MH Model Portfolio: Outperformance Continues as Hawkish ECB Pushes Back on Early Cut

Portfolio Changes

We have made one change to our model portfolio since last week. We closed receiving 10-year SOFR Swap spread yesterday at a modest loss (-37 bps current, vs entry: -39 bps).

Existing Trades

Paying April-24 ECB dated ESTR has worked well as the market continues to price out the chance of an early cut. The trade is now near our 3.8% target.

We also maintained our bullish USD stance. Three factors should keep driving USD outperformance: US economic outperformance, a slow-moving Fed, and CTA positioning shifts leading to further selling pressures around 1.09 on EUR/USD.

Historic Performance

Our portfolio has returned +0.5% YTD and is down 0.1% since last week. The portfolio has returned +51.4% since inception (+11.0% annualised) with a 1.0 Sharpe ratio. This continues to place it above the average discretionary macro hedge fund, which lost 0.7% in January 2024 (Bloomberg: BHDMAC Index; Chart 1).

Current Trades

DM

Rates

1. Pay 2Y EUR vs receive 2Y GBP Swaps (target 90 bps, stop 155 bps) – read here.
2. Short 10y and 30y USTs – read here.
3. Long 10y Spain vs BTP and Bund (target 12 bps; stop 36 bps) – read here.
4. Pay Apr-24 ECB ESTR (target 3.90%) – read here.

FX

1. Long EUR/GBP (target 0.877; stop 0.846) – read here.
2. Short EUR/USD (target 1.055; stop 1.095) – read here.
3. Long EUR/CHF (target 0.9700; stop 0.9245) – read here.
4. Short GBP/USD (target 1.2350; stop 0.9245) – read here.

EM

FX

1. Short 3m USD/TWD NDF (target 30.0; stop: 31.5) – read here.
2. Long EUR/PLN (target 4.480; stop: 4.295) – read here.
3. Sell 3m PHP/IDR (target 265.00; stop: 285.00) – read here.
4. Long 6M EUR/TRY digital put, strike 32.0 – read here.
5. Long EUR/CZK (target 25:60; stop: 24:00) – read here.

Rates

1. 5y10y MXN TIIE Steepener (target 40 bps; stop -30 bps) – read here.
2. Receive BRL DI F27 (target 9.50%; stop 10.80%) – read here.

To see a full list of our trades since inception to the end of 2023, please see here.

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Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

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(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)