• Be prepared for more global sell offs in the months ahead, as more and more major macro markets move into alignment
  • Oil has fallen below $100, the EUR is at 20 year lows vs the USD, the US yield curve has re-inverted at various points, base metals prices are tumbling, and US breakevens are collapsing 

• USD strength remains broad based
  • GBP, AUD, CAD are all testing major support levels, with the EUR and JPY already at multi decade lows
  • 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
  • USDCNY is very weak and looking bearish. CNY’s shift, and it being one of the last to weaken vs the USD, heralds a shift in the global cycle, which does not bode well for economic growth and risk assets

• Commodity markets continue to align with the USD and the US yield curve to signal serious deterioration in global conditions
  • WTI is back below $100, Copper and Aluminum continue to slide, and Iron Ore has broken below its range

• US 10y and 30y yields might have made their cycle highs, and conditions are lining up for UST yields to fall sharply
  • Watch key support levels, 2.71% for the 10y, and 2.95% – 3% for the 30y. Decisive breaks below these levels could signal that US long yields have made their cycle highs
  • With the Dollar continuing to rally, the US yield curve re-inverting at some points, and commodities markets aligning with both, global markets are looking at further, and possibly steeper, sell offs

Trading Ideas – Performance

Trading Ideas – Commentary

• Re-entered EUR & GBP shorts on their technical breakouts, initiated a short in AUD as well
  • Positions are doing well, especially the EUR, as the USD continues to be well bid

• Gold has turned down, and has broken lower decisively, making the put leg of our straddle very profitable
  • Decision to straddle gold using GLD options, instead of putting on an outright long position, has paid off, with gold tumbling after failing its retest of 2000
  • The straddle has about a week left before expiry, and will be closed out soon

• US long yields have turned, although it remains to be seen if a top has been made. 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

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
  • Pay attention to 10y yields, and if they break below 2.71% support
  • 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
  • Can express the short oil trade by shorting XLE, or purchasing puts on XLE