Focus On Markets, Not Headlines! Macro Trading Opportunities
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A high CPI reading reversed last week’s rallies, reiterating the bearishness that has been in place, while increasing volatility and correlation between markets – which isn’t good news.
- Global markets were rallying strongly before this week’s US CPI print, which drove everything into reverse. Inflation is a problem, but focus on markets instead of headlines
- Macro markets and equities have begun to really move in tandem, which together with rising volatility and how macro markets have aligned over the past few months, does not bode well for risk appetite
- Although UST yields are rallying, the US yield curve remains deeply inverted at multiple points, base metals are still weak, and breakevens remain low
- USD strength remains broad based
- Stress levels in USD funding markets are obviously high, and still increasing. Global USD funding conditions are critical to how far financial contagion spreads, and how deep the recession is
- CNY has broken out vs the Dollar in a bad way, and is now approaching the key 7.00 level. If CNY continues to weaken vs the USD, expect more selling in global risk assets
- Commodity markets are aligned with the USD and the US yield curve, signaling serious deterioration in global conditions
- WTI has fallen below major support, Aluminum has fallen to make new lows for 2022, Copper is way off its highs for the year, and Iron Ore remains stuck in consolidation
- US 10y and 30y yields have bounced strongly after breaking below key support in early August, with the 30y making new cycle highs over the last week. However, UST yields can fall sharply given poor global conditions, and how other markets have been trending
Trading Ideas – Performance


Trading Ideas – Commentary
- Re-entered Dollar longs against EUR, GBP, AUD, and CAD, as broad USD strength continues
- Entered a short position in Copper’s December 2022 contract in anticipation of further weakness given deteriorating global economic conditions, and bearish indications from other macro markets
- US long yields continue to rally, and our long TLT call position is still in the red, but we purchased a year long expiry for this reason, to give the market time to make a top (if it does!)
- Went long TLT calls with 1 year expiry, as strong bids for USTs look to be on the horizon as the global cycle shifts
- Stronger USD, with significantly weaker CNY, is a huge warning signal
- Re-inverting yield curve, plummeting breakevens, base metals breaking lower, and now even tumbling oil prices, are all ominous signs
- Closed the straddle on GLD for a net profit of 115%
- Decision to straddle gold using GLD options, instead of putting on an outright long position, has paid off handsomely, with gold tumbling down to ~$1700 after failing its retest of 2000
Trading Ideas
- Long USD
- Well established trend, in place for >11 months in most major currency pairs
- Recent sharp increases in the Dollar’s value signals that global economic growth is going to take a turn for the worse. Global USD funding markets will tighten even more, driving the USD even higher
- US yield curve’s inversion in early April, and mid June (even as the Fed turned hawkish) is a clear warning sign
- USDCNY has started to move higher rapidly, indicating high levels of stress in global USD funding markets
- USD longs in general should do well, but of the G7 currencies, look to go long the USD vs:
- EUR
- CAD
- GBP
- AUD
- JPY
- Long 10y or 30y US Treasuries
- Yield curve re-inversion (2s10s, 5s10s) signals the coming end of the current economic growth cycle, which means that nominal yields will start to turn down soon
- Monthly & yearly trends in yields are bearish, and looking for an opportunity to short yields is in alignment with long term trends
- 10y yields have broken below key 2.71% support – keep an eye on whether the breakout is sustained
- Trade can be expressed:
- Long TLT, or long TLT Calls
- Long US T Note/Bond Futures, or long Calls on Futures
- Short Commodities
- Short oil, copper, aluminum, iron ore, given that so many macro markets are indicating more macro weakness to come
- Oil and copper are the most liquid and accessible markets to trade using futures, or E-mini futures
- Can express the short oil trade by shorting XLE, or purchasing puts on XLE (see ETF Edge)
- Short oil, copper, aluminum, iron ore, given that so many macro markets are indicating more macro weakness to come
Charts for this week’s report can be found in the slides at the beginning of the article.
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