Macro Dragon WK # 30: Asia kicks off the new week solidly in the red, given last wk's EQ risk off, stronger USD, higher bond prices & volatility, as well as divergences in the commodity complex

Macro 8 minutes to read
Kay Van-Petersen

Global Macro Strategist

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.


(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)

Macro Dragon WK #30: Asia kicks off the wk in the red, as last wk's poor equity price action continues... 


Top of Mind…


  • TGIM & welcome to WK #30
  • WK #29 was a tough one for equities, oil, value & growth bulls. How much of this is a function of the noise from summer in the Northern Hemisphere, as well as concerns around slowing growth (China) & Delta variant surging (Asia, EM, Europe, US) or just overall correction is always impossible to say.
  • There was nowhere to hide in either value (BP 292.25 -6.0%, XLE energy etf $48.68 -7.9%, JETS airlines etf $22.42 -6.5%) or growth (ABNB $134.31 -10.2%, COIN $225.01 -11.4%, ARKK etf $116.53 -7.2% ) were down significantly.

    33  XLE Energy
  • The WSB complex was also very much on the backfoot, with the likes of AMC $34.96 clocking -24% for the wk on the best volume in 3wks (6x the 12m avg. volume).  We are now c. -44% from its ATH of $62.55, the name is still up +1,549% YTD.
  • There were few equity exceptions finishing the wk in the green – notable to see three of the FANGS, Microsoft, Google & Apple finish up anything from +0.90% to +1.75%. The China Tech HK listed names also did well last wk (+3% to +7%), even though most of those gains to perhaps all are at risk of being reversed this Mon.
  • Its easier to see what went up last wk: Volatility VIX +14% to 18.45, Bond prices rose (bunds are breaking out higher), the USD rose DXY 92.687 +0.60%.
  • There was some divergence in the commodity complex with some of the softs such as Wheat, Corn & Soybean oil having a monster wk from +6% to +12%.
  • Yet still the space was dogged by -24% pullback in lumber $536.40, Palladium $2,637 -6.2% & energy: WTI $71.81 -3.7%, Brent $73.59 -2.6%.
  • So there is a time for everyone in the market. Currently the equity bears, bond + USD + Vol bulls are in limelight. And we are likely going to be in a chopsolidation until the other side of Labor Day in September when the Northern Hemisphere is fully back in from their summer.
  • The majority of the charts & price levels, suggest more the same of what we saw last wk with some critical lvls being broken to the upside – German bund prices 175.29 – & to the downside – AUDUSD at sub 0.7400.
  • There are some interesting trends that are worth monitoring for either mean-reversion potential, complete breakdown or for trying to buy the dip.
  • Bunds have had 3 straight weekly gains of big prices; +77bp, +47bp, +56bp. So a +1.8% move in German 10yr bonds futures. For context on yields, we’ve fone from -0.155% to -0.353%. This raises the stakes for the response to the update from the ECB this Thu on their monetary policy.
  • XLE energy etf is now down for 3 straight wk for a total -12% retracement. On top of that, news over the wkd seems to suggest the OPEX+ Alliance is back on track as UAE is brought back into the fold & we should be back to pre-Covid output in 2023. Looks like the agreement will see +400K barrels added a day from Aug, with a reset on the starting lvls for some of the group. So far energy is down c. -1.5% with WTI $70.82 & Brent $72.53.
  • JETS etf $22.42 is now down 7wks in a row, clocking -6.5% last wk for a total retracement of -16% over the 7wks. For context, this etf was trading +$10 higher pre-covid in Feb 2020. We are -22% from post-Covid highs of $28.71.

    30  JETS

  • If an ETF is down -12% to -22% from recent post-Covid highs, it likely means there are some single stock names that are down more & worth looking at… either as relative value plays or buying the dip if one likes the theme.
  • The wk ahead is likely going to be a confluence of bearish sentiment being weighed against continued earnings season in the US, with a few of the tech names out to bat this.
  • Central Banks: The ECB is likely to command attention this wk, given the anticipated update on its monetary policy framework. RBA mins will be out on Tues.
  • Russia is expected to hike by another 75bp to 6.25%. Whilst rate decisions out of Indonesia 3.50% e/p & South Africa 3.50% e/p are expected to be on hold – the first is struggling with the surge in the Delta variant, after never really being in a position to tackle previous strains. And the latter – perhaps failed state in all but name – has seen the trial of Zuma open pandora’s box of anger, frustration & violence that is the culmination of decades of graft & of course the adversity, stress & devastation that Covid has wrecked on the poor in SA.
  • Econ data is fairly light outside of flash PMIs, there are retail sales data due in the UK, AU & CA.
  • Holidays: SG will be out on Tue, with JP out over Thu & Fri.

 

Recent Works to Keep In Heavy Rotation

 

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Start<>End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.

This is The Way

Namaste,
KVP

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