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Macro

Cross-Regional Bond Tightener Is On


Firstly, Germany's Chancellor Angela Merkel scored a state-level victory and bolstered her chances for a fourth term.

At the same time, Marine Le Pen is on the back foot as independent candidate Emmanuel Macron has pulled ahead of Le Pen in first-round voting intention polls by Ifop, Elabe, and BVA.

As a result, the France-German 10-year spread is grinding tighter. This is in line with the retracement seen in European equity volatility.

At this point, investors have removed 25 bps of widening from the peak seen last month. The spread is currently 58 bps. As a point of reference, the 100-day moving average in this spread is 55 bps.

Secondly, the German Ifo, the more grassroots-led survey of professional investors, was released this morning and it showed that the "golden cycle" in Germany remains unabated.

Thirdly, the asset showing the most anxiety overnight on account of the US healthcare bill failure last Friday is US fixed income – that is, the short base is very exposed.

We highlight these observations because the spread between Germany-US 5-year tightened this morning to the tightest level this year.

As you can see, German fixed income remains very "convex."


 

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.

This article is from Rareview Macro and is being posted with Rareview Macro’s permission. The views expressed in this article are solely those of the author and/or Rareview Macro and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Macro

The Win-Win Setup for Equities With the Health Care Vote is Deceiving


One spin about the Health Care vote we have the most difficult reconciling is the following. However, we are not surprised because it clearly fits the consensus positioning and prevailing view amongst investors.

Today is a win-win setup for equities no matter what happens. For example, if they pass the Bill in the House today it is a positive, and the timeline for tax reform stays in place. If they don’t pass it, President Trump and Speaker Ryan will pivot immediately to tax reform, another positive as the timeline is brought forward.

Interestingly, no one had good answers to any of our following questions.

If healthcare passes today, and regardless whether the process takes 2-3 more weeks and becomes even harder along the way, what is the market reaction once the Bill hits the Senate?

Do you buy risk today knowing that you will be selling it early next week on the first tape bomb regarding the process in the Senate?

Didn’t the market already believe healthcare has passed? If not, what price does the SPX rally up to? Or, what drives the SPX back to the highs?

Conversely, if the Bill does not pass, was enough risk taken off, because everyone thinks tax reform starts this weekend?

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.

This article is from Rareview Macro and is being posted with Rareview Macro’s permission. The views expressed in this article are solely those of the author and/or Rareview Macro and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Macro

Will Tomorrow's Health Care Vote Turn Out Like TARP?


On February 1st, the S&P 500 began its advance from 2280 to 2400, or +5.6%. The sell-off yesterday concluded with the S&P 500 making it almost half way back down to 2280.

The key point here is that a reduction in crowded positioning, especially US financials, started last week. Many just did not wake up until yesterday.

We highlight this because it is more likely that today is a pause day rather than an acceleration lower.

You have to ask yourself whether tomorrow's vote on Healthcare reform in the House of Representatives will end in a 2008 TARP-like outcome, where the bill fails on the first attempt and the market reacts adversely, or the Republican Party is expeditiously compromising right now to demonstrate that the electoral process, and keeping control of the House in next year's election, is more important than individual positions. We won't know that answer until tomorrow.

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.

This article is from Rareview Macro and is being posted with Rareview Macro’s permission. The views expressed in this article are solely those of the author and/or Rareview Macro and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Macro

Interest In International Equities Grows


The equity markets in France, Germany, and Japan have outperformed the S&P 500 Index since the Presidential elections. That is a statement in-of-itself considering the hopium surrounding the Trump reflation trade. Fund flows show retail investors continue to have a strong appetite to enter the stock market. However, we would anecdotally note that financial advisors are starting to steer their clients towards buying risk outside of the US for the first time this year.

The Euro Stoxx or German DAX are candidates for a new long position, but Le Pen risk remains an overhang, and some want to see how the financial sector (SX7E, SX7P indices) reacts to this weekend's news on Deutsche Bank large share sale. That said, Le Pen risk continues to fall, especially following last week’s Dutch Election results, which argued that there is be less of a “hidden” vote for Le Pen.

Interestingly, if there was one index that could be considered as a short-term liability, it is the Japanese Nikkei, either because of lower US yields, a stronger Japanese yen heading into their fiscal year-end at the end of this month, or what we discuss as a potential Black Swan event in the next section.

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.

This article is from Rareview Macro and is being posted with Rareview Macro’s permission. The views expressed in this article are solely those of the author and/or Rareview Macro and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Macro

The Dutch Election Outcome Will Allow Investors to Add European Equity Exposure


The Freedom Party (PVV) in the Dutch Elections acquired only 20 seats in the Lower House. The market needed PVV to get 35-40 to reprice a "hidden vote" for Le Pen in the France Elections.

  • Bookies are lowering the odds of a Le Pen win once again. The release is most visible in Italian risk assets (FTSE MIB), or European banks (SX7P and SX7E).
  • The consensus view is that European yields are capped until after the French election results. The risk is that the demand building for a rotation into European risk assets (domestic and cyclicals) happens sooner than the market expects on account of less concern over the French election.
  • For many waiting to add exposure to EM and Europe, and remove some assets hiding in the US, this is another volatility suppressing event.
     

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.

This article is from Rareview Macro and is being posted with Rareview Macro’s permission. The views expressed in this article are solely those of the author and/or Rareview Macro and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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