This week we look at what has been driving markets and the precarious position that countries with low growth now find themselves in. Coronavirus will take a bigger bite out of global growth than is priced. Implied volatility is still cheap across asset classes.
BY ERIC FILL
SAM Weekly Update – Markets have only had eyes for growth and the avoidance of negative yields. Volatility to follow.
In April of last year, Huw Pill caught flack for saying that Brits “need to accept that they’re worse off”. This was followed by John Authers coming to the defense of the pilloried BoE chief economist. As we wrote, Authers noted that the comments were taken out of context and explained that the BoE’s Chief Economist was describing how “after a few external shocks, inflation becomes a collective action problem” where “ideally everyone would take a share of the hit, and then they can move on. Human nature isn’t like that, and as a result, economics isn’t like that”. Now, roughly a year later, the BoE’s Catherine Mann has picked up Mr. Authers’ baton. It turns out that people who can maintain their standard of living will tend to do just that! Bemoaning the “challenge” of bringing inflation back to target, Mann said there was “a lack of consumer discipline” to rein in businesses’ pricing power,
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C8 Bulletin: MI2 Joins C8 Studio
BY JON WEBB
The C8 Bulletin is back after a summer break, and we are delighted to announce that Macro Intelligence 2 Partners have added their Macro Alpha index to C8 Studio. The Macro Alpha strategy is deeply rooted in MI2's macroeconomic insights. These directional strategies encompass a broad range of asset classes. The strategy aims to optimize risk-adjusted returns by dynamically-adjusting portfolios based on changing macroeconomic conditions. Taking three of our Global Macro contributers (including MI2), combining using our proprietary Tactical Asset Allocation, would have produced a 24% annual gain with 11% volatility and, notably, a 40% negative correlation to the S&P over the past two years.
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Thoughts From The Divide: High Times and Happy Endings
BY JON WEBB
“I think it was the right decision, and I think it should send a signal that we, that we’re committed to coming up with a good outcome here”
There is no verse in scripture that says “blessed be the dovish, for they shall fatten the sacred bull”. More’s the pity, because it would have been apt. James Macintosh seems to have noticed the same, but framed it slightly differently. Nothing says I love you to asset markets more than Fed rate cuts: the original PCA factor. And to be fair, the admiration appears to be mutual: Powell loves markets and markets love Powell. It’s nice to get positive feedback and it’s not like JP had to drag everyone screaming and kicking.
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