Here is the playbook for the week ahead
While we still have
clear this weekend’s China PMI data, and the South Carolina primary, the central
focus next week will remain on the spread of the Coronavirus above all else as
it has gripped the financial markets. We do also navigate through Super
Tuesday, where a third of delegates will be up for grabs from the various
Democrat nominee runners. I don’t touch on this in the video, as we will be putting
a greater focus on this in a separate video on the US election and the process
going forward here.
I focus in greater
depth on implied volatility, as it has become incredibly high here, with some
punchy moves implied through options prices. So, whether I am looking at vols,
or my internal equity euphoria/pessimism equity model, we are now at extremes.
Is it time to buy risk for slight mean reversion in price? It’s certainly
looking compelling, albeit incredibly brave.
I touch on rates
pricing and as we can see from the chart below, expectations have become
incredibly rich and there will be some huge opportunity when we get a
disconnect between central bank views and a market with a high conviction that
lower rates are coming. Consider we saw an interview in the FT with Christine
Lagarde and she basically spelt out that a rate cut is not imminent.
The chart that has
garnered so much attention today is that of the S&P 500, with price
smashing through trend support and the 200-day MA. Strange things happen below
the 200-day MA, but how long is can stay below here is now key. But we’re
insanely oversold and unloved levels, but timing the move is the clear issue, and
on current news flow the question is how high and reversion goes before you
take profit and flip to shorts again.
(Daily of the
One to watch, but
with vols sky high and equity and credit getting taken to the woodshed, carry
structures in FX have been chopped up and it has hurt those who haven’t
reacted. A big week ahead though, with some key event risks to navigate your
portfolios through, the week ahead video is designed to offer some light