It is a three-day holiday weekend.
President Trump returns from an overseas trip. His most trusted advisor, and son-in-law, is now in the line of sight.
The next test missile launched by North Korea will be its ninth in a row. President Trump and Prime Minister Abe met in Italy to discuss North Korea. Separately, Prime Minister Shinzo Abe came under the spotlight again last night for a new scandal.
In response, to North Korean risk and Japanese political risk, the Japanese yen (JPY) is stronger relative to all G10 and all 24 emerging market currencies overnight.
Whether you want to accept it or not, global equities are now underperforming the US. The consensus view of being long on international equities and underweight the US is showing its first cracks.
Interestingly, it is doing it with the US dollar for sale, a key component of the long international equity thesis.
It will be interesting to see how investors respond or defend against the consensus positioning in equities moving against them for the first time this year.
All NYSE stocks had an 81% down day yesterday. 90% is required to argue a bounce.
Put/call ratio’s barely registered over 1.0. Buyers of puts were absent.
The TRIN Index that consists of [(advancers/decliners)/(adv_volume/dec_volume)] was in line with the average daily move.
Goldman Sachs, the stock that has the most impact on the Dow Jones Industrial Average and was responsible for 40-50% of the index gains following the Presidential Election last November, traded significantly less volume yesterday than the last time it fell by more than 5%.
The list could go on but on aggregate it shows that the price action was hardly capitulative.
For the distraction in DC to become genuinely disruptive, to the point it outweighs the excitement over corporate earnings and global economic synchronization, requires either of the following:
There is one event we do not believe the market is aware of as it pertains to crude oil.
Iran has a presidential election on May 19th where the hardliners appear to be making a comeback.
Now we have no idea if a hardliner will win, but what we do know is the following:
1. Rising US-Iran tensions have been apparent in recent weeks.
2. Polls point to the incumbent (Western-friendly) president losing his seat to a hardliner (Source: Citigroup)
3. There is some newfound risk of a return of a geopolitical risk premium that went to zero last year.
4. We doubt many investors transient to crude oil are even aware of this event risk.
5. President Trump will be in the Middle East shortly, including Saudi Arabia.
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.
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The thesis that investors are looking to add to risk assets in Europe is being proven correct today as a number of supporting pieces of evidence have been validated.
For example, the euro exchange rate is showing the largest positive risk-adjusted return across regions and assets, and broke the upside trading range today for the first time since round one of the French Election on March 20th. Thematically, European equity periphery is showing the largest positive risk-adjusted return. Regarding pairs trading, European domestic relative to China exposure is showing the largest positive risk-adjusted return.
Here is the list that shows the US is losing:
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