Macro Dragon: Re-Up Part IV-A... Higher Probability Pathways...

Macro 2 minutes to read

Kay Van-Petersen

Global Macro Strategist

Summary:  Macro Dragon = Cross-Asset 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: Re-Up Part IV-A... Higher Prob. Pathways... 

 

Top of Mind…

  • Time for this months check-in on a Macro Dragon staple, calibrating high probability pathways vs. low probability pathways – with the latter tending to have higher convexity, assuming that positioning is symmetrical to the lvl of probability. I.e. high probability having high positioning, obviously what is high probability for KVP may be low probability or unclear to someone else & vice versa.
  • Whole point of this exercise is to take a step back & focus on the potentially much bigger trends of tailwinds & headwinds towards assets class prices, as well as overall contingency planning around portfolio positioning, trade set-ups & overall capital management.
  • We’ve done a series of these previously & its worth noting that probabilities around scenarios can & should change, as the facts (or perceived facts) change.
  • A great example of this was during Mar where there was a period of 2-3wks where KVP thought the chances of a complete market shutdown were greater than 50% - until the Fed stepped in & underwrote credit. That was the bottom. Flow like water, the Dragon does.
  • Liquidity = Monetary Policy Expansion/Contraction + Fiscal Policy Expansion/Contraction
  • Current Regime? Continues to solidify into…
  • Liquidity = Monetary Policy Expansion /Contraction + Fiscal Policy Expansion /Contraction
  • Monetary Policy: Yes, since our last Re-Up in May, we have seen a few iterations of central banks governors talking a little more bullishly/less dovishly than they were in Mar-Apr-May… yet don’t mistake that for a pivot towards hawkishness.
  • This is a theme we are likely to see play out globally & incidentally enough, the 2nd wave comments in the US are almost all entirely wrong – the US was at best shutdown across c. 50% of the country, in most places this is just an extension of wave one, wave two in these places will likely hit in the Northern Hemisphere Winter – so 1Q21. More importantly on monetary Policy, we’ve seen the Fed basically tell us that rates will not move up all through 2022 & we have seen Lagarde’s ECB continue to surprise to the “even more accommodative” side.
  • Worth noting that there are always exceptions & this is also one that we have talked about – if KVP had to put some chips on the first G10 to move towards a more hawkish stance, it would be on the class of one Nation that is Norway… so once again… another structural reason to have a longer-term allocation to NOK & NOK assets. Yes, we have had the “easy” move on USDNOK & it ran +5% since we flagged it & took profits, yet even at these 9.30-9.50 lvls, we are likely well south of 8.00/8.50 by mid-2021.
  • There are no “lines in the sand” from a policy makers perspective… and if they are, they will be similar to Obama’s famous line in the sand on Syria using chemical weapons… Obi did not blink on Osama, but he sure as hell blinked on Assad… YCC is on the way folks (one can argue we are already there synthetically), as are negative yields (we are already at real negative rates) & likely eventually equity purchases.
  • Anything goes…if you are there, thinking that central bankers still have some shred of credibility to defend, then KVP would interject & claim you are on the wrong planet & different universe. Not trying to say they are not academically switched on & the majority of them mean well, its just at the end of the day - We are all just monkeys pushing buttons (or a form of a button), doing the best we can, yet unfortunately in a system where there is little to no accountability for central bank governors & treasury/finance ministers globally. This is not too dissimilar to the “career blow up” traders that trickle across hedge funds & banks – heads they win, tails you lose.
  • Incentives & the systems around them are everything folks, KVP will keep repeating this until Dragon readers can recite it in their dreams & more importantly implement better systems in their respective companies, organizations, team, families & own initiatives.
  • Tmr we will continue with other high probability pathways around Fiscal Policy, the regime & potential implications from an Asset Allocation basis.

-

To Keep In Mind Today

  • AU: RBA Minds, RBA Lowe speaking @ 10:30 SGT/CST, Leading Index
  • JP: National Core CPI
  • NZ: Credit Card Spending, Milk Auction
  • CH: CB Leading Index
  • UK: Public Sector Borrowing
  • CA: Retails Sales, House Prices

-

Start-to-End = Gratitude + Integrity + Vision + Tenacity. Process > Outcome. Sizing > Idea.

This is the way

KVP

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo 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 Markets or its affiliates.

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning 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. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

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

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.

This advertisement has not been reviewed by the Monetary Authority of Singapore.