//Macro Recap July II

Macro Recap July II

By |2022-07-26T06:23:51+00:00July 26th, 2022|

[Original Author, by Nigel Ng]

The bear market rally is over. Eurozone PMIs came in at sub 50, with new orders weak. US PMIs weren’t that much better, and lots of hard data has been pointing to a worse-than-technical recession. Jobs data, Philly Fed, everything points towards an inevitable recession. The ECB has failed to calm markets as their anti-fragmentation tool has too much conditionality. BTP-bunds and the bond market traded as if they don’t believe the central bank. The truth is, the EZ is still in a stagflationary environment as Russia continues playing games (paperwork for return of the turbine incomplete, etc).

While all this could be a bullish argument if the market believes it will make the Fed pivot earlier, I think it’s still too early for bad news to be good news. We haven’t seen any real deleveraging or pain in markets yet, with VIX subdued, trading at 22. The Fed is fixated on depending on backward looking data, which can lag up to 12 months. They even acknowledged that the data is lagging, but would follow it anyway. The bear market rally is over.

Ideas for next 10 trading days:

– Short US/EU eq

– Long bonds

– Flatteners

– Long gold

– Short cross JPY

– Short EUR crosses

– Long USD crosses