Prime Trade Ideas: Positioning for More Turbulence in Equities

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.

• Overweight energy and commodities equities. We are in a bear market. And if recent earnings momentum weakens (as we expect), it will worsen. In this environment, John reiterated being overweight equities related to energy and commodities.
• Market weight communication equities. Highflyers like GOOG and META fell recently but now trade at reasonable P/E ratios and have solid business models. So, John moves communications from underweight to market weight.
• Cash is king. The Fed recently hiked 75bps. Dominique sees a repeat in July. As a result, recession odds have increased. It means surviving is more important than ever. Bilal maintains that ‘cash is king’. Find his latest asset allocation here.
• Bearish KRW. This year’s current account surplus is set to be the smallest in over a decade, while equity outflows (both domestic and foreign) remain elevated. Read our latest update on SGX Asia Currencies and Commodities.
• Short CNH vs long SGD. We see China weakness as here to stay, with reopening from lockdowns proving bumpy. Policy divergence between the PBOC and Fed and the prospect of continued capital outflows leave a negative outlook for the yuan.
• Bearish bitcoin. Our on-chain/flow signals are becoming more bearish. There are now four, up from two. Meanwhile, the macro backdrop looks equally daunting. We remain bearish bitcoin.

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.

John Tierney’s US Equity ETF Biases

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

• John reiterated being overweight equities related to energy and commodities. The advent of a bear market always prompts questions about how bad it can get. Those preceded by bubble-fuelled markets (like the post-pandemic bull run of 2021/2) tend to be super bear markets with declines of 40% or more. If earnings momentum of recent quarters weakens (as we expect), the bear market will lurch further downward.
• The communications index of the S&P500 had a great run until last year. However, it has been the second-worst performer in 2022. The communications sector looks cheap now based on several measures. Aggressive investors could consider investing in GOOG and META and thereby capture most of the sector’s potential upside. John moved communications from underweight to market weight on expectations it will perform roughly in line with the SPX.

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.

• We remained bearish bitcoin. Our latest macro signals continue to weigh on the crypto. Meanwhile, the number of our bearish on-chain/flow signals doubled. Overall, we retain out net bearish bias on bitcoin.
• We turned more bearish on ethereum. On-chain, we found a bias for exchange inflows, decreased open interest, reduced profitability, reduced miner revenues, and decreased TVL in DeFi. Meanwhile, the Fed have turned more aggressive in their bid to normalise policy, the probability of recession exceeded 50%, and tech correlations rose.

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 turned bearish on the won. On existing biases, we remained bearish on CNY (against the basket) and CNH/SGD. Meanwhile, we remained bullish on USD/TWD, INR/TWD, S$NEER, and iron ore. John and Caroline expand our view on CNH here.
• 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.