What Investors Are Thinking: The June Scan (3 min read)
The top story of June was easily the Fed pivot to dovishness. It outshone even the ‘will he/won’t he’ Trump trade war with China. In the end, the message from markets was clear: global growth is back on. In this piece, we break down Macro Hive’s internal statistics over the month of June to bring you an insight into investors’ thinking.
Equities love growth
Global equities rallied over June with both the US and China delivering returns of 7%. Other markets like the Euro-area and Japan were also up, but by less (5% and 3%, respectively). At the sector level, materials, tech, and consumer discretionary were top performers, again emphasising the reflationary nature of the rally.
Lower yields equal credit rally
In fixed income, rates rallied hard. US 10-year yields fell over 10bps during June as did bunds. Italian yields fell by an even more dramatic 55bps. In credit, high yield spreads in the US and Euro-area fell over 50bps. Finally, in FX, the dollar weakened. Against the majors it fell moderately - the euro was up 1.8%, the yen and Chinese yuan were up around 0.5%. But higher beta currencies like the Canadian dollar, New Zealand dollar, Colombian peso, and Chilean peso rallied between 3%-5%.
Investors positioning for pessimism
Part of the reason for the risk rally was that investors were positioned for the opposite and continue to be so. According to IMM positions, hedge funds were short US stocks, short US rates, and long the dollar coming into June. Over the course of month, they fought the stock rally by doubling their shorts. On rates, they maintained their rate shorts during the rally, and they increased their dollar longs into dollar weakness.
As for longer-term investors, the consensus of analysts provides a good proxy. There we find that analysts kept their bearish bias on US rates but scaled back their bearishness – they reduced their year-end forecasts by 40bps while US 10y yields fell 12bps. On FX, analysts maintained a moderate dollar bearish bias.
Fed and Trump on investors mind
With the launch of Macro Hive, we can also identify what themes investors are most interested in. Between the newsletter and the website, we have several thousand users – most of whom are investors. Our content is varied, so we can see by the web/newsletter traffic statistics what readers were most focused on.
Starting with the opinion pieces, we find that across all three major regions (US, Europe, Asia) the two most popular pieces were one on a possible 50bps cut by the Fed (George Goncalves), and another on the Trump weak dollar policy (Mirza Baig). This suggests that investors are very focused on their short rates and long dollar positions.
Outside of these two topics, the regions were split. In the Americas, investors appear interested in FX carry and alternative data. In Europe, they are interested in BoE policy and Europe’s trade difficulties; and in Asia, they are focused on risk markets whether equities or FX carry.
Risk rally may have legs
We can further clarify our picture by looking at which blogs and podcasts readers were most interested in. Oaktrees’ Howard Marks investor memo on excessive market optimism was most popular, which as it happens reflects the bearish positioning of investors. Elsewhere, systematic trading and HK were other topics of interest.
Triangulating positioning, forecasts, and topics, we find that investors still appear to be pessimistic on risk markets, which suggests they could rally further. There also appears to be some scaling back of bearishness on rates, but still no capitulation. On the dollar, investors appear more open to changing their views – meaning we could see some position adjustments, especially amongst hedge funds.
Opinion Pieces: Most Clicked
Curated Content: Most Clicked
(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.)