Macro Digest: FOMC marginal change is big deal
Chief Investment Officer
Summary: Fed Minutes shows conditions in place to taper.
Saxo view: Fed still looks at when to start, but there is majority if not consensus that the QE needs to end by H2-2022. This is an extension of Althea argument early in the summer: Too much liquidity means Fed needs to act faster and earlier relative to normal conditions. We see a number of Fed governors confirming this path, and this is bad news for convexity and rate sensitive stocks as the tail-wind will disappear faster. Of course, there is still overall the issue that growth and overall financial conditions is deteriorating in real economy.
Market: US stocks markets has “broken down” on charts, fixed income is starting to price “stag-flation light”. (Low growth and medium term inflation) which mean FI for now remains unchanged. (Consensus on inflation remains that its “temporary”...)
Action: Seasonality in VIX, charts, and FOMC marginal change means Volatility should be bid. Looks to hedge through buying of puts or outright buying volatility ETF (VIXM US Equity or LVO IM Equity could be used).
As per my latest macro presentation – the gap between Fed “official” view on inflation and their communicated view... now closing, as predicted by their DOTS below:
A few charts…
- NAS – Momentum broken down
- WTI – Oil – proxy for global growth broken down
- Copper – proxy for global growth broken down
- AUDJPY – The ultimate RISK indicator – broken down hard… (AUD is small open economy with big commodity + China exposure) – JPY is the world largest saving base (safety)
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.