Friday Thoughts
Week 2 of War / Observations & 3 Trade Ideas
Here we go again, week two of March is done, but we still have unresolved issues. If anything, there are increasingly more questions arising in my head. The war is still raging, and there are no signs of a de-escalation. Trump seems to be raging and throwing new ideas around without any meaningful impact. Markets are relatively calm, especially in equities, although we are seeing sizeable credit stresses. Rates, meanwhile, have seen another clobbering round during the week with an intermittent release on Tuesday.
Front-end pricing has been severely impacted, and once-popular front-end receiving trades have had to be returned to the market gods. Europe and the UK, in particular, stand out, with quite sizable movements across the board.
This aligns with the inflation swap market’s perception that European and UK inflation pass-through from any oil and gas disruption will be felt much more severely than in the US.
The Oil curve remains firmly in backwardation, indicating the usual supply-shock behaviour. Needless to say, what his curve will look like amid a more lasting conflict and supply disruptions, with oil plateauing at a higher level.
The spread between the serial 3rd and 6th contracts has surpassed 2022 levels, indicating a much more severe disruption is currently priced in.
The outright chart highlights the insane Monday candle, which resembles a volatility-induced market top. From my experience, those tops are revisited in a second wave. This, of course, would imply a further escalation or an absence of any willingness to reach a ceasefire agreement or any other off-ramp. Ask yourself this: Who is currently winning the war?
My ATW highlighted a scenario analysis using previous geopolitical events, which we can naturally expect. See for details further below (the scenario analysis is behind the paywall). One outcome was that equities, which have shown tremendous resilience, should weaken during the second or third week of the conflict.
We are not only seeing a war with potentially lasting influences, but we also find ourselves potentially in the midst of a credit-deteriorating cycle, which would normally induce lower (not higher) rates and, on balance, make monetary policy easier to offset some of the tightening. This channel is currently offline, which could exacerbate a potential crisis. Spreads have moved (see below), but they are not screaming panic yet.
The beat of the market is muddled amid high volatility and the possible conditional worlds we can catapult ourselves into. For those less versed in investing, I would advise staying clear until the dust settles. As for our 2026 buy-and-hold portfolio, the hedging instruments are really pulling their weight, helping us avoid larger drawdowns. As of Wednesday’s close, we are up 9% YTD. Here is the link to the portfolio contents. Thursday (at the time of writing), we are flat, while the SPX and NQ are down 1.25% and 1.5%, respectively.
Macro D, my loyal co-writer and outstanding macro brain, has kindly put together his thoughts on the conflict, which you can find below.
In addition, he has written his latest Trade Corner post, which includes new Macro FX trades he is considering and running. The post is below.
As I did over the past few weeks, I will leave the complete chart book for the weekend. In this fluid market, I find it more important to share my thoughts with you promptly. In addition, running charts of Friday's closing levels provide a clearer picture as we head into another potentially violent week.
Also, if you are not a subscriber, I think now is a good time to join the pack.
Let’s now disentangle more detailed thoughts and 3 macro trades I am considering before reading Macro D’s latest thoughts and Macro FX trades he has been doing during the week behind the paywall. He and I might have different views of the conflict and market interpretation. That’s how it is supposed to be. I want our readers to hear all angles covered.
Let’s now dive in. Best of luck out there!
