In this week's Macro Insight I discussed...
SPX broke to new highs post the non-farm payrolls data that showed an improvement but not too much to force the FED into early tapering discussions. VIX however, found a base around 15 despite the market making new highs. This type of spot/vol correlation has been a reversal indicator in the past and needs to be watched closely.
Despite making new highs, we see breadth indicators showing that the rally is very narrow with only really the tech sector going higher with every other sector struggling as the outlook for growth deteriorates. The bond markets are signalling that inflation fears have subsided but the question remains if growth is sustainable. Q2 earnings will give us some signs on bank lending growth and whether the flattening in the yield curve is a bearish sign for the growth outlook or if it was just a function of crowded positioning in steepeners. We see many hurdles in the latter half of the year for markets to still keep beating expectations.
CHINA services PMI data showed the largest slowdown since last February. Warning signs from the Chinese economy which is getting close to being in contraction could filter through to other risk assets such as European equities and commodities. The global reflationary wave could go into reverse of this persists leading to a major downturn in risk assets.
The move higher is dollar took a pause post NFP but has held the key 92 support level. The path of most pain likely remains higher in DXY which will not be good for risk assets.
Oil prices spiked after OPEC+ failed to reach an agreement on production. Markets remain very undersupplied so prices are at risk of a major spike if a compromise is not reached. The other tail risk is of a price war similar to last Spring. Gold finally had a small pop up above 1800, we still favour a move lower in the short term. Copper also bounced up to downtrend resistance and look fragile given the China outlook. Agricultural commodities had a big spike on weather disruptions and supply data that came in short last week.
Filmed on on Tuesday 6th July 2021.
Want to try before you buy?
Options Insight offers a NO OBLIGATION 7 day free trial to give you access to our live and interactive "MACRO INSIGHT" trading call hosted by veteran options trader Imran Lakha.
Our trading call takes place at 1:30pm (BST) over Zoom to participants around the world with a copy of the recording post event for you to view at your leisure.
Like what you see?
Join our exclusive trading community for just £49 per month or £499 for a whole year saving you more than 15%. Members benefits include: Access to our live and interactive weekly "MACRO INSIGHT" trading call hosted by veteran options trader Imran Lakha, monthly market reports written by Imran sent straight to your inbox and annual members will also receive: Huge