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RISK-ON RISK-OFF POSITIVE CORRELATION? SPX VS GOLD, JPY & UST P1The Paradoxical Risk-on/ Risk-off Asset positive correlation: 1. Risk off assets have outperformed to date, with Gold leading the gains at 28%, JPY following at 18% and US 10y treasuries Trading 16% up in 2016 - average at 20.5%. 2. Meanwhile, SPX trades 5% up since 4.1.2016 but more importantly, since 20th January lows SPX is up 15%. 3. this is significantly paradoxical, as fundamentally, Risk-on assets shouldnt trade well when safe havens do and the reverse can be said about Risk-off bull markets - Equities shouldn't trade higher. - the reason this positive correlation of both risk and safe haven assets rallying at the same is problematic is that in the long-run it is not sustainable - one MUST adjust to the downside as markets in the short-run trade as a zero sum game, liquidity is inelastic and non-infinite i.e. they cannot both keep gaining capital as there is a limit when all available liquidity is allocated. Consequently, at this point investors then have to forgo investing in one asset, if they want to speculate on another, as they dont have any new cash to invest - this is why we normally see safe havens and risk assets trade negatively correlated and price action is "seesaw" like most of the time as investors take money out of risk, for example, so they can allocate it to risk-off, as perceptions and market environment changes. Cause of the paradox: 1. An Unusual even split in investor risk sentiment e.g. in the immediate term, some believe the environment is stable enough to offer risk higher (CB easing/ support driven views), whilst others believe global risks are heightened enough to offer safe havens higher (Brexit, US election, China). Hence we see both SPX and Risk-off grow. Normally, the markets trade like herds e.g. behaviours skew to risk on or off, grouping with a strong bias to one side at the same time. This more "evenly distributed" sentiment we are experiencing rarely materialises as usually there is consensus on market risk e.g. all investors rationally agree that "now" is a highly uncertain time or the other way, given the same information is available. 2. Most likely imo , however, is that there is a short-term imbalance/ artificial risk inflation, where risk assets yet again are buoyed by central bank impetus. Following the brexit result a cascade of global CB dovishness/ support was injected into the markets providing the perfect artificial rise in equities - whilst the underlying market sentiment continues to follow the 2016 risk-off trend (as is shown by the 2016 outperformance of off (+21%) vs on (+5%), CBs have provided sufficient support to mask the risk-off bias - however it is unlikely to continue for long.
TVC:SPXShort
by QuantumLogicTrading
2
RISK ON/ OFF PARADOX CORRECTION - SHORT SPX/ FTSE & USDJPY P2 Post Brexit SPX vs USDJPY 1. One had expected risk to sell off post brexit as global uncertainty increases, given the amount of volatility in the FX markets in the lead up, this was the rational expectation (whilst VIX traded subdued). However, instead, SPX recovered 6% whilst Yen also rallied 7% higher in the days following the vote. 2. This risk-on risk-off positive correlation rally is almost unseen in markets (especially not at the 75% correlation level) as JPY and SPX positively correlate for the first time in 4 years (as below). 3. As discussed previously this is either 1) because markets are unusually evenly split on sentiment, going against herd behaviour with the marco outlook trading as a non-consensus between participants; 2) CBs have given risk an artificial boost based on supportive statements/ measures. Trade the paradox 1. Short FTSE100 @6600-6800 resistance with a 5700TP (January lows) - once artificial BOE easing rally is finished, likely near 66-800 FTSE will plummet in the medium term as 1) This underlying risk-off bias which has gone un-priced as yet (safe havens up 21% in 2016) prices - not to mention reaching near ATHs, with 10y resistance.; 2) brexit (still not priced in equities)/ Political uncertainty drags on economy and stocks - especially financials, which has a knock-on effect of corp credit tightening; 3) this structural CNH deval prices and hits UK export stocks as it did in Jan 2. Short SPX @2100 with a 1985TP - SPX at these levels looks an attractive short 1) as discussed CNH depreciation which is a macro issue for all stock Exporters to China (biggest market/ growth market) hasnt priced any revenue downside yet like they did in January (-8-13% previously). 2) underlying risk-off bias is still yet to reprice risk lower (2016 safe havens up 21% av. Gold 28%) + only 2% away from ATH - favourable short lvls; 3) Earnings sell-off likely around the corner as investors derisk/ hedge against "shocks"; 4) Brexit induced CB easing/ dovish rally likely to fade soon as it isnt structural growth and FOMC rates are recovering in the back-end (Dec Hike looms). SPX has a more conservative target vs FTSE as less brexit downside & its a structurally stronger index with growth stocks 3. Id also suggest dynamically hedging these positions with 1) Long high growth and low China revenue individual stocks e.g. Goog, FB and/ or 2) shorting GBP index or a GBP cross , lower GBP hedges any potential BOE easing rallies that the FTSE short may negative experience, and also short GBP is a solid trade to have regardless of any FTSE risk you have on the table. *See part 1 for more information "RISK-ON RISK-OFF POSITIVE CORRELATION? SPX VS GOLD, JPY & UST P1"
TVC:SPXShort
by QuantumLogicTrading
There's No Exit in #BrexitWith the Brexit referendum vote on Thursday (6/23), markets are still volatile and uncertain with whether or not British voters will decide on leaving the European Union. As the Brexit polls began indicating that the "leave" vote began leading into this week on gaining momentum, the perplexed media were at odds on how to exactly explain the "phenomena." First, one must realize that the "leave" component is similar to many political coups that have happened across the global in recent years: those feeling the most economically and politically disenfranchised. Over 50 percent of the "leave" vote, currently polling, are poorer Brits who are less educated and work middle-class working jobs. Conversely, the "remain" vote is primarily those well-off in society and have higher levels of education. It comes down to voting on pure establishment politics. (We are witnessing the very same thing in the U.S. Presidential Campaign with Donald Trump supporters). There's no exit in Brexit . The political elite simply will not allow ties to the European Union to be severed. The OECD, Int'l Monetary Fund, World Bank, as well as standing British politicians, embarked on fear-mongering tactics and courted disastrous results to a Brexit vote. Even President Obama hit peak audacity to pen an op-ed telling what the Brits should do. (After all, the political scaffolding depends on it). No serious analyst would stay there are not intermediate negatives to cutting away from the European Union. However, it would allow Britain to develop economical policies and trade agreements that are in the nation's self-interest and not European bureaucrats. Switzerland, for example, trades directly with the European Union but is not bogged down by member-state regulations. MacroView does not believe Britain will separate even if there was to be a Brexit vote. The vote will be recast or ignored, and there is clear evidence to support this. In 2005, both France and Netherlands voted against the Union Constitution and the vote was ignored. Ireland voted against the Nice Treaty, and the vote was recast. As early as last year, Greece voted against the Euro Bailout and that was ignored. What is most troubling is the risk of a Brexit vote, whether ignored or the seldom chance of acceptance. If ignored, it would only fuel political angst against the establishment. It could even spread across the pond. Check out Bloomberg's Brexit tracker , currently showing a small Brexit lead. For more information on MacroView's products, or general questions and comments, feel free to message us. Also, readers are encouraged to post their thoughts and charts! Follow MacroView CoFounders on TWTR1.45% @Lemieux_26 and @EconomicHedge
by MacroView_Research
FTSE outlookResistance – 6200, 6244, 6311 Support – 6119, 6050, 6000 FTSE’s rebound from 6119 (38.2% of Apr 2015 high-Feb 2016 low) if followed by a day end closing today above daily 200-SMA of 6149 would signal short-term bearish invalidation and open doors for a rise to 6208 (23.6% of Feb low-Apr high). On the lower side, rejection at daily 200-SMA followed by a break below 6050 (Thursday’s low) would signal continuation of retreat from April high and expose 5950 levels.
FX:UK100
by TipTVFinance