Week ahead and the base effect skew Week ahead and the base effect skew Week ahead and the base effect skew

Week ahead and the base effect skew

Equities 4 minutes to read

Summary:  A look at the Archegos Capital blow up, contagion risk and what's on the radar for the week ahead.


US futures are off to a shaky start in Asia’s Monday trade after a risk-on Friday session with a solid ramp up into the close, however regional bourses are faring better. The story dominating sentiment is the Hwang family office blow up on highly levered positions, and associated margin calls, block trades and prime brokerages losses. Bill Hwang’s Archegos Capital is at the epicentre of the story triggering the losses, but another Tiger Cub at Teng Yue Partners is also said to be involved with losses on GSX, one of the frontline stocks in Friday’s liquidation route.

From a regulatory perspective, this event and the significant losses from various prime brokerages is likely to see a heightened scrutiny around the disclosures of derivative instruments like swaps that allow hedge funds to dodge disclosures and anonymously amass billions in notional equity exposure, in some cases amassing significant percentages of the free float under the radar, as well as avoiding regulatory limits on leverage via off balance sheet swapped margin.

However, from market perspective with contagion looking limited as Asian indices hold up despite the news flow of further forced liquidations and prime brokerage losses, this looks at this stage to be a positioning driven sell off in US futures and various single stock names. Although there is still the risk of further forced deleveraging if prime brokers were to tighten margin requirements. On top of what is a shortened holiday trading week with liquidity potentially impacted alongside the month end, quarter end rebalancing flows and associated noise that the close of month/quarter brings.

Aside from the hedge fund blow up and associated contagion risk front and centre this week is a raft of data ready to kick off the “base effect cliff” into the heart of the crisis last year. These incredibly favourable base effects will render a huge year over year acceleration in the data due March, April, May. A big rate of change acceleration in both growth and inflation data with long dated US yields likely headed higher – not time to ditch reflation trades. PMI surveys and the US ISM manufacturing data this week are set to give a read on supply chain dislocations, rebounding demand and the already present inflation pressures visible across global manufacturing. All eyes will be on the ISM prices paid read, with last months survey’s measure of prices paid by manufacturers jumping to a reading of 86.0, the highest since July 2008. US 10yr yields set to respond in kind to price pressures that are clearly building. Also, on the radar here President Biden’s infrastructure stimulus package set to be debuted in part on Wednesday – the fiscal spigots in full flow putting additional pressure on US yields.

The bond market is responding to these repeated inflationary reads, and will continue to do so, with the 10yr yield continuing to breakout hitting new cycle highs and yield curves steepening. The OPEC+ decision will also be a driver here with oil sliding again after the Ever Green was refloated in the Suez.

Lastly, Friday sees the US jobs data which should show the US economic recovery kicking into gear with the labour market recovery stepping up. The recovering labour market providing a consumption tailwind for already fiscally juiced up, pandemic fatigued consumers ready to spend and deploy savings, colliding with supply chain dislocations and Covid impacted base effects. A true reflationary cocktail.

 

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.