Prime Trade Ideas: How to Position for a (More) Hawkish Fed

We consolidate our favourite biases into one, easy-to-read, weekly report! Please find the original pieces linked throughout and a summary table at the end of the document. Reach out to us on Slack or email the author with any questions about the content.

An Update on Our Trade Ideas

We summarise our latest trade ideas here with links to the original analysis.

• Bilal continued to favour cash on a backdrop of fragile markets in his latest asset allocation update.
• We reiterated our bearish bias on bitcoin,with the macro backdrop still troubling and our on-chain/flow signals bearish overall.
• In Europe, remain overweight financials (CB5) and stick to being overweight renewable energy (FAN, INRG). Henry made these calls back in March, but the premise still holds.

Bilal’s Asset Allocation Update

Find Bilal’s latest asset allocation biases here.

• Our core investment view remains the same. Markets are fragile, preservation of capital is paramount, and cash is king. Overall, our bias is to be underweight equities and bonds, overweight cash and commodities, and neutral crypto.
• The biggest question in markets today is whether the Fed will be willing to crush inflation even if it means weaker equity markets. Rates markets are pricing a terminal rate at 3.25%. We think markets could be wrong and the Fed goes further – raising rates to at least the pre-global financial crisis (GFC) levels of 5.25% or even 8%. Being right on the balance of risks for the Fed would see more downside to risk markets, like equities.
• As for the rest of markets, we stay underweight bonds given our Fed view, overweight commodities on poor supply dynamics, and neutral on crypto. And, of course, we like to be overweight cash.

John Tierney’s US Equity ETF Biases

Find John’s ETF biases here and his latest update here. Alternatively, his full list of biases are in the table below.

• Last week, John reiterated his call to be underweight consumer discretionary (XLY).The S&P500 consumer discretionary sector is down a third since late last year. The meltdown is largely due to two stocks – Amazon and Tesla. Given the prominence of these two companies, the consumer discretionary sector promises to be volatile. But from a fundamental standpoint, we think it is headed lower in coming months.

Henry’s European ETF Biases

Henry made these calls back in March, but the premise still holds.

• Overweight financials (CB5): European banks verge on a new paradigm of higher growth and profitability after post-GFC underperformance. Loan demand should be strong ahead while European banks are positioned to meet this demand. As a result, on a price basis, European banks have room to catch up with the rest of European equities.
• Overweight renewable energy (FAN, INRG): The EU remains hugely exposed to Russian energy – not just in gas but nearly all fossil fuels. It means that simply replacing the supply of Russian gas energy with other sources may be practically difficult (due to infrastructure) as well as geopolitically unattractive. Longer term, a concerted increase in renewables spend is highly likely.

Cryptocurrency Models

Find our latest bitcoin signals here and our latest ethereum signals here.

• Bearish bitcoin: The macro backdrop remains bearish (recession odds are above 40%) while on-chain/flow signals are net-bearish. Over the next two to four weeks, we like to be bearish bitcoin. In our latest bitcoin update, we find that a rise (fall) in aggregate exchange balance indicates a fall (rise) in bitcoin.
• Bearish ethereum: Our latest macro signals suggest a bearish environment for ethereum. So did our on-chain/flow signals. Overall, we retain our net-bearish bias on ethereum.

FX and Commodities

Our latest discretionary macro biases in collaboration with SGX can be found here while our latest FX options insights in collaboration with CME can be found here.

• In our latest SGX piece we rotated our bullish USD/CNH recommendation to bearish the CNY basket, and became bearish on CNH/SGD. Elsewhere, we remain bullish INR/TWD, bullish USD/TWD, neutral KRW. And in commodities, we turn bullish on iron ore.
• Bullish a GBP/USD put spread: Three-month GBP/USD put spreads could be attractive as double-digit UK inflation, a too-cautious Bank of England, and global risk aversion point to further GBP weakness.

Momentum Models

Find the latest Momentum Model signals in collaboration with TMX here.

• Bearish S&P/TSX 60 Index: Our one- and three-month CTA lookback momentum models are net-bearish on the S&P/TSX 60 Index.
• Bearish Canada 5-Year and 10-Year: Our one-, three-, and 12-month CTA lookback momentum models are all bearish on the Canada five- and 10-year.
• Net-bearish global equities: Our best-performing CTA lookback momentum models are bearish on the S&P500, Nikkei, and DAX. In contrast, the best-performing CTA lookback momentum models are bullish on the FTSE-100.
• Bearish global rates: Our best-performing CTA lookback momentum models are bearish on the US five- and 10-year, Japanese Government Bonds, Bunds, and Long Gilts.

Ben Ford is a Researcher at Macro Hive. Ben studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.