Tag Archives: neil azous

Global Macro Strategy

Rareview’s Macro-Strategist: 3-Day Trickle Down Rule in Play; Pros Reduce Risk Exposure

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Below is the lead-in to this morning’s edition of Rareview Macro’s “Sight Beyond Sight”; the ‘read more’ link below provides additional extracts that caught the eye of more than a few folks who follow macro-strategy themes..

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

Three Day Trickle Down Rule in Play…This is Not Same as Late March Correction

• Conundrum Across Asset Classes Leads to Risk Reduction
• Extra Focus on Front End of Interest Rate Curve and the Left Coast Investor
• Underbelly of Professionals Too Weak…Skepticism Suggest Weakness is Bought

Overnight

We apologies in advance for the deviation away from our normal humility level but sometimes frustration get the better of us.

The definition of the word Conundrum is: a confusing and difficult problem or question. While just a handful of examples, and because no one has a good explanation, these conundrums are leading professionals to reduce exposure levels for a third day in a row.

Brent Crude Oil is now down for eight straight days (during which it has lost ~5%) and it’s traded down in 12 out of the last 14 days. It is a similar trend in WTI Crude Oil which is down 10 out of the last 12 days. However, contrary to what one would expect Airline stocks are significantly lower in price and the correlation between Gold-to-Oil has not swung back to being negative. In fact, Gold is showing the largest risk-adjusted return and WTI Crude Oil is showing the largest negative risk-adjusted return in Commodities and the rejection so far of the profile (i.e. Gold dropped -10% over 45-days) that followed the peak in the Ukraine-Russia conflict has Gold bears nervous, including us who remain short it via a longer dated option structure.

The darling of Emerging Markets, India SENSEX is -2.5% over the last two days but the Dollar-Rupee (USD/INR) is lower by 41 basis points (i.e. weaker USD and stronger INR). Historically, in bouts of risk reduction both SENSEX and Rupee would weaken in tandem. Continue reading →

ETF News, Global Macro Strategy

Black Gold v. Yellow Metal: Macro-Strategy Perspective

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As if it were a segment in “Orange is the New Black,” the price correlation between Crude Oil (aka Black Gold) and the Yellow Metal continues to swing like a chandelier in a windy mansion. Below extract courtesy of Neil Azous, from today’s a.m. edition of Rareview Macro’s Sight Beyond Sight summarizes the current correlation in a crisp way…

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

There are two assets being watched closely right now – Brent Crude Oil and the Euro Exchange Rate.

Firstly, Brent Crude Oil is showing the largest negative risk-adjusted return in Commodities. This morning, the “barrel” has broken through yesterday’s low and overall has now retraced over 50% of the Iraq/ISIS move higher seen in June. Below is a regression analysis between Brent Crude Oil and Gold for three time periods related to Iraq/ISIS: Before, Height, and Current.

Gold was trading at its lower point on June 2nd and the correlation (i.e. red asterisk on chart) to Brent Crude Oil was negative. On June 19th, the correlation was the most positive when Brent Crude Oil was at its highest level. Today, the correlation is on the cusp of swinging back to negative territory. We highlight this because the same pattern has been seen before, with the height on March 14th and after the Ukraine-Russia crisis. And what happened next? Gold dropped by -10% over the next 45 days.

By the way, it was reported that assets in the SPDR Gold Trust (symbol: GLD) rose +1.4% to 796.39 metric tons in the two sessions through yesterday. To put that in context, that is the largest two-day gain since November 2011 and it is just one example of the new found retail length in Gold. The other was in CFTC futures positioning which professionals use to gain exposure. Continue reading →

Global Macro Strategy

Macro-Strategist Says: Funeral Services for Volatility Premature; Second Half Different than First

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Below excerpt courtesy of this a.m.’s edition of Rareview Macro’s “Sight Beyond Sight” macro-strategy newsletter.

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

“….We start the second half of 2014 well aware that over the last few years the second half of the year has had little resemblance to the first. Over the last three years, for example, we saw major changes from the first half to the second.

• 2013: Taper/no taper whipsaw in US Treasuries and Emerging Market Foreign Exchange
• 2012: Draghi “Do Whatever it Takes” and Japanese PM Abe’s Three Arrows
• 2011: EU debt crisis and US ratings downgrade

Therefore, we remain very open to the argument that something no one is thinking about could surprise the markets. We don’t know what that might be, and we not sure anyone else does either. By definition, it will be something way off the radar right now.

Someone asked us yesterday what our best fundamental reason is for continued US equity strength and low volatility.

Our answer is that conventional wisdom argues that the market is six months forward-looking. Six months from today is the first day of 2015. The consensus S&P 500 operating EPS for 2014 is $119 and with the last price ~1960 the P/E is ~16.5x. The EPS consensus for 2015 is $133. If the conventional wisdom is correct, in that the market is a discounting mechanism six months in advance, that means the P/E just dropped below 15 (i.e. SPX last price 1960 / 2015 EPS 133 = 14.7x) starting today. This does not take into consideration that consensus expectations are too high for next year or that this year could still be revised lower. Even so, the key point is that the argument that the market is overvalued just became weaker.

This is important to recognize as volatility is first and foremost driven by earnings. So unless there is meaningful deterioration at the corporate operating performance level, volatility can stay suppressed as investors remain very conditioned to geopolitical or exogenous shocks, and they don’t have much impact on the market. Continue reading →

Global Macro Strategy

Fretting About The Fed’s Plan to Impose Exit Fees On Bond Funds

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MarketsMuse Editor Note: Below excerpt from this a.m.’s edition of macro-strategy newsletter Sight Beyond Sight..

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

While commentators largely ignored the Financial Times article released yesterday it garnered a fair amount of attention by investors in our circle. The article stated that “Federal Reserve officials have discussed imposing exit fees on bond funds to avert a potential run by investors, underlining regulators’ concern about the vulnerability of the $10tn corporate bond market.”

Here is one interpretation on why this trial balloon was sent out. Please forgive our attempt at satire; we mean to inform, and hopefully amuse, not insult.

Rick at Blackrock:  Hi Lloyd. Our “Yellen Index” is flashing imminent Fed tightening. We can’t tell you the inputs but this is our internally used proprietary index and is made up of the economic statistics she most favors and right now it is saying the Fed should already be tightening.” (FT Article)

Lloyd at GS:  So what does that mean to me Rick? We are an M&A and asset management shop now.

Rick at Blackrock:  Whatever helps you sleep at night, Lloyd. I need a bid on a 16 billion corporate bond portfolio ASAP.

Lloyd at GS:  We are not in that business anymore due to new capital requirements, balance sheet constraints and regulation.

Rick at Blackrock:  Lloyd, we go back a long-time and we pay your firm nine figures per year. I need a bid now.

Lloyd at GS:  What do you think this is Rick? The 2004 interest cycle? Send over a list and we will work it on an agency basis.

Rick at Blackrock:  Screw you Lloyd. I am calling my friends at Bank of America.

One hour later and a repeat of the same call… Continue reading →

Global Macro Strategy

Risk OFF : A Macro Strategy Rare View From Rareview Macro

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Below extract courtesy of Neil Azous, founder of Rareview Macro LLC and publisher of Sight Beyond Sight, the macro-strategy newsletter.

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

Professionals Actually Sensitive to Weaker Risk Assets Over The Next Few Days

• Model Portfolio Trade: Short NASDAQ
• Partial Switch ofFunding Leg of Carry Trade Impacting Risk Assets
• China MSCI A-share inclusion update, CNY Observation, & Data Surprise
• Our Core Position – Short EUR/NOK – Gets Added Boost from Paid Forecaster
• Gold & Real Rates
• Eric Cantor

Model Portfolio

The model portfolio sold short 132 (~10mm) NASDAQ futures (symbol: NQM4) at 3788.25. This is the first time in a long while that we have added directional downside exposure. We are open to adding to this position but would also not hesitate to remove it quickly if it turns out to be wrong. Continue reading →

Global Macro Strategy

Trading Professionals Disgusted By Today’s Data: A Rareview Macro Musing

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Below extract from this a.m. edition of Rareview Macro’s Sight Beyond Sight…

“….The key objective we laid out at the end of April has, we are pleased to say, now materialized – don’t sell in May and go away,  as the S&P 500 will trade higher to a range of 1920-1950. What is needed now for our forecasts to be fulfilled completely is a trend change in the US Dollar and greater evidence that the CAPEX profile will accelerate.

On the margin this morning’s US employment data did two things:

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

1. It mitigated some degree of the concern at the Federal Reserve about the slack in the labor market.

2. It strengthened the intermediate-term argument that a trend change in the Euro-Dollar (EUR/USD) is underway following the actions announced by Mario Draghi at the European Central Bank (ECB) yesterday.
Many with a short-term mindset are focused on price levels or technicals that force people to adjust risk. The Euro exchange rate above 1.37 or Gold above 1258, are two obvious examples.

What we would highlight is that neither today’s data nor yesterday’s actions by the ECB portend to a correction in risk assets. This is primarily because both events do not strengthen the bear argument that the weak data in the first quarter has bled hard into the second quarter growth profile.

To access the entire newsletter, please visit Rareview Macro’s Sight Beyond Sight

ETF News, Global Macro Strategy

The Anger Indicator: A Rareview

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Below extract courtesy of this a.m.’s edition of Rareview Macro’s Sight Beyond Sight..(Re-published with permission from Neil Azous)

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

Here is an aggregation of the various statistics either sent to us from subscribers or we came across during our readings this weekend.

1.  Japan Government Pension Fund (GPIG):  Apple (AAPL), Exxon and Microsoft have the heaviest weighting in the MSCI Kokusai Index; ~87% of GPIF’s foreign stock holdings follow this benchmark. (Source:  Eurofaultlines)

2.  As far as we can tell the degree of these inflows have not yet been widely observed by other paid forecasters on the Street. EM Portfolio Inflows Reach New High In May: Our EM portfolio flows tracker indicates that portfolio inflows to emerging economies continued their upward trend of the last several months, reaching the highest level since September 2012, when the Fed launched QE3 (Chart 1). In May, EMs are estimated to have received $45 billion in portfolio inflows from global investors, up from $28 billion in April and $27 billion in March. The May figure reflects $28 billion going into EM bond markets (portfolio debt flows,Chart 2) and $17 billion into EM stock markets (portfolio equity flows, Chart 3). (Source: Institute of International Finance) Report

3.  This week the S&P 500 will surpass the 1995-96 record for number of consecutive days in which the index has traded above its 200-day moving average.

4.  SPY closed above its upper Bollinger 5 days in a row through Friday. SPY has only closed above its upper Bollinger 4 days in a row 4 times since 2009. (Source: Fat Pitch)

5.  Relative Strength Indicators (RSI)

a.  The S&P 500 (SPY) 9-day RSI is over 70 = Overbought

b.  The NASDAQ (NDX) 9-day RSI is 74 and AAPL’s is 80 = Overbought

c.  The Transports (IYT) 9-day RSI is over 77 = Overbought

d.  The Semiconductors SOX) 9-day RSI is over 70 = Overbought

6.  Since 1950, the DJIA has lost -1.9% and SPX -2.1% in June. The last 20 years have been even weaker. Moreover, the SPX has been down in 11 of the last 16 mid-term elections Junes (Source: Stock Traders Almanac).

7.  The VIX has closed below 12 for five straight days, the longest streak at that level since 2007 (Source:  Volatility Trader) Continue reading →

Global Macro Strategy

Soothsayers Soliloquy “Sell In May…” Is Just Plain Silly in ZIRP Environment

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Excerpt below courtesy of  this a.m.’s Sight Beyond Sight notes to newsletter subscribers. Today’s edition from Rareview Macro LLC also includes the following talking point: “The True Pain Trade is Not SPX 1920-1950 but Beyond 1950”

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

Sell in May and Go Away?

Historically, we despise the advice to “sell in May and go away”. The main reason is that very few of the people who make that argument do not actually factor the following considerations into their analysis:

What index are they selling? There is a big difference between the Dow Jones and S&P 500, especially when you take into consideration the index rebalances over time.

When does the period actually begin and end? By that we mean there is a big difference between selling on May 1st and May 15th.

What happens if you just remove September from the equation? September is usually the weakest month of the year and the month that has the biggest impact on a risk-adjusted return basis, so if you take that out it makes a big difference.

What are the external factors? By that we mean was the market up or down going into May 1st. Or was the budget in deficit or surplus or are investor cash balances high or low? These factors all matter as well.

What are the real world implications? The analysis never takes into consideration taxes, transaction costs, where an investor would re-deploy the capital or what would happen if an investors circumstances change and they cannot buy back into the market in November.

All that said, we felt compelled this year to chime in with a couple of thoughts that we have not seen made in the market this time around, perhaps because most of the analysis has just focused on the period following the global financial crisis. Continue reading →

ETF News, Global Macro Strategy

Macro Muse: Expert Says: Short USTs, Yields Poised to Rise

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Courtesy of one of our reader’s sighting this a.m.’s comments from Rareview Macro LLC’s “Sight Beyond Sight”, we’re compelled to cite the original source:

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

“…For the first time in months the setup is compelling enough for us to short US Fixed Income.

Earlier this morning the model portfolio sold short enough 30-year bond futures (symbol: USM4) at 135-28 to risk $50,000 USD per basis point. The reference point or last yield on the 30-year cash bond is ~3.40%. The first target in cash yield terms is 3.48% and the second is 3.52%. A stop at 3.36% (closing basis) has been placed. This is a short-term tactical trade with a risk-reward profile of three to one (3:1)…”

For those who embrace the above outlook, our insightful reader who pointed out the above sighting caveats: You can increase your chances by using a non-leveraged short ETF like TBF or simply shorting the long ETF. Beware: shorting bonds ETFs will result in you having the pay the dividends, which can be substantial.

Below includes a snapshot of (3) inverse-bond ETFs that could be considered by those seeking to hedge against or exploit a pending spike in UST yields. *

Note: MarketsMuse DOES NOT OFFER OR RECOMMEND TRADE IDEAS, NOR DO WE ENDORSE ANY SPECIFIC ETF PRODUCT Continue reading →

Global Macro Strategy

“Sell in May and Go Away” ? Macro-Strategist Says “Maybe Not This Year..”

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On April 24, Rareview Macro’s Neil Azous had this to say about the notion of “Sell in May and Go Away..” Since that appearance Rareview’s newsletter, “Sight Beyond Sight” has provided further insight to aforementioned “long held wisdom.”
[gigya src=”http://plus.cnbc.com/rssvideosearch/action/player/id/3000269877/code/cnbcplayershare” ]

ETF News, Global Macro Strategy

Don’t Sell in May and Go Away…

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rareview sbs logo   Excerpts from this a.m. edition of Rareview Macro “Sight Beyond   Sight” could be comforting to those who “don’t want to sell in May and go away”

* tickers referenced in the a.m. note include :

• The Argument for S&P 500 to march to 1950 and beyond … the risks of a “deflationary shock” have also begun to be priced back out of the market. Clearly there have been many “false starts” on this theme in the past, and this could just be another one. But the difference this time is that the conditions are now in place for stabilization in the rate of inflation.
• a lot of professionals de-risked and the assets that were sold-off will need to be re-redeployed elsewhere. The key point is that the S&P 500 will have a difficult time falling beyond what already occurred in April without those assets being first reinvested.

Neil Azous, Rareview Macro LLC

• Thematically, we are very sympathetic to the view that a fundamental shift in the market will occur over the next 6-18 months: business-to-business (B2B) will benefit more than business-to-consumers (B2C).
• As a result of this migration into capital expenditures, the top down investment views expressed around housing and corporate share repurchases will be paired back as investors cannot hold all of these macro themes at once. To be clear, this is not a call that buybacks will slow down materially or that the stocks that have benefited the most from this capital redeployment will start to fall. It is a call that buyback strategies will underperform the capex theme even though both could rise at the same time

• the traditional “sell in May and go away” rule will not hold true coming back from the holiday break this year.
• We believe that alongside a basket of long “capex plays”, i.e. US energy and the US Dollar, there is also room for a short Gold position
• We initiated a starter short position in Gold last night

To read the entire morning missive, you’ll need to get your subscription to Sight Beyond Sight…10-day free trial with no credit card required can be secured via www.sightbeyondsight.com

ETF News, Global Macro Strategy

Macro-Strategist Rareview: Pause in Mean Reversion

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rareview sbs logo Below excerpt courtesy of this a.m. edition of Rareview Macro’s “Sight Beyond Sight”
“..The call today by the professional community for a retracement of the recent weakness in Equities is very loud…

This viewpoint disregards the fact that S&P 500 futures are already 2.5% higher than Monday’s intra-day low. The key point being is that with the last price in index futures at ~1848 the market is right back at the 50% retracement of the April high (~1892) and low (~1803).

Neil Azous, Rareview Macro LLC

In our view this thought process misses the point. The real takeaway is that after weeks of instability many are finally resigned to a pause in the mean reversion of last year’s strategies. This also includes a contraction in the very high intra-day volatility. Meaning, the peak-to-trough index ranges should narrow into option expiration.

While we do not fully agree with the shift in sentiment we are mindful that the price action argues in favor of a retracement in certain strategies and we will adjust some positioning in the model portfolio to be prudent..

Firstly, the model portfolio pre-market closed out the entire short Small Cap (IWM) and long Large Cap (SPY) relative value strategy. We covered the IWM short for 112.22 and sold the SPY long at 185.36. While we still believe this is a great intermediate-term theme the fact is that we never thought we would be able to generate more than 5% of outperformance this quickly relative to when we deployed the strategy on March 19th. We will look to re-initiate this position in the near future if it were to retrace 3-4%.

Continue reading →

Global Macro Strategy

Unemployment Data and The Goat Rodeo: Sight Beyond Sight

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For macro-strategy mindsets, the below excerpt from this morning’s note courtesy of Sight Beyond Sight author Neil Azous provides a compelling read…

Neil Azous, Rareview Macro LLC

“…Sunday, April 6th is a “Bradley Turn Date”. The Bradley siderograph – a device to predict the stock market developed in the 1940s – does not reliably predict the direction of asset prices but it does identify turning points in the financial markets (stocks, bonds, bonds, commodities) within a time window of +/- 4 calendar days.

While we don’t normally subscribe to cycle theories or astrology or any other kind of mumbo-jumbo, we will pay attention to anything that supports higher equity volatility and US Dollar strength.

Again, we have no edge or strong view on the chances of an outsized employment number today. However, our conviction is high that a very larger number will turn into a “Goat Rodeo” for asset prices. A Goat Rodeo, for those not familiar with the term, or who have never seen one, is a chaotic situation usually involving several different players, each with a different agenda/vision/perception of what’s going on. It is usually very difficult, no matter how hard you try, to instill any sense or order and 100 things need to go right. The goats just won’t follow orders.

A lot of noise is being made about performance in the professional community. The speculation is that the mean reversions of last year’s winning strategies – Small vs. Large Caps, Growth vs. Value, EM vs. DM, EU vs. US Equities, Beta/Momentum vs. defensive – was a five standard deviation event that led to the largest monthly drawdown in March in long/short equity performance since 2008 for many top-tier funds.

While many would disagree with our view, we would argue that many also do not know how these funds actually operate. The reality is that “piggy-back capital” is very much in vogue in the hedge fund community. While those who borrow the work of true investors (i.e. weak handed longs) may have sold shares, the key funds that are being highlighted currently as losers have likely sold very little. The reasons for this are that a significant portion of their fund consists of partner money and they have seen this movie many times over their storied careers. They care less about their investor base at this stage of their careers, partly because they already have a large asset base, but most importantly, because nothing has changed in their fundamental views around the names that they hold. In fact, many of these companies are severe price pressure are likely to beat earnings in the upcoming season. The point is that until their fundamental thesis changes, they have made a living for decades managing 10-20% drawdowns at the single security or index level and they are not fazed by what is happening in the markets right now. What does this mean?….” 

For the entire commentary and to follow the daily analysis from Rareview Macro’s Sight Beyond Sight, please click here (subscription required, but free trial is available)

Global Macro Strategy

April Not For Fools: A Macro View

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Below excerpt courtesy of Sight Beyond Sight a.m. notes from macro strategy expert Neil Azous.

Neil Azous, Principal /Rareview Macro
Neil Azous, Principal  Rareview Macro LLC

 

“…Just because today is the start of a new quarter for investors that does mean anyone should expect a pause or a reversal in the themes that ended the last quarter. If anything, the reset argues that real money has a new green light to continue. The key risk is that stronger US data this week actually accelerates the rebalancing.

Yesterday, we highlighted that after being down 7 of the last 9 days and having a 9-day RSI of ~22 the stock Amazon (Symbol: AMZN) needed to hold its 200-day moving average. None of that happened. AMZN closed lower again, broke the 200-DMAVG and now has an RSI of 21.

Today, the MSCI Emerging Markets (EM) Index Futures (Symbol: MESM4) are +92 bps, the EURO STOXX 50 Index (Symbol: SX5E) is +65 bps and the S&P 500 futures (Symbol: ESM4) are +24 bps. The key point here is that the Emerging Markets will likely start the quarter outperforming the Developed Markets, and Europe, both in US Dollar and local currency terms, will likely outperform the US.

Again, these are only three highlights from the many themes of last year that are now reverting and like yesterday, where Small Cap under-performance paused today, we could easily see another one-off theme pause. For example, China Internet (Tencent +4.5% last night) could be a read through for US technology to bounce. But the main point is that on aggregate the start of the second quarter should carry on from where the first quarter ended….”

Sight Beyond Sight is a subscription-based, daily macro-strategy viewpoint authored by Neil Azous and published by Rareview Macro LLC.  Subscribers include a unique assortment of leading hedge funds and Tier 1 investment managers. For additional information, please visit www.rareviewmacro.com

Global Macro Strategy

Top Macro-Strategist Says “Now Negative on Index Levels; Bullish on USD..”

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MarketsMuse Editor Note: Below comments from this a.m.’s edition of “Sight Beyond Sight” were among several that jumped off the page..

Neil Azous, Rareview Macro LLC

“..Conversely, Technology has moved to the “Weakening” from “Leading” quadrant and Healthcare is now exhibiting the same early stage relative weakness as Technology. The takeaway is that there is a clear rotation into defensive strategies and for the first time in a very long while the leadership (Healthcare/Technology) is the source of funds. Thematically, 2014 has been “a market of stocks instead of a stock market….So the question that needs to be asked is whether a sector rotation has the ability to finally break the SP500 index level range….”
“..We are becoming increasingly negative about the US index levels for the first time in a long while…and we believe that the USD will begin to appreciate..”

Produced by macro strategy think tank Rareview Macro LLC and authored by Neil Azous, Sight Beyond Sight is a daily newsletter that has become a “must read” for leading fund managers and sophisticated investors..Free 2-week trial (without need for providing credit card info!) is a brilliant way to become introduced to the firm’s insight and content. The archive section for the publication is available via this link to the SBS website.

Global Macro Strategy

Macro-Strategy Synopsis: China is the Story, Not Crimea

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MarketsMuse Editor Note: For those with a “macro mindset”, i.e. investment strategy with focus on global economic events and related opportunistic and/or risk reduction themes, a.m. note from Rareview Macro’s Neil Azous in the “Sight Beyond Sight” note  struck a chord, if only because Azous seems to be continuously ahead of the curve when it comes to focusing on what only becomes clear to others after the opportunity becomes a fait accompli.

“…We begin today asking two hard questions.

1.  How real is the China stimulus conversation and does the Street need to temper its short-term views on local Equities?

 

2.  Will Crude Oil and Gold begin to challenge the Commodity length?

 

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

What this means is that no one was prepared to start 2014 with a much weaker profile in China relative to outsized gains in Commodities.

 

So the question now becomes: What if that profile started to reverse now and have the signals of that in the market already been sent?…”…

Another critical insight: Continue reading →

Global Macro Strategy

Turkey Under Attack; Brazil and Mexico Targeted Next?

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Courtesy of this a.m.’s edition of Neil Azous and Rareview Macro’s “Sight Beyond Sight”:

“Despite bold central bank decisions over the last 48 hours, the real narrative is not what most investors walking into their offices today believe it is.

After opening up over 2%, the Turkish stock market gradually moved into negative territory, while the Turkish Lira (USD/TRY) has reversed almost the entire move lower observed following the greater than expected interest rate hike.

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

This is very important to recognize and highlights that there is a full blown attack now underway on the Turkish Lira.

Speculators will not be deterred by a 12% interest rate, especially as history is littered with these kinds of opportunistic events and the monthly cost of funding a short position is marginal relative to the risk-reward of making a profit of multiple percentage points in a day. Here is the next issue and what you need to know. Before dismissing this thought process you should note that this will be repeated at the upcoming Brazil and Mexico central bank meetings, despite completely different monetary policy profiles. This is a classic sign of how indiscriminate emerging markets are at the moment. ”

 

For more, please visit RareView Macro