MH Model Portfolio: Short USD/JPY and Take Profit on Long EUR/CHF

Portfolio Changes

We made four changes since our last publication, including opening three new trades.

New trades:

First, we opened a US/UK 2s10s box (US flattener vs UK steepener) at 24bps, with a target of 44 bps.

We see room for the UK curve to steepen to at least to 0 bps as cuts begin. Meanwhile, the UST 2s10s, could have more room to stay flat if US Core PCE momentum remains close to (but a bit above) target.

Second, we went short USD/JPY following the BoJ’s first rate hike for the cycle. We are targeting 145.50, with a stop of 152.50. With USD/JPY now above 150, we think there’s a heightened risk of the BoJ emphasising the more hawkish elements of its hike ahead or comments from the MoF in the coming days to push the yen higher.

In commodities, we decided to short Brent M4/M5 time spreads. Brent recently broke above its recent range, reaching highs above $87 /bbl. We think this breakout has been driven by fears over Russian oil supply, which is likely to be overdone. Also, we note that physical market signals have not supported this latest breakout, suggesting elevated downside risks in the near term.

Closed trades:

On Wednesday, we decided to take profit on long EUR/CHF with the trade up 2.4%. We think short CHF is now a well-positioned trade, while markets are pricing a near 90% chance of a June cut which makes the risk-reward unattractive.

Historic Performance

Our portfolio gained 0.3% since last week but remains down 0.2% YTD. The portfolio has returned +50.3% since inception (+10.4% annualised) with a 0.9 Sharpe ratio. This continues to place it above the average discretionary macro hedge fund since inception which has gained 39% (Bloomberg: BHDMAC Index; Chart 1).

Current Trades

DM

Rates

1. UKT/UST 2s10s Box (target 44 bps, stop 14 bps) – read here.
2. Pay 2Y EUR vs receive 2Y GBP Swaps (target 90 bps, stop 155 bps) – read here.
3. Long 10y Spain vs BTP and Bund (target 12 bps; stop 36 bps) – read here.

FX

1. Short USD/JPY (target 145.00, stop 152.50) – read here.

EM

FX

1. Long 6M EUR/TRY digital put, strike 32.0 – read here.
2. 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.

Commodities

1. Short Brent M4/M5 Time spreads (target 11.50%, stop 15.00%) – read here.

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

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.

(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.)