Disclaimer: The following content is an archive of Substantive Research Discovery Trending Themes, as delivered as weekly insights to our paid subscribers. Links to gated content have been removed.

Quant Insight: Equity investors – you’re watching the wrong part of the bond market (It’s all about bond vol) (September 19)

Last year, macro tourists looked at the bond market and latched onto the inverted yield curve and its role as a lead indicator for recessions, according to Quant Insight. In short, the key macro driver in markets in 2022 was the real rates. That’s not the case in 2023, where bond vol has replaced real rates as the dominant macro driver, and biggest influence on risk assets. Qi set this out in their note, providing several charts and tables that illustrate this point, and why their quant platform is a important tool in the investor tool kit. Click here for the full report. Click here if you would like to speak to the analyst.

Apollo: Commodity outlook (September 2023)

Apollo’s Torsten Slok has put together a useful chartbook on the commodity markets. His view is a fairly conventional one, in that, slowing global growth would argue for falling commodity prices. That is also what we are seeing for industrial metals such as copper.

Breaking the complex down, Slok says that slowing global growth combined with extreme weather and inventory situations have created a more mixed situation for agricultural commodities. The agriculture price index has been moving sideways, with some components (such as orange juice, cocoa, and sugar) going up and others (such as soybean, corn, and coffee) going down.

For energy, slowing global growth and rising US production would argue for lower oil prices. But OPEC plus production cuts have pushed oil prices higher in recent months.

The sideways movement in the broad commodity price index is likely a welcome development for the Fed, says Slok. However, a continued rise in oil prices could magnify the ongoing slowdown in growth and reverse the ongoing decline in inflation. Click here for the full report.

BCA Research: Oil – what could go wrong? (September 21)

Robert Ryan at BCA Research continues to expect Brent crude to trade just above $101/ bbl in 4Q23, and to average $118/bbl in 2024. Higher volatility looms, he says. Ryan expects Russia will cut oil production next year as part of a concerted effort to undermine Biden’s re-election, while oil-demand volatility is set to rise in response to divergent policy imperatives. He continues to favor equity exposure to oil and gas via the XOP ETF; direct exposure via the COMT ETF, and long Dec23 $100/bbl Brent calls. Ryan is getting long Jan-Feb-Mar 2024 Brent futures vs. short the same months in 2025 expecting steeper backwardation as inventories draw and markets tighten. Click here for the full report. Click here if you would like to speak to the analysts.

Macro Risk Advisors: A cyclical bull within a secular bear; Commodity bull, equity bear (September 21)

In a first a of a trio of short videos from Macro Risk Advisors, John Kolovos explains the alternating secular cycles in commodity and equity markets. This is bigger picture of course, but what he shows in the chart is that we are now in a commodity bull market (which started in 2020, when oil markets based), and thus looking across market history since 1900 implies an equity bear market. Kolovos also makes some interesting remarks on the commodity space, that based on his technical analysis, would contradict the conventional view that a recession will weigh on commodity prices (The Apollo view above). Click here for the video, and here for the one pager, including the chart.

Macro Risk Advisors: Portfolio alchemy – short VIX futures in a portfolio context

Running short vol strategies always entails a fair amount of risk, although in 2023, it has been a money maker. In this 5 minute video MRA options guru Rock Fishman explains while a long Treasuries and short VIX futures individually would have produced weak results over the past decade, an actively managed combination of the two could have excelled. The diversification achieved by including two asset classes cuts short vol’s downside tail, he says. Click here for the recording. Click here if you would like to speak to the analyst.

Macro Risk Advisors: Sell what you can; Why bank’s are selling down the UST holdings ahead of real estate crash

In this video, Barry Knapp at Macro Risk Advisors says the typical Fed mantra is that its policy affects demand and it can’t do anything about supply. But he says the Fed has clearly had a dramatic impact on the supply of housing. Indeed, Knapp says multifamily housing starts plunged to a 342,000 annual rate in July, compared 601,000 in February prior to the SVB collapse. He says there are 1.01 million multifamily homes under construction, an historic level of divergence which means there is a flood of supply coming in 2024. When the buildings are completed, Knapp says loans need to be refinanced at much higher rates with much softer rental growth. To unlock the supply of credit, the curve needs to disinvert, hence his focus on the 2024 rate cut forecast. Click here for to listen to the recording. Click here if you would like to speak to the analyst.

MRB Partners: Will EM rate cuts end the party? (September 20)

Emerging Market (EM) growth momentum will pick up steam, underpinned by monetary easing, says Amr Abdel Khalek at MRB Partners. EM currencies will still offer attractive carry, even after policy rate cuts, he says. Most EM currencies are undervalued, reinforcing upside potential versus the U.S. dollar, once the latter softens, as Khalek expects. He upgrades India’s rupee to overweight and Chile’s peso to neutral. Click here for the full report. Click here if you would like to speak to the analyst.

MI2 Partners: Short bunds; Bobl break (September 19)

If the current narrative is to be believed, as Europe is hurtling towards an ugly recession, the US economy is likely to enjoy a soft- or even no-landing, says Julian Brigden at MI2 Partners. Hence, he says it is hardly surprising that all eyes, including his, are focused on US yields. However, Brigden believes it is a mistake to lose focus on any of the major markets because fungibility is a potent force when it comes to sovereign bonds. Indeed, he flagged a chart of Bund futures for the first time in January. Back then, Brigden says prices were toying with a 30-year trendline, and after a false break post-SVB, they decisively moved lower in June. At the time, he suggested that would open up a move in cash terms to 3.5% in Bund yields, and he still believes that is the most likely scenario. Click here for the full report. Click here if you would like to speak to the analyst.

TopDown Charts: Making the case for a bullish UST view (September 22)

TopDown Charts, through its usual set of comprehensive charts makes the case for, and against, a strengthening bull (value, sentiment, macro) and bear (technicals, inflation, cash rates) on US Treasuries. From a practical standpoint the technicals highlight downside risks, so a wait and see approach makes sense while the bull case develops. The bottom line is that investors should remain reluctantly and lower conviction bullish treasuries on value, sentiment, macro, but mindful of adverse technicals, and the prospect of “higher for longer”. TDC also look at credit (getting more bearish), yet still favour the asset class on an RV basis to equities. There’s also a section on EM equities (Attractive). Click here for the full note.