Bilal’s Themes And Trade Idea Update – Most Trades Working

I didn’t make any changes to my trades over the past week. My short GBP/JPY trade performed well, but my long SPX/short Russell performed poorly. Here are the details:

1. China slowdown: long China rates (10y futures, FX unhedged), short KOSPI. This theme has continued to perform well with both the China rates and short KOSPI trades working well.
   • Premise: China property weakness, new regulations on private sector, continued lockdowns around COVID and poor energy management all contribute to growth weakness.
2. Struggling UK: short GBP/JPY. This trade performed very well with the BoE disappointment. It is now up 2.3% since inception.
   • Premise: Hawkish BoE into Brexit supply issues is bearish for GBP
3. Defensive equities: long SPX/short RTY. This trade suffered as Russell 2000 staged an impressive rally over the past week. Small earnings have been strong, so I may review this trade.
   • Premise: US growth deceleration, excessive US fiscal optimism.
4. Lo-flation/Europe catch-up: long EUR-USD 2s10s box trade (US flattener). All curves have been flattening, so this trade has gone sideways.
   • Premise for box trade: On the US side, beyond base effects and supply-related shocks, there is little evidence of structurally higher inflation. Meanwhile, there is more scope for inflation upside in the Euro-area.

In terms of performance, our portfolio is roughly unchanged on the week. It is up 9.5% year-to-date. It is up 16% since inception with a Sharpe ratio of 2.2 (Chart 1, Table 2). My biggest risk position is in equities (Chart 2). The P&L are paper returns, so are likely overstated compared to a real invested portfolio.

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.)