Trade Ideas Survey: Participants Re-Enter Positions Around CB Expectations

Macro Hive Network

• Participants seemed relatively unimpressed by the ECB’s TPI. In rates they have positioned more bearish EGB periphery and EGBs in general. Participant 10 entered a BTP/Bund spread widener, with expectation the rate could reach 300bp, while Participant 13 went outright short Bunds and US T-Notes. Meanwhile, Participant 2 has added to their view that other DM CBs will be unable to match Fed hiking, adding a Long 10Y NZ vs 10Y US (FX hedged). They are positioned the same way in 10Y Canada. On the opposite front, US, Participant 12 has entered a long 2Y US position.
• In FX,Participant 5 has entered long USDCNH (a number of our network members share a bearish China view). Meanwhile, Participant 8 has entered a short GBP/USD position on the expectation that if Liz Truss becomes UK PM, it would be very negative for the outlook, given her intention to cut taxes with little regard for deficit.
• In equities the bearishness around US stocks may be fading somewhat, with Participant 12 now entering a long S&P position. In commodities, Participant 5 re-entered their short gold position.

Bilal’s Trades and Views

After having closed my strategic trade positions, I have begun to re-enter more tactical trades. This week, we entered a long USDINR position as part of my broader bearish EM FX view. Bert finds EM Asian CBs to be behind the curve in terms of hiking compared to other geographies. Consequently, their curves are relatively steep. On this basis we have also entered into paying positions in 2Y INR and 2Y THB, as well as a 1s5s MYR flattener.

Elsewhere, my core views remain to be bearish equities (John agrees, seeing room for equities to hit new lows on earnings downgrades), and to expect CBs to hike far higher than currently priced. For the Fed I see terminal rate at 4-5% while Dominique thinks it could be as high as 8%. This leaves room for deep US 2s10s curve inversion.

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.)