Will Jackson Hole be a Non-Event?

In this week's Macro Insight I discussed...

SPX had a little wobble ahead of expiry as we broke below the 4420 vol trigger. After the Friday morning print around 4400, SPX staged an impressive rally to almost 4500 yesterday as shorts got squeezed. China had a dead cat bounce and FED's Powell said that they are monitoring delta variant closely. Also, PMI data that missed expectations gives the FED an excuse to soften or delay the taper of asset purchases.

A sharp rally in VIX from the bottom of the range up to just shy of 25 was slammed straight back down to below 17. We expect September VIX futures to hold a premium due to Sep FOMC becoming a more important event for markets. Long implied vol and short realised will likely work for next couple of weeks.

Tech and Healthcare led the way due to their defensive nature whist cyclicals such as mining and energy were the worst hit.

We see some signs that US delta variant may reach a peak imminently which could fuel a bounce in cyclical stocks. JETS call spreads? Asian vaccine rollout has picked up steam across Japan, Malaysia and Philippines. China has also locked down aggressively due to its zero covid policy, this will hopefully prevent a prolonged period of economic weakness.

Many positioning and sentiment indictors show that discretionary investors are not all-in bullish which makes it hard to see a major liquidation event in the short term even if we get a taper. The weekend’s Jackson Hole symposium is not being priced as a major event in rates vol markets looking at the MOVE index.

Macro calendar fairly light this week.

False breakout in the dollar as risk rebounded. Yields stabilised ahead of Jackson Hole. Positioning in treasuries from CTAs is a bit stretched on the long side which could fuel a back up in yields if the FED is marginally hawkish. Both EUR and GBP bounce from key support levels at 1.1650 and 1.36 respectively.

Oil having a dramatic move down to a key support at 62.70, Copper also down to its 200d MA. Both industrial commodities staged a strong bounce in the last couple of days as dollar pulled back and China bounced. Gold also rallying but remains to be seen if we can get above major resistance at 1830 and catch up to real yields. Silver looks better value than Gold in the short term.

Filmed on on Tuesday 24h August 2021.


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