR.
With the RBA decision to come, I have just sold AUD/CAD into the print as I think the market is being a bit OTT on the potential for a hike/hawkishness. The stop and target are on the private Twitter account.
Rates - a brief note…
Jay was dovish, and the lower-than-expected jobs data took some pressure off yields. The front end seemed to like Jay taking a hike off the table, though was there ever any probability of a hike being priced in this year? (We were pricing in 7 cuts earlier this year…) QRA was a nothing-burger, as expected.
An MPC meeting is coming this week. I think participants are focused on how confident the BoE sounds about the disinflation trend. One would expect that they would be confident, considering the UK has a faster transmission than the US; it's hard to see inflation spiking with policy being as tight as it is. I think we should consider re-buying the ‘61 gilts soon as well as US 10s.
Single Stock, Index & Vol (and positioning)