In this week's Macro Insight I discussed...
Despite poor post earnings price action from the mega cap tech stocks, SPX remained stuck in a tight range. NDX also had a muted reaction ad bond yields fell providing some support to long duration stocks. The VIX has been stubbornly well bid in the face of low realised vol and a grind higher in spot prices. The can be explained by the 1 month time window capturing the “Jackson Hole” date which is being flagged as a potential market moving event. We see a low vol market between 4400 and 4500 given the dealer gamma concentration.
The US vaccine rollout has stalled and the threat of economic restriction is emerging. China is also seeing a rise in Delta variant cases. Economic data is rolling over, the question is whether or not markets will follow or if the FED will have an excuse to delay tapering and asset markets can continue to rise as we climb a wall of worry. China contagion risk is still a major concern for markets, particularly in Europe. Using European index put spreads as hedges looks compelling.
More earning releases this week, but key macro data will be BoE meeting and US-Non Farm payrolls. Are we back to “Bad news is Good news”?
The FOMC gave the DXY an excuse to reject resistance above 93. We are now consolidating around 92 with 91.30 as key support. EURUSD bounced off a key support level which opens up the way towards 1.22 if dollar weakness persists. I took a tactical long in AUDUSD from the low end of the recent range to play a bounce in China, short dollar, long commodities and RBA potential taper talk.
Oil and Copper are consolidating after strong bounces, we still like the fundamentals on both. Gold has massively lagged real yields and we see this as the most obvious dislocation in macro right now. We like 6 month calls in GLD to play a catch up over coming months as it becomes apparent that tapering will likely be pushed back and real yields will stay lower for longer.
Filmed on on Tuesday 3rd August 2021.
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