Prime Trade Ideas: Opportunity in the Chaos

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 Latest Trade Ideas

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

• Preservation of capital is key; Bilal leaves his asset allocation unchanged: overweight cash, neutral commodities and crypto, and underweight equities and bonds.
• Commodity prices are falling as markets adjust and become less unbalanced. However, supplies remain tight in sectors. Therefore, John turns marketweight agriculture and remains overweight energy. Meanwhile, a measured reopening in China leaves John underweight industrial metals.
• Neutral-bearish bitcoin and bullish ethereum. The macro backdrop is still bearish for both ETH and BTC, but our on-chain/flow signals are starting to pick up – more so for ethereum.
• Remaining bearish Asia currencies.We are bearish CNH, INR, KRW, TWD, and SGD. We are also tactically short a 6.72/6.80 USD/CNH strangle.
• Short US vs Canada rates (2Y & 10Y). We see the Federal Reserve hiking more than the Bank of Canada while the Canadian housing market is vulnerable.

Bilal’s Asset Allocation Update

Find Bilal’s latest asset allocation biases here.

• When positioning for what is to come, patience is key. This is because much is to be decided. It means preservation of capital is essential so overweighting cash is a prudent strategy.
• On other assets, we remain underweight government bonds. This should be no surprise; we think the market is under-pricing Fed hikes. Should they hike the Federal Funds rate to 8%, as Dominique envisions, a recession would almost certainly ensue in 2023, and equities would face further declines. Therefore, we also remain underweight equities.
• Turning to the final two assets, the energy crisis is still playing out and supply-chain problems persist; we remain neutral commodities. We are also neutral crypto – specifically neutral-bearish bitcoin and bullish ethereum.

John Tierney’s US Equity ETF Biases

Find John’s full list of ETF biases here. Alternatively, they are in the table below.

• After major supply shocks earlier this year, commodity prices are falling as markets adjust and become less unbalanced. However, supplies remain tight in the energy and agricultural sectors. John sees this as an upside risk for the two sectors. As a result, John turns marketweight agriculture and remains overweight energy.
• The outlook for industrial metals depends on how China’s reopening proceeds. We expect it will be measured rather than aggressive, which should keep further downward pressure on prices. It leaves John underweight industrial metal.
• Aside from his ETF biases, John has weighed up US versus EU/UK equities. He thinks that the S&P500 offers more upside (than European or UK equities) over the medium term.

Henry’s European ETF Biases

Henry made this call back in March. The premise still holds, and we review short-term adjustments periodically.

• Long-term 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.
• Paring overweight financials exposure. European stocks have faced substantial volatility as of late from Russian gas supply, ECB policy, and Italian politics. It has meant we have pared exposure to the financial sector. Long term, however, we see strategic value in overweighting financials (CB5).

Cryptocurrency Models

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

• We remained neutral-bearish bitcoin.The macro backdrop is tough: we think the Federal Reserve will hike more than expected, and there is a 70% chance we enter a recession within the next year. Meanwhile, bitcoin remains positively correlated to equities and negatively correlated to the US2Y.
• We turned bullish ethereum. While the macro backdrop is unfavourable for ethereum, the same cannot be said for the on-chain/flow backdrop. We found six bullish on-chain/flow signals and just one neutral signal ahead of the merge.

Discretionary Macro

Our latest discretionary macro biases in collaboration with SGX can be found here while our latest views on rates in collaboration with TMX can be found here.

• In our latest SGX piece, we look for CNH weakness after the Party Congress but think USD/CNH could stay rangebound (short a 6.72/6.80 USD/CNH strangle). Elsewhere, we think the RBI’s inability to stop the rupee sliding will only continue; declining global export volumes and deteriorating leading indicators are both bearish for KRW; a weak economy and a threatening China leave the TWD vulnerable; inflation is yet to peak in Singapore – we remain bearish SGD.
• In our latest TMX piece, we are bullish Canadian rates (two- and 10-year) and bearish US rates (two- and 10-year). This is because we think the Fed will end up hiking more than the Bank of Canada, an opposing view to the market, while Canadian housing is more vulnerable than US housing.

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.