Tag Archives: ECB

Fixed Income, Global Macro Strategy

Global Macro: Selloff and Noise Level Around European Fixed Income Reach Historic Levels

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MarketsMuse Global Macro update is courtesy of opening extract from today’s a.m. edition of “Sight Beyond Sight“, the global macro newsletter published by global-macro think tank Rareview Macro LLC and authored by Neil Azous, Rareview Macro’s Founder and Managing Member.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Forgive our saucy tone today, but this has been a long week. That is not because we were long European bonds, but because we provided a lot of free therapy to people who were. In the last two hours we have received way too many communications around today’s events.  At one end of the spectrum there are those arguing that Fixed Income has crashed, the bond bull market is over, and this is reminiscent of US Treasuries in 1994 or the Japanese JGB move in 2003. And at the other end, today’s reversal off the extreme yield levels seen just a short while ago is leading many to call the move finally over, arguing that supply/demand and the search for income are once again set to take over and force global yields much lower.

We don’t know how either side is able to make either argument with a straight face. Put another way, there are a lot of pikers out there with no accountability or transparency in their views voicing their opinions today. The attempt to analyze fundamentals relative to positioning at climactic moments historically is a poor exercise, especially considering the UK election is today and the US employment number is not released until tomorrow.

Instead, you might be able to make a better argument that the European Central Bank (ECB) was able to meet its bond buying quota very early in the month, and at choice prices and it is best for everyone else to wait until next Monday to go on the offensive. That just seems more rational. Just because we write a newsletter doesn’t mean we have to go on the record today. So we will not and instead regroup over the weekend and come back Monday refreshed.

To be clear, we are not “off-side’s.” We are just more interested in where Global fixed income will be over the next two to three months rather than getting caught up in the next two to three hours. In that spirit, for those who want to fall back on something more fundamental or process oriented instead, the below observations may be of interest.

US Fixed Income Observation

Below is a snapshot of our internal model for US interest rate hike probabilities over the next 18 months. The top graph looks at the total probability of a hike BY a certain meeting, whereas the bottom graph determines the probability of a hike AT a certain meeting. Beyond that, the very affordable cost of Sight Beyond Sight ® newsletter prohibits us from sharing any additional methodology with you. So please don’t ask us. Let’s just say we utilize this tool frequently in our internal process and we place a lot of weight on it. Continue reading →

Fixed Income, Global Macro Strategy, People Profiles, Uncategorized

Global Macro View From the Perch of Saxo Group: Keep Calm and Carry On

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MarketsMuse Global Macro update profiles perceived opportunities from the perch of Denmark’s Saxo Group Mads KoefoedIt and his view that interest rate increases probably won’t happen during the second quarter, but the market will very likely be dominated by speculation on the likely timing of a US Fed interest rate hike. Focus on the Fed, FOMC, ECB and Euro recovery—and European high-yield corporate bonds.

Fixed Income, Global Macro Strategy

And The Winner of “World’s Fastest Growing Asset Class” Is…

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Below is courtesy of Feb 23 commentary from “Quigley’s Corner”, aka debt capital market observations from Mischler Financial Group’s Head of Fixed Income Syndicate, Ron Quigley. Mischler Financial Group is also an award winner; a panel of industry judges assembled by financial industry publication Wall Street Letter voted to award the firm “WSL 2015 Award for Best Research/BrokerDealer.”

The Big Four Central Banks as the World’s Fastest Growing Asset Class

Ron Quigley, Mischler Financial Group
Ron Quigley, Mischler Financial Group

I had a wonderful conversation over dinner this weekend with a highly intellectual and personable Russian player in our markets.  We discussed Greece and the additional overtime round of “kick-the-can” that postpones pain by four more months.  But what seemed even more compelling was the notion of the Big Four Central Banks as the world’s fastest growing “asset class.”  (The Fed, the ECB, BOJ and PBoC).  Deutsche Bank illustrated in a recent research piece, the staggering numbers of Big Four Central Bank purchases.  The Central Banks have clearly become an asset class all its own.  It’s right up there the with cumulative total of U.S. pension funds!  Digest that for a second readers!  As my friend wrote to me: Continue reading →

ETF News

Greece ETF Crumbles to Ruins

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MarketMuse update is courtesy of Business Insider’s Sam Ro

MarketMuse has previously reported on the volatility the Greece elections created early this year now even more problems have ensued for the country. Following the the European Central Bank’s announcement that it lifted its waiver on minimum credit rating requirements for marketable instruments issued or guaranteed by Greece, Greece’s ETF crashed leaving just ruins left.

The Greek stock market closed hours ago, but the exchange-traded fund that tracks Greek stocks, GREK, crashed during the final minutes of trading in the US markets.

The euro is also getting walloped, falling 1.3% against the US dollar.

This comes following bad news from the European Central Bank (ECB) to Greece’s debt-laden banks.

Shortly after 3:30 p.m. ET, the ECB announced that it lifted its waiver on minimum credit rating requirements for marketable instruments issued or guaranteed by Greece.

To put it another way, Greek banks can no longer exchange their junk-rated sovereign bonds for cash.

“The waiver allowed these instruments to be used in Eurosystem monetary policy operations despite the fact that they did not fulfill minimum credit rating requirements,” the ECB said in a press release. “The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the programme review and is in line with existing Eurosystem rules.”

“In other words, the ECB doesn’t see Greece complying with existing bailout rules,” Bloomberg’s Lorcan Roche Kelly explained.

However, it’s not all bad. The ECB has another way for Greek banks to exchange their securities for liquidity. The cost of borrowing will however be higher.

“Liquidity needs of Eurosystem counterparties, for counterparties that do not have sufficient alternative collateral, can be satisfied by the relevant national central bank, by means of emergency liquidity assistance (ELA) within the existing Eurosystem rules,” the ECB said.

“The move from the ECB today is a copy of the suspension of Greek debt that occurred in February 2012,” Kelly noted.

“For Greek banks, this move by the ECB will not directly be a disaster as they have reduced their exposure to the Greek sovereign since 2012 and so are less reliant on that debt as collateral,” Kelly argued.

Still, it appears to be more bad than good. And judging by the reaction in the currency and equity markets, investors and traders were hoping for better.

For the original article, click here.
Global Macro Strategy

Confused About Crude? You’re Not Alone; Global Macro Traders Tongue-Tied

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MarketsMuse excerpt from Feb 3 edition of Rareview Macro LLC’s  Sight Beyond Sight global macro commentary..

Professionals Not Discussing Crude Oil Strength…Short Euro Put on Hold

This is simple.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

WTI crude oil is now up ~18% from the January 29th lows. It is not a question of whether the bounce continues or worth debating whether a V-shaped or U-shaped recovery is materializing. What is more important is whether a low was made and a new medium-term range is now being carved out.

Now anyone who monitors cross-market correlation will understand that the price of a barrel of Brent crude oil is highly correlated with the inverse of the trade-weighted dollar. Therefore, if the price of oil is stabilizing there is a quantitative argument that the dollar will stop rising, at least in the short-term.

Professionals are highly sensitive to pattern recognition and the last two times the Euro-Dollar (EUR/USD) corrected (i.e. Oct & Dec 2014) the currency cross appreciated by 2.5-3.2%. This is in line with the current bounce off the low price (i.e. 2.6%) following the ECB meeting in January.

So the question is why is it that those who never participated in the first place or those that reduced their long dollar exposure at the end of 2014 and missed the January QE move, but believe the currency cross will trade down to parity (i.e. 100) by the end of this year, have not used this bounce to get short of EUR/USD, especially considering you now have policy confirmation from the ECB? Continue reading →

ETF News

Euro Exposure? Eurozone Bond ETFs In Advance of ECB’s QE

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MarketsMuse.com update courtesy of extract from Jan 6 ETF.com article by Dennis Hudacheck, with a look at Eurobond ETFs $HEDJ,$DBEU, $HEZU, $EZU, $DBEZ, $VGK, $FEZ, $DFE

All eyes are on the European Central Bank’s Jan. 22, 2015 meeting, as it’s no secret that ECB President Mario Draghi has been hinting at a large-scale quantitative easing program for some time.

There’s no guarantee the ECB will actually implement any such program in January, but the consensus seems to be that there will be some type of big announcement on that front sometime in the first quarter of 2015.

At the same time, the U.S. Federal Reserve is expected to begin raising rates in mid-2015. This opposing force between the world’s two largest central banks has strategists calling for a currency-hedged strategy to capitalize on a rising-equity/falling-euro scenario in Europe.

An Equity ETF Designed For A Weakening Euro For currency-hedged options, the $5.6 billion WisdomTree Europe Hedged Equity Fund (HEDJ | B-47) is by far the leading ETF in the space.

Despite its “Europe” name, HEDJ focuses exclusively on eurozone securities. That means that for better or worse, it excludes the U.K., Switzerland and Sweden, which account for roughly 50 percent of Europe’s equity market capitalization, combined.

More importantly, it carries a significant exporter bias, attempting to capitalize on a weakening-euro scenario. The dividend-weighted ETF does this by screening out any company that gets more than 50 percent of its revenues from within Europe.

This makes HEDJ geared toward investors with a strong bearish view on the euro. Naturally, the fund favors consumer sectors over financials compared with vanilla, cap-weighted European indexes (MSCI Europe IMI Index).

This now-blockbuster fund tracks its index well and trades more than $80 million a day at 3 basis point spreads, keeping overall trading costs very low.

‘Neutral’ Currency-Hedged Products Contrary to popular thinking, investors interested in currency-hedged Europe ETFs don’t necessarily have to be bearish on the euro. They might have a neutral view, and simply prefer a purer equity exposure by taking any currency fluctuations out of the equation.The Deutsche X-trackers MSCI Europe Hedged Equity ETF (DBEU | B-66) is also a leading ETF in the space, and takes a broader approach, including all of developed Europe, beyond the eurozone.

It tracks a cap-weighted index and neutralizes exposure to the euro, the British pound, the Swiss franc and a few other European currencies against the dollar. DBEU has more than $710 million in assets and trades with robust liquidity that’s sufficient for small and large investors alike.

For a neutral currency take on the eurozone, rising in popularity is the iShares Currency Hedged MSCI EMU ETF (HEZU), which literally holds the $7.5 billion iShares MSCI EMU ETF (EZU | A-63) with a forward contract overlay to neutralize euro exposure.

For the entire analysis from ETF.com, please click here

ETF News, Global Macro Strategy

Professional Traders Lining Up to Sell SPX For the Wrong Reasons: Be Wary of the Good Idea Fairy: A Rareview View

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Below commentary is courtesy of extract from a.m. edition of today’s Rareview Macro’s “Sight Beyond Sight”

A Simple View:  US Dollar, Gold, SPX, UST’s

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

The objectives we have laid out continue to materialize across the themes we are focused on.

The Q&A session with President Mario Draghi following today’s European Central Bank (ECB) meeting has concluded. We will leave it to the people with PHDs to debate the intricacies of what he had to say. But if price is the voting machine that always tells you the truth, then the weakness in the Euro exchange rate highlights that the press conference was simply dovish. Expect these same PHD’s to keep chasing as they lower their price targets again.

As evidenced in our most recent editions of Sight Beyond Sight, there was little doubt that Draghi would not strike a dovish tone. With his emphasis on a unanimous vote for further action if necessary and formally adding in the notion that the ECB’s balance sheet will return to 2012 levels (i.e. ~1 trillion higher), Draghi did a good job of walking back the negative tone that the media have tried to portray over the last 48-hours, especially the speculation about an internal battle/dissent/revolt building up against Draghi.

For us, it was never about whether the professionals sold the Euro after the event. They were going to do that anyway as the trading dynamics continue to point towards the Euro buckling under its own weight regardless of what Draghi says. Instead, we were more focused on a short covering event not materializing ahead of tomorrow’s US employment data and that has been largely removed for today.

So those bearish have to contend with the following factors: Continue reading →

Global Macro Strategy

Rare Events Taking Hold: Macro View Looking for Upside By Reading The Chinese Fortune Cookie

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Below excerpt is closing conclusion courtesy of Oct 28 edition of Rareview Macro LLC publication “Sight Beyond Sight”

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

The Federal Reserve (FED) will make its policy announcement tomorrow. The Bank of Japan (BoJ) will make its statement at the end of this week. The European Central Bank (ECB) meets next week. All three of them will be dovish at the end of the day.

Additionally, Jean Claude Juncker begins his presidency of the European Commission next week and that should embolden the call for fiscal help, which is required even more now that both Italy and France have changed their budget plans (see details below in Top Overnight Observations). There is no question that professionals we speak to are warming up to the idea of a larger fiscal announcement and this is tempering their bearish view on Europe to a degree.

Finally, with a positive US employment report, expectations of a Republican win in the US Mid-term Elections, and the positive seasonality associated with the start of a new month, it can be easily argued that the theme for the next two-weeks is global policy support.

The worst part of it is that everyone who was forced to reduce risk in October, and then missed the move back up, knows this is the market’s support structure regardless of the fact that QE finally ended yesterday.

This is not us being overly constructive on US equities or risk assets. After six weeks of one-way negative news flow and the sentiment shifting to extreme levels, there are now three weeks of events that should be supportive for risk. This is just the start of week number two in that period.

And that, combined with the lagging performance in the professional community, is enough to walk sentiment back even further, especially when countries like China and Sweden move out of nowhere to support the market on the upside.

MarketsMuse Editor: For the reader who requires further context re: above, the preface to above-noted thesis is… 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

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