Vol Markets: Hedge Fatigue Becomes Hedge Avoidance

Macro Risk Advisors have built a strong following on Wall Street as specialists in volatility as an asset class and more importantly the inherent risks contained within many of the structures that incorporate volatility products. They’ve just launched a new research product, Global Market Risk, where they share their views on the investment climate, identify potential risk catalysts and provide actionable trade ideas. In their first piece, they summarize their recent work around volatility, both its causes and impacts, and contemplate the current state of low option prices in the context of market reflexivity. They also detail the performance of their model cross asset, long volatility portfolio, sharing views on how they utilize it to source convexity and cover off certain specific risk scenarios. For example, the big gain in the portfolio has been their “Fed faster” short calendar spread in Eurodollar futures. MRA are happy to provide this report to interested potential clients. Click below.

Catalonia and Spain – Chronic to Acute

OM Research focuses on areas which are under-served and poorly represented in the sell side research space, yet are essential for a holistic and accurate understanding of present and future trends. They collate multiple various streams of newsflow analysis (the world in one page produced weekly), geopolitical analysis (thematic notes on issues of interest, plus higher-value geopolitical overlays), and a joined-up analysis which adds additional value to their modularised output – commodities (metals & mining), offshore, behavioural finance, technicals (both manual and systematic) and equities alpha capture. The note we provide you with here looks at the implications of Catalonia’s illegal referendum and the reaction by other EU governments. As politics gain more influence over markets, this piece breaks down central governments’ actions and how the chronic problems in the EU/Eurozone are likely to increase over time. This research can be purchased on Alpha Exchange or alternatively contact the provider directly.

The Real Driver of Commodity Prices; Beyond the Noise

The web site SR-SV is a quants haven, and a library for a ton of great academic work on quantitative analysis and its application to financial markets. It was created by Ralph Sueppel, a portfolio manager at Graham Capital. This post neatly summarises the salient points of a 35-year empirical study conducted by analysts at Banque de France which shows that about one third of the monthly changes in a broad commodity price index can be attributed to a single global factor that is related to the business cycle. Click below for the full post.

Handicapping the Provisions of a Final Tax Deal

The tax reform framework released the week before last will without doubt need to be modified, writes Daniel Clifton from Strategas. But where, and how? In this report Clifton handicaps his expectations of what the tax reform package will ultimately look like. He addresses the three big challenges the Republicans face on taxes: income distribution, the state and local tax deduction (SALT), and pass throughs. Clifton reckons the distribution of income story will drive press reporting on the tax package and could prove to be a real Achilles heel; House Republicans from NY, NJ, and CA could stop tax reform based on changes to SALT; and treatment of pass throughs will be important so that they are receiving some tax relief comparable to what corporations will receive. IF you’d like access to the full report click below to contact the provider directly.

Fed: Why Warsh is the Right Man for the Fed

Paul Brodsky from Macro Allocation is a veteran investor and macro strategist with a penchant for thought-provoking think pieces that make a refreshing change to standard sell side fodder. In this piece on the Fed, published the day before President Trump met with Kevin Warsh, Brodsky discusses how the role of the Fed is set to change in the future, and why Warsh is the right man for the job. He thinks the main job of the next Fed Chair will be to bridge the past and the future. He expects major current trends to continue and accelerate, notably declining global output growth and goods and service inflation, as well as rising aggregate fiat debt levels and global interest in non-fiat stores of value. Therefore the next Fed Chair will have to help coordinate the necessary transformation to a global monetary order that accommodates innovation and, quite possibly, broad debt re-characterization. For access to this piece, click below to contact provider directly.

UK: Onwards and Upwards

Lots of signals seem to be pointing upwards in the UK economy, according to Philip Rush from Heteronomics, a specialist UK macroeconomic research firm he founded in 2016. Rush was formally a fixed income strategist at Nomura. For instance, GDP seems to have troughed and is set to move higher, inflation has surged, the Bank of England has turned hawkish, and in terms of Brexit risk, recent transition proposals reduce disorderly risks while withdrawal negotiations are ongoing. This report is a compilation of several Heteronomics reports which provides some of the best all round and compact coverage of UK macro and Brexit we’ve read lately. This report is available for purchase on AlphaExchange (1 minute to register), ResearchPool, is also accessible on the SmartKarma platform.

Spain: ­ The Catalonia Impact on Spanish Assets

Quant Insight’s research is built on an analytical framework conceived by a group of macro hedge fund portfolio managers and Cambridge University academics. Their framework looks to understand asset price movements and valuations and distils signals from its quant models that cover thousands of securities in real time. Their secret sauce is that they use algorithms to untangle and isolate which macro variables (typically correlated) are driving asset prices. Furthermore, their models can identify which assets will be most sensitive to changes in particular macro factors. This note on Spain looks at equities and rates separately, and shows how the IBEX is now the cheapest index within their model, sitting at year-to-date lows. They point to credit default swaps as being the biggest driver, with the IBEX’s sensitivity to CDS near all time highs. Whereas, in rates, their analysis doesn’t find the price action as unusual or extreme, with their model revealing a strong credit /risk aversion dynamic at work, rather than the political and sovereign risk. Click below to request access to this piece or take a trial.

Dollar and Gold; Mirror Image Sentiment

In a note published late last week, Tim Hayes from Ned Davis Research wrote that in 2017 U.S. dollar weakness and gold strength have led to respective extremes of pessimism and optimism. Recent price action has seen corrections of those extremes in sentiment, Hayes writes, most likely to be followed by the resumption of the longer-term trends. For instance, the 200-day moving averages continue to fall for the dollar and rise of gold, consistent with other currency and commodity trends that have remained intact despite corrections. Along with its downtrend, longer-term influences remain negative for the dollar, including its overvalued condition, the lack of decisive real and nominal interest rate advantages, relatively weak U.S. economic growth, and U.S. fiscal uncertainty. If you’d like to access the full piece, click below to contact provider.





Global Credit Impulse Neutral, ex China

UBS chief economist, Arend Kapteyn, is one of the world’s leading proponents of the global credit impulse, as a leading economic indicator. In his most recent piece, UBS chief economist, Kapteyn, provides an update on the credit impulse that follows up on work done during early summer. As Kapteyn notes, the impulse measure has been in decline all year, but this has been largely driven by China. Stripping that out, the ‘Global ex-China’ credit impulse has actually largely moved sideways, while ex China EM has risen. Arend’s work is all available on UBS Neo.

OPEC: Saudi-Russia Talks Hold the Key

Upstream problems in most OPEC countries have neutered compliance as an issue for the group, writes Bill Farren-Price from Petroluem Ppolicy Intelligence. Put simply, adds Farren-Price, OPEC’s historical quota cheaters – Venezuela, Angola and Nigeria, among others – now have little ammunition to wreck the output deal. They are unable any longer to easily lift output. This means one thing, concludes the PPI report. Saudi Arabia and Russia, the two countries with significant, deliverable spare capacity, are in control of the cuts and their duration. King Salman’s visit to Moscow this week should be watched carefully for signs of disagreement on the future of the cuts beyond March, says Farren-Price. If you’d like to view this report, or take a trial of the PPI product click below.