Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>The risk of US yields continuing to rise is high especially with inflation not having peaked yet, the Fed potentially reducing its balance sheet, and real rates still negative.</li>
<li>The high volatility in US rates does not bode well for EM rates due to their high correlation even though EM local debt is overall cheap based on most metrics.</li>
<li>Until the volatility in US rates subsides, it is best to focus on cross-country and curve trades in EM, with my preference for curve steepening trades in several countries.</li>
</ul>


The risk of US yields continuing to rise is high especially with inflation not having peaked yet, the Fed potentially reducing its balance sheet, and real rates still negative.
The high volatility in US rates does not bode well for EM rates due to their high correlation even though EM local debt is overall cheap based on most metrics.
Until the volatility in US rates subsides, it is best to focus on cross-country and curve trades in EM, with my preference for curve steepening trades in several countries.


What to Expect of EM Rates When Expecting US Rates to Stay Volatile?

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

US Treasury (10 Yr Generic) / Technical Analysis

<ul>
<li>The market continues to send a mix of risk-on and risk-off signals, though most of the risk-on signals are centered around value Sectors.</li>
<li>Value Sectors such as Energy, Financials, Manufacturing/Industrials, and Materials are currently our favorite areas for investment, and also Consumer Staples.</li>
<li>Some of our big picture supports are being violated, including the Russell MicroCaps (IWC) which is breaking below $134 as the Russell 2000 (IWM) tests support at $207.50-$208.</li>
</ul>


The market continues to send a mix of risk-on and risk-off signals, though most of the risk-on signals are centered around value Sectors.
Value Sectors such as Energy, Financials, Manufacturing/Industrials, and Materials are currently our favorite areas for investment, and also Consumer Staples.
Some of our big picture supports are being violated, including the Russell MicroCaps (IWC) which is breaking below $134 as the Russell 2000 (IWM) tests support at $207.50-$208.


U.S. Equity Strategy: Market Sending Mixed Signals; Stick With Value; Energy Stocks Highlighted

Macroeconomic and Investing, The Macro Compass

Alfonso Peccatiello (Alf)

Macroeconomic and Investing

The Macro Compass

Actionable investment ideas and unique global macro insights. From the desk of a former Head of $20 bn Investment Portfolio straight to your inbox.

Actionable Investment Ideas

Macroeconomics

<ul><li>Quantitative Tightening is now old news: everybody and their mother are talking about it, and headlines about QT are everywhere.</li><li>While QT sets the direction of travel to be very different from QE, there are four main pillows the US will be using to engineer a softer landing.</li><li>In a nutshell: watch the announcement on the pace of QT, the updated Treasury issuance strategy and how repo rates and credit spreads trade.</li></ul>

Quantitative Tightening is now old news: everybody and their mother are talking about it, and headlines about QT are everywhere.While QT sets the direction of travel to be very different from QE, there are four main pillows the US will be using to engineer a softer landing.In a nutshell: watch the announcement on the pace of QT, the updated Treasury issuance strategy and how repo rates and credit spreads trade.

The Fed's QT Explained (No, it's Not The End Of The World)

<ul>
<li>Commodities (ex. precious metals) and global yields are on the rise as the US dollar (DXY) deteriorates. Additionally, EM equities (EEM-US) display a bullish RS reversal relative to MSCI ACWI. </li>
<li>These are all important risk-on signals for global equities that continue to support our neutral yet constructive outlook. We expect more consolidation and mixed markets ahead.</li>
<li>Two Sectors that stand to benefit most from rising rates include Energy and Financials. We recommend adding exposure to these Sectors as we see a shift in favor of value.</li>
</ul>


Commodities (ex. precious metals) and global yields are on the rise as the US dollar (DXY) deteriorates. Additionally, EM equities (EEM-US) display a bullish RS reversal relative to MSCI ACWI. 
These are all important risk-on signals for global equities that continue to support our neutral yet constructive outlook. We expect more consolidation and mixed markets ahead.
Two Sectors that stand to benefit most from rising rates include Energy and Financials. We recommend adding exposure to these Sectors as we see a shift in favor of value.


Value Sectors Take The Lead On Rising Global Yields; Buying Energy and Financials

<ul><li>The power of the rate of change of things is very important here. Look at money creation for example. The extreme volatility in credit creation is a result of Covid-policies</li><li>we may be in for a 2019-like contraction in USD reserves in the financial system already before year-end.</li><li>I am even tempted to say that you should both buy the USD and duration (in most currencies) with an arm and a leg already now.. And equities overall..</li></ul>

The power of the rate of change of things is very important here. Look at money creation for example. The extreme volatility in credit creation is a result of Covid-policieswe may be in for a 2019-like contraction in USD reserves in the financial system already before year-end.I am even tempted to say that you should both buy the USD and duration (in most currencies) with an arm and a leg already now.. And equities overall..

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US Treasury (10 Yr Generic) (GT10 GOVT)

What to Expect of EM Rates When Expecting US Rates to Stay Volatile?

The high volatility in US rates does not bode well for EM rates due to their high correlation even though EM local debt is overall cheap. Cross...

Gautam Jain, PhD, CFA

U.S. Equity Strategy: Market Sending Mixed Signals; Stick With Value; Energy Stocks Highlighted

The market continues to send mixed signals, though most of the risk-on signals are centered around value Sectors such as Energy, Financials,...

Vermilion Research

The Fed's QT Explained (No, it's Not The End Of The World)

Quantitative Tightening is now old news: everybody and their mother are talking about it, and headlines about QT are everywhere.

Alfonso Peccatiello (Alf)

Value Sectors Take The Lead On Rising Global Yields; Buying Energy and Financials

Two Sectors that stand to benefit most from rising rates include Energy and Financials. We recommend adding exposure to these Sectors as we see a...

Vermilion Research

Vikings At The Gate

The power of the rate of change of things is very important here. Look at money creation for example. The extreme volatility in credit creation is...

Alfonso Peccatiello (Alf)

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52-week Range

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