Macro Dragon WK 14: +$3 trn Infra, US NFP, Block Trades & Chinese ADRs, Archegos Capital, Quarter End + Easter WKD
Summary: Macro Dragon = Cross-Asset Quasi-Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
Macro Dragon: +$3 trn Infra, US NFP, Block Trades & Chinese ADRs, Archegos Capital, Quarter End + Easter WKD
Top of Mind…
- TGIM & welcome to WK #14…
- Lots of moving parts folks, which we will get into soon enough – for those of you who may have missed the re-published latest Dragon Interview, would encourage you to pay attention to AVM’s Ashvin view on the US Dominance Theme…
- ….which KVP feels is still very much mispriced [particularly in the USD (should be much higher, with DXY 92.754 likely easily heading to the 94-96 range post last wk’s close above the key 200DMA lvl) & gold (should be much lower that current $1730 & is likely heading to the $1500-1600 range over next 1-2months )]
- +$3 trn seems to be the next bill on the Biden|Harris agenda, yet this one fully devoted to Infrastructure – how much of that finally get through, how & when are likely factors that are hard to gauge now.
- You know what is not hard to gauge, probability wise?
- USTs at 1.66% being way too low for the hotness of the US economy & as a function of more fiscal on the way, not to mention a Fed that is transition to hawkishness… we should be well above +2.00% & likely at 2.50% before we even get our first hike.
- In regards to delta on the Fed’s decision making, keep the Apr 29th & more importantly Jun 16th dates on your calendars. Granted every US economic data point, is likely going to be acting as an anthem exercise for the US dominance theme.
- On that note – should be no surprise that on a wk where we see one month & quarter end, with another beginning there is a lot on. On top of which, it’s a shortened wk for most of the world given good Friday. So watch out for final PMIs across the board, including ISMs & NFPs out of the US.
- Given the upcoming long wkd for many major markets, we may already see liquidity starting to dissipate from Wed & Thu.
- Big focus out this Asia morning & from the wkd seems to be on two fronts, that may be related or just coincidental – one is the big block trades on Friday focused around some Chinese ADRs on Friday. Reads of capitulation on expecting US/CH relations to improve – which likely means at some point the local legs of those names could be interesting.
- The other is a headline from one of Japan’s biggest banks Nomura announcing a potential $2bn loss linked to a client (could be less or more) – which has sent the name down c. -16%, which is +4x standard deviations on 30d vol of 3.6%, likely biggest drop in 10yrs.
- With the stock at c. 611 yen, that leaves the bank with a mkt cap of 1.9 trn yen or c. USD 19 bn & as per their statement a Tier 1 capital that is well above the required lvl. Macro wise KVP likes financials (& insurers even more), as US dominance means global yields will continue to move up.
- How much of this is cockroach theory – ripple effect to be seen on a few other banks, i.e. if you see one, there is more… yes KVP is Event-Driven/Special-Sits bred – vs. isolated incident & apparently bonus season, remains to be seen.
- KVP is still looking into full details around the loss, yet there is a thesis that this is linked to Archegos Capital (part of the Tiger Cubs & run by Bill Hwang), which seems to have gotten margin calls. So whether this is Archegos Capital => Prime Brokers => Banks like Nomura? Again remains to be seen… given Fiscal Year-End in Japan plus end of 1st Quarter, Senior Management at Nomura may have thought it prudent to be proactive on this & open up the new fiscal year on a clean slate – smart!
- Its the Hedge Fund hotels that KVP would be worried about, i.e. there is a lot of concentrated position among the big multi-billion hedge funds, despite their respective spiels of being different… & when there is blood in the water… there is a “there is blood in the water… lets go kill someone” mentality
- Some equity names that seem to be in the confluence of this storm include Tencent, Alibaba, Baidu, Farfetch, Discovery, GSX Techedu, ViacomCBS (someone tried to do a massive block over the wkd) & IQiyi.
Rest of the Week & Other Reflections
- Again probability generally higher of noise > signal into quarter end & quarter start – on top of which we have for most of the trading world a four day wk, with Friday being a public holiday. With that said, KVP feel's strongly that US Dominance theme is underpriced from a cross-asset perspective... particularly in regards to further USD strength & a lot more weakness in gold.
- Econ wise final Mfg. PMIs across the board, whilst in the US ISM mfg. 61.4e 60.8p, ADPs, NFP 643k e 379k p, AHE 4.5%e 5.3%p & unemployment rate are due 6.0%e 6.2%p.
- CBs: Outside of Chile 0.50% e/p, no major Central Banks scheduled
- Fed Speak: We got Waller, Quarles, Williams, Harker & Bostic on the docket
- Hols: Most markets are out on Fri, worth noting the Danes are out from Thu & back in on Tue 6 Apr. Most of Europe will be out both Fri & Mon. AU, NZ & CH will also be out on Mon.
- Other: We got daylights saving time shift over the wkd in Europe. This coming wkd of Apr will see daylights saving time shift in AU & NZ.
- Dragon Interviews U-Tube Channel for easier play-ability…
Start-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.
This is The WayNamaste,
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