U.S. dollar

The Biggest Event Risks In June

The Biggest Event Risks In June

Today being the first day of June, and the start of the last month of the first half of 2016, we thought it would be aptly appropriate to list down some of the biggest event risks that June will bring. These are the known unknowns — uncertainties which we already know about but not their outcomes.

The biggest risks in June (in our opinion) will be the EU referendum by the UK in the later part of the month, the June ECB monetary policy decision and press conference, the June FOMC statement and interest rate decision, and lastly the BoJ's monetary policy decision.

We feel markets will likely be most sensitive to these types of events, having chopped around for almost half a year now. There is great anticipation for guidance on where to go next, and we feel markets will likely take cues from central banks, chiefly the Fed.

Deutsche Bank: "We See No Further Upside For European Equities..."

Deutsche Bank: "We See No Further Upside For European Equities..."

It seems like more and more of the big names are turning bearish on risk. Day after day of directionless trading, huge intraday swings in the equity markets, and a very confusing macro backdrop has bred a lot of frustration amongst investors and traders, ourselves included.

We ardently advocate staying on the sidelines because we just don't know what is going to ensue. Yes, we have our own biases (with whatever we discussed about here, here, and here) but these biases aren't going to be beneficial in anyway unless the markets start trending again, which at this point is highly unlikely.

The number one principal for both small and big players would then be to preserve capital and ride out the volatility.We prefer to stay very lowly exposed or not exposed at all.

Goldman Says Overweight Cash On Mounting Global Risks

Goldman Says Overweight Cash On Mounting Global Risks

More and more are jumping on the "sell in May and go away" bandwagon but for good reason. As U.S. stocks base around in short term trading awaiting more cues about a potential June rate hike from the April FOMC minutes to be released later today, the big players have their eye on the bigger picture.

This is something we've talked about on these pages, and something we buy, on the caveat that technical factors turn conducive. The month of May has historically heralded volatility in the financial markets.

The key takeaways from Goldman are: Overweight cash, avoid equities, look to profit from up in quality carry, and perhaps buy some volatility.

Expect Nasty Volatility & Shocks This Summer

Expect Nasty Volatility & Shocks This Summer

With the stock market heading no where for the last 4 months of this year, it is high time we took a step back and view things from a systematic angle. As we approach the "sell in May and go away" phase of the year, equity returns are looking more vunulrable to adverse shocks, and flares in volatility.

YTD, the S&P 500 is almost unchanged, down marginally. Bonds (quality) and commodities (short USD) have been the best performers for the last 4 months. Vol of vol (VVIX) has remained elevated but is not yet deemed to be at alarming levels. What's in store for us may be a surprise. Or actually maybe not.

When we piece this puzzle back in a way BofAML calls the "3P's of Positioning, Policy & Profits", we can come to the conclusion that the risks are skewed south, and things could turn uglier very promptly. Therefore, it may be wise to expect very moderate returns from equities. One may wish to overweight cash, bonds, and gold while avoiding equities and non-IG corporate credit.

What The Smartest Minds Think Of The Current Rout

What The Smartest Minds Think Of The Current Rout

2016 is shaping up to be like the latter half of 2015 but with a lot of additional dynamic forces warping and twisting the financial markets. Higher than average volatility has been the common theme so far but we're also noticing an incredible rapid shift in cross asset correlations. All this means that the current market environment is extremely rough, giving traders (ourselves included) a hell of a hard time.

It is no surprise that this is indeed the case. Policy uncertainty amongst central banks, oil prices that are stick in a moribund rut, very idiosyncratic technical flows that have caused traditionally lower beta assets to trade like mad donkeys, and of course the deep polarization of sentiment across the board.

It is on this note that we turn to JP Morgan's quantitative desk for answers, albeit nebulous. The desk analyzes markets in a less traditional manner, approaching this landscape with mathematical and technical tools most retail traders have zero access to.

Bill Gross: Worry About "Return Of Capital" Instead Of "Return On Capital"

Bill Gross: Worry About "Return Of Capital" Instead Of "Return On Capital"

In this month's investment outlook, Janus Capital's Bill Gross warns about the mounting stresses in the global financial markets and why you should be much more concerned about the return of your capital, than the return on your capital.

Clearly for the bond king, size does matter. The size of recent market movements, during a time when most central banks in major developed markets have stopped their balance sheet expansion programs, is telling us participants that all is not well and that there may be something lurking behind the shadows.

Gross talks about how nearly 8 years of zero bound interest rates and QE have led to a global economy that is now so out of whack it would take a shock, in the form of secularly higher interest rates and borrowing costs, to fix. But therein lies the rub. Markets get absolutely spooked on any mention of a rate hike or a cut back in existing expansionary monetary policies (ECB, BoJ, PBoC, ect...).

 

Grexit, U.S. & Canada Contraction

Grexit, U.S. & Canada Contraction

Greece is now back in recession while a €1.5bn IMF payment looms just 2 days away. Greece, now led ever deeper astray by a stubbornly defiant Government, is undeniably the champions when it comes to perpetually kicking the can down the road.

Tuesday's data showed that inflation in the currency union warmed to 0.3% YoY from 0.2% in April - yet another sign that Greece is being left far in the wake of a ship that has long set sail.

The toil of staying in the Eurozone, being in a constant and never ending tug of war, and having to cede to the demands of its creditors whom will ultimately have their way just adds fodder to the chimeric spirit of a once independent and free Greece.

All these indicates to us that the risk of a Grexit (Greek Exit) has never been greater, although it might not seem so on the surface.The impetus to leave the Euro and write off just about all of its external liabilities looks to be the path of least resistance to us. The upside risks of a Grexit is undervalued and which probabilities are overly discounted.