Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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COT: EUR long extends on Trump threat
Ole Hansen
Head of Commodity Strategy
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The speculative long dollar position against nine IMM currency futures continued to extend in the week to July 24, albeit at a slower pace than the previous five weeks.
The gross-long hit an 18-month high at $21 billion with selling of JPY, GBP, CHF, and AUD more than offsetting a 38% jump in the EUR net-long. The latter most likely came in response to President Trump’s renewed attack on the strong dollar, not least against the euro and the Chinese yuan.
The CHF net-short at 45,808 lots was the highest since 2007, this despite having traded within a relative tight range against the dollar for the past three months.
Rangebound trading around 0.74 in the AUD has not prevented a continued rise in bearish bets. Last week the net-short reached 45,486 lots, the highest since December 2015.
Even as the currency strengthened ahead of the July 30-31 Bank of Japan meeting, the JPY net-short nevertheless rose by one quarter to the highest since March. The market is focusing on speculation that the BoJ may move closer to the point where stimulus is being reduced. This despite having seen the BoJ step in and buy 10-year Japanese government bonds to prevent the yield from rising above 0.1% on several occasions this past week.
Financials
Bonds: In fixed income, leveraged traders bought two- and five-year maturities while selling 10-years and Treasury bonds. The curve-steepening trades were initiated following President Trump’s July 19 Fed comments in which he expressed displeasure about rising interest rates.
The net-short in US 10-year notes reached a fresh record of 655,596 lots as the yield moved higher towards 3% ahead of last Friday’s Q2 GDP report.
Stocks: The S&P 500 was sold while small buying of the Nasdaq was seen ahead of key company results from Alphabet, Facebook, and Amazon.
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