Attack the Week (ATW)
What follows Friday's bloodbath? / Calendar / Dashboard Analysis / Model Update
Sunday Thoughts
After more than half a day of travelling, I have finally arrived at my holiday destination, and boy, am I jetlagged. I’m on my second cup of coffee, while it's just past midnight in London town.
Friday brought some blood to the streets. A hotter-than-anticipated NFP has once again lit up the US bond market and front-end pricing. The ripples spread to a structurally weakening US equity complex, which ran out of steam just as realised volatility was tracking at ridiculously low levels. I have stayed away from equities for a few weeks now and regard this correction as natural and, once again, a timely reminder that when it gets too easy, too boring, moves can happen.
No system can predict these moves. Having said that, my technical models detected a sell setup in the Nasdaq on Thursday, which triggered a rotation into value first before the whole market violently adjusted. The usual pattern takes longer to play out; this time, it unravelled at record speed.
The volatility rippled through other asset markets, with commodities and FX also experiencing outsized moves relative to recent history. Bitcoin was already in a downmove after breaking the 70k barrier earlier in the week and is now sitting at key support levels from February.
We just experienced a Minsky moment. Energy builds in the quiet, then the system lets go. After a snap like Friday’s, out of a dead-calm environment, what does the next week and the next month actually look like? A 2.6% drop from a genuinely calm regime has occurred only a handful of times in 75 years. I did some digging, and some historical patterns surprised me. Charts, tables, named precedents back to the Nifty-Fifties and some other findings for subscribers further below. Important read as we head into a new week.
We then follow the usual ATW script, looking at Macro D’s latest Macro FX spreadsheet and trades (up 2.25% last week), before we scan the weekly macro calendar, analyse the macro dashboards’ latest readings, and then reveal what the weekly asset allocation model has in store for us for the coming week.
A reminder that two new tools have been uploaded to the pa-globalmacro site, including the full tracking of our buy-and-hold portfolio since its 2022 inception. On Friday, the portfolio outperformed the SPX by nearly 1% as some of the hedges worked in protecting the downside. That’s by design.
