As we progress into Q3 of Fiscal Year 2021-2022, this playbook outlines our thoughts on every asset class and our plan to profit.
This playbook will cover our macro view, touching on Equities, Commodities, Currencies, and Rates, as well as outline our views on the major nifty indices and the sector/thematic indices.
We also cover individual stocks we want to be buying to take advantage of the themes discussed in the playbook.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
Interest rates, inflation expectations, and commodities are all on the rise.
But as these pieces of the intermarket puzzle fall into place, it’s hard to make sense of the strength in the US Dollar Index $DXY. That’s also been on the rise recently.
Even other areas of the currency market don’t quite fit with the action we see in the USD. We pointed out the absence of risk-off behavior in a post last week where we highlighted the broad weakness in the yen as well as AUD/JPY making new multi-month highs.
So what’s going on with the US Dollar Index?
Let’s look under the hood at some individual USD pairs and their trends across multiple timeframes to see what the weight of the evidence is currently suggesting.
First, let’s look at the short-, intermediate-, and long-term trends in some of the main US dollar crosses:
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
All eyes have been on the US dollar as it presses to new 52-week highs.
But its recent rally hasn’t been accompanied by the usual risk-off behavior we’d expect. Actually, it’s been quite the opposite.
Bonds have been rolling over, commodities and cyclical stocks continue to march higher, and the yen can’t catch a bid.
To us, the evidence suggests the USD is momentarily decoupling from its classic intermarket relationships as it grinds higher in the face of all this.
If the US dollar is out of sync with the action in other asset classes, where can we look within the currencies market for a clear perspective of investors’ attitudes toward risk?
That’s right... the yen!
Let’s look at a couple of charts highlighting the Japanese yen’s weakness and discuss what it means for the current market environment.
First up is the classic risk-appetite barometer, the AUD/JPY cross:
One thing unique about the market is that the game is never over. There aren't four 15-min quarters or two 20-min halves like in sports.
In those endeavors there is a beginning and an end.
You know who won (or who tied in some cases). But the match is over, and there will be another one in a few days or a few months, depending on the sport.
In the market, it never ends. This can cause issues psychologically, so it's something we should all be aware of and keep in mind.
But if you ask me, currently the bulls are scoring a lot more points. This is the first time we've seen that since Q1 this year, when the bears started running up the score.
Look at the S&P500 break out to new all-time highs relative to US Treasury Bonds.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
We held our October Monthly Strategy Session last night. Premium Members can access and rewatch it here.
Non-members can get a quick recap of the call simply by reading this post each month.
By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends. This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big-picture” point of view.
With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
The US 10-year yield has made a decisive move back above 1.40% in recent sessions.
We’ve been pounding the table about this critical level for months now--and for a good reason. It’s a vital component of the global growth narrative and rotation into cyclicals.
And most investors probably aren’t prepared for it!
Yesterday, JC and Steve discussed areas that demand attention in a rising rate environment and how we should position ourselves. You can check it out here.
For starters, most currencies versus the US dollar should be beneficiaries of rising rates. This is particularly true for commodity-centric currencies like the Australian dollar, the Canadian dollar, the Russian ruble, and the South African rand.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
In recent weeks, the market has taken a risk-off tone as dollar-denominated risk assets have come under increasing pressure.
Major US stock indexes have pulled back, and procyclical commodities such as crude oil and copper continue to chop around beneath overhead supply.
Interestingly, we haven’t seen much of a bid in defensive assets through the recent bout of downside volatility. US treasuries have been relatively quiet, and the dollar remains below its August highs. Meanwhile, bond-proxy sectors like Utilities and Staples continue to make new relative lows.
None of this suggests the kind of defensive positioning that would be typical in an environment where risk assets are getting hit.
But what about one of the most significant safe-haven assets of all... the Yen?
Let’s take a look at how the Japanese Yen is setting up against other major currencies right now and what it could mean for the market at large.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
Last night we held our September Monthly Conference Call, which Premium Members can access and rewatch here.
In this post, we’ll do our best to summarize it by highlighting five of the most important charts and/or themes we covered, along with commentary on each.
