MarketsMuse Editorial Note: Below is extract from Oct 1 edition of macro-strategy commentary courtesy of Rareview Macro LLC’s daily publication “Sight Beyond Sight”..We often profile this content from macro strategy expert and author Neil Azous, simply because since we first started following SBS commentary, it has become one of those most highly-regarded independent research pieces subscribed to by more than a few of the “sharpest knives in the drawer.”
“….One simple way to measure the market impact of the growing pro-democracy protests in Hong Kong is to look at future assumptions for corporate dividend streams.
Specifically, we are watching the HSCEI Dividend Point Index Futures (symbol: DHCZ5) that trade on the Hong Kong Futures Exchange.
Because most of the “terminal outcome” is already in the price of the futures contract, based on the modeling of expected dividend payouts, the front-month futures contract should generally show the most acute reaction to a fast-developing live event. Put another way, the “gap risk” is much higher at the front versus the back of the futures curve.
Now, to be fair, this product is generally used by regional investors with $50-300 million in AUM as the futures are not liquid enough for the larger players. However, the fact that smaller is at times synonymous for “weaker hands” highlights that the local and small player is not yet really concerned by the protests. And what that tells us is that the possible contagion from these protests is actually lower than most people think, at least for today. Continue reading →
Below excerpt from July 25 edition of “Sight Beyond Sight” is courtesy of Rareview Macro LLC
Overnight Commentary Strongly Centered on US Dollar, China, and NASDAQ
China – Operation Fox Hunt
In the July 16th edition of Sight Beyond Sight we doubled the long US Dollar index exposure in the model portfolio and highlighted a number of catalysts for further US Dollar strength. As a reminder, the current position is long 500 U.S. Dollar Index Futures (Symbol: DXU4) for an average price of 80.4425 (original 80.28 on July 3rd + addition 80.605 on July 16th). We also hold a position of long Dollar/Swiss (USD/CHF) which helps better balance the European exposure in the basket. Collectively, if prices hold the long US Dollar position will generate about ~50 basis points of positive PnL this week.
We do not take victory laps in this newsletter as there are plenty of misses as well. We highlight this to emphasize that a long Dollar position can provide strategies that are lagging in performance with an opportunity to claw back. Additionally, this is an asset class that can absorb large inflows and no one is long in any material way currently.
Here are three most current US Dollar talking points – Structural, Technical and Data.
The consensus amongst paid forecasters with respect to the European structural backdrop continues to build. Morgan Stanley yesterday joined Nomura’s #1 ranked foreign exchange strategy team in holding this view. MS said “There were three main EUR-supportive flows that drove EUR/USD beyond what interest-rate differentials would suggest over the past two years: (1) foreign buying of peripheral bonds, (2) foreign buying of equities, and (3) official sector reserve diversification into EUR. We think all three flows are slowing and will continue to do so over coming months, leading EUR to trade more in line with macro fundamentals.” Continue reading →