What if there is supply, but still no demand?
​While markets are now focused on the risks in Europe that Macro Thoughts has been highlighting for the past 9 months, with yields reaching levels I forecast, there is still a need not to lose sight of the risks posed to the US economy. US growth for the whole of 2016 was just 1.6%, 1% less than in 2015, yet equity markets continually edge to new highs, and commodity prices continue to rise, ignoring the build up of inventories.
Macron came to London, not to make peace with Theresa May, but to show the 200,000 French voters living in the UK he has not forgotten them, and the significance to the UK of a Macron win is not being priced in UK markets.
Macro Thoughts, European Politics, February 17, 2017, ‘Market pricing shows Fund Managers appear to believe the current political situation is temporary and that by September, when Merkel is expected to win the German election, things will return to normality. I don’t believe they will, and it may not be enough to just buy Bund futures to hedge event risks - a mistake many made when hedging the UK referendum, to their cost. Given current market mentality, however, I consider it possible that Bund yields can fall 10-15bp over the next few weeks, to between 0.20% and 0.18%, (currently 0.31%), with futures rallying to circa 166.00/166.25.
Macro Thoughts, December 16, 2016: ‘Being long 2year German Schatz bonds outright, or as part of a basis swap, has been considered for some time’.
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Macro Thoughts is independently researched and draws on extensive macroeconomic and market experience gained in Fixed Income, Futures, Derivatives, Bond, Forex, Commodity and Equity Index markets and from strong Global Macro investment, risk taking and strategy backgrounds. Far-reaching product knowledge across asset classes enables us to consider hedging and investment strategies that reflect our expected market trends. Macro Thoughts is directed by Keith Grindlay, whose experience spans, somewhat uniquely, both the buy and sell side, having managed trading and investment desks at top tier institutions, ensuring all strategies are evaluated for risk/reward and the optimal instrument(s) for best leveraging the strategy suggested are employed.
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