Antipodean Capital Macro Strategy Daily Nov 26 - Oil’s fall will produce a downgrade cycle in S&P energy Fwd EPS estimates and will lower inflation and expectations, thus pausing the Fed and lowering yields & the USD. Cut stocks shorts.

Today’s themes: Book some profits on ASX shorts, as targets at 5600 were hit last week – we prefer to await a rally to sell into again. In the commodity space, Oil’s price fall is now an outright bear market with two key implications set to unfold, one on inflation and the other on US corporate EPS expectations.

Macro: Oil & inflation: Oil is now in a new bear market phase, having made a major peak at $76bbl. (Theme: When does Oil’s fall risk becoming a problem? The answer is likely right now. Inflation expectations and outcomes are set to decline, while S&P energy company EPS will now start getting downgraded. This risks dropping S&P EPS Fwd expectations from around 9%, and this should undermine confidence even further in US equity markets.).

Macro: ASX EPS topping out, but bouncing off technical supports at the October low. (Theme: ASX Index EPS has suffered its first decent fall since H1 ’17. Fwd EPS estimates are falling, suggesting Index EPS can continue lower. However ST we expect a rebound, perhaps fuelled by a US post Thanksgiving rebound. We want to sell that rally).

Summary: US stock markets had a low volume Thanksgiving affected decline Friday, and are now near October lows again. A post Thanksgiving/Xmas bounce is a risk for the bears, & the ASX also is probably in the process of making a low at 5600. US yields were stable, & the USD rose, but the biggest decliner yet again was Oil, -7% and below $50bbl. Impacts on US corporate profits and inflation are now real threats.

New trades: Short R2K at 1550 close at 1488 (+4%). Long Dec VIX at 17.6% close at 20% (+13.5%). Short ASX200 at 5840 close at 5745 (+1.6%).
FX: Short EURSTG at .9010 risk .9150 target .84. Long AUDNZD 1.0750 tgt 1.12 risk 1.05. Long GBP 1.2770 risk 1.27 target 1.33. Sell $JPY at 112.80 risk 114.20 tgt 110. S Sold NZDEUR at .5970 risk .6030 target .56.
BONDS: Long 2 units ASX Banks 5yr CDS at 54bps, target 140. Long NZ 10s sell NZ 2s at 104bps risk 130bps target 50bps. Sold Portugal 10yr bought German Bund at 158bps, risk 110bps target 350bps. Long US 2-10 curve flatteners at 26bps/35bps risk 40bps target 10bps.
EQUITIES: Long ASX All Ordinaries Top 100, Short ASX Small Ordinaries at 0.81x ratio. Short Homebuilders 755, add at 800 risk 850 target 650. Long Kospi at 2088.
COMMODITIES. Long Silver short Gold at 83.9x risk 87 target 65. Long Silver at 14.08 risk 13.85 target 14.80+