Macro Is Back: Oil, USD/Asia FX, LOIS and TY/Gilts
cheapconvexity.substack.com
Hope all is well. Markets have had a very interesting start to the year. Positioning has started the year kind of lopsided, despite sound reasoning. I don't think it is too contentious to say that given that fact there will be a pain trade in the next three months. I don't claim to know what it is, but to me, the cheapest way of expressing it is in a few USD crosses. Is USDJPY still going below 100, most likely and I continue to like that short from previous posts. The problem I am now grappling with is, what is going on in China? LK index shows GDP has come in, Asian trade data for Q1 has reflected that and housing prices look set to continue to fall. Yet, CNH remains pretty strong and imagine if we get a hedge bid from exporters, policy is accommodative and iron ore is near its highs as continued capacity cuts have been a big boost. So ya, I have no idea whats going on, but other than short USDJPY, you can balance out a book that I think over the next 3-6 months is decently convex in terms of narrative and fundamentals. Given this confusion, it makes sense to have "confusing" trade ideas. I think given near term potential for an acceleration in Chinese industrial sector deleveraging while we continue to see manufacturing upside in the US economy, I want to be long USD/Asian FX, short CHFJPY and synthetically long crude upside by being short USDRUB. USD is either dead, or we are due for a further technical bounce and Asia FX is the best r/r way of playing it as CBs there have effectively said this is as much strength that we are willing to tolerate. I have no idea if the USD is set for a reversal bid, but I do know USD/Asia vol is cheap given the current geo-political and economic backdrop. The same can be said for oil. I don't know if crude will trade choppy or not, but to me, given the current move in the US manufacturing sector, the right tail is being underestimated and RUB seems like a good expression, given their domestic cyclical uptick and very cheap ccy given improvements in terms of trade. Then finally, in all of my strangeness we get from the current widening in LOIS to being long TY/Gilts wideners.
Macro Is Back: Oil, USD/Asia FX, LOIS and TY/Gilts
Macro Is Back: Oil, USD/Asia FX, LOIS and…
Macro Is Back: Oil, USD/Asia FX, LOIS and TY/Gilts
Hope all is well. Markets have had a very interesting start to the year. Positioning has started the year kind of lopsided, despite sound reasoning. I don't think it is too contentious to say that given that fact there will be a pain trade in the next three months. I don't claim to know what it is, but to me, the cheapest way of expressing it is in a few USD crosses. Is USDJPY still going below 100, most likely and I continue to like that short from previous posts. The problem I am now grappling with is, what is going on in China? LK index shows GDP has come in, Asian trade data for Q1 has reflected that and housing prices look set to continue to fall. Yet, CNH remains pretty strong and imagine if we get a hedge bid from exporters, policy is accommodative and iron ore is near its highs as continued capacity cuts have been a big boost. So ya, I have no idea whats going on, but other than short USDJPY, you can balance out a book that I think over the next 3-6 months is decently convex in terms of narrative and fundamentals. Given this confusion, it makes sense to have "confusing" trade ideas. I think given near term potential for an acceleration in Chinese industrial sector deleveraging while we continue to see manufacturing upside in the US economy, I want to be long USD/Asian FX, short CHFJPY and synthetically long crude upside by being short USDRUB. USD is either dead, or we are due for a further technical bounce and Asia FX is the best r/r way of playing it as CBs there have effectively said this is as much strength that we are willing to tolerate. I have no idea if the USD is set for a reversal bid, but I do know USD/Asia vol is cheap given the current geo-political and economic backdrop. The same can be said for oil. I don't know if crude will trade choppy or not, but to me, given the current move in the US manufacturing sector, the right tail is being underestimated and RUB seems like a good expression, given their domestic cyclical uptick and very cheap ccy given improvements in terms of trade. Then finally, in all of my strangeness we get from the current widening in LOIS to being long TY/Gilts wideners.