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The Short View is primarily about recent, short term market movements in key asset classes (equities, bonds, rates, currencies, commodities and volatility). Much of the thinking in the product is based on positioning and sentiment shifts. The product draws upon the Commodities Futures Trading Commission’s (CFTC) ‘Commitments Of Traders’ report (COT), which is published each week. We use the data in this report that relates to speculators, and include it as part of our analysis of recent market price action across key asset classes (and then outline our conclusions in the Short View publication).

"OIL: Breakout Ahead"

"Price action in oil has been encouraging for the bulls in recent months (although less so today). In particular, the Brent price tested, and rallied from, a key level ($71.60/barrel) last month. That price had been tested (and held) on five prior occasions (in March, May, and June last year), see FIG A. As a general rule of thumb, when key levels are tested and held multiple times, they are considered to be strong technical levels. Of interest, price action is similar in the WTI benchmark (with futures testing/rallying from around 
$67.60/barrel).

Since rallying from that level, oil prices have formed a pennant pattern (with lower highs and higher lows in December and January), FIG A. Broadly speaking, that pattern has formed just below the 50 day moving average (the key technical resistance level for oil).

With oil prices now at the end of their pennant, the key question becomes: Which way will they break?"

The Tactical Equity Asset Allocation is an explicit recommendation on the outlook for the S&P500 Index on a one to four month horizon. Those recommendations are based on our suite of medium-term quantitative models, as well as our analysis of the US and global economic cycle.

"Stay Tactically OW Equities
(albeit risks rising)
a.k.a. Cyclical Bull Market Ongoing"

“Since the late October lows, US and global equity markets have moved  sharply higher, performing strongly in November and December. The S&P500,  for example, having troughed on 27th October (at 4,103) has subsequently rallied  17%. The NASDAQ100, after its July to October ‘summer swoon’, reached a local  low on 26th October and has since rallied around 20% (up to its end 2023 highs). Other global equity markets have behaved similarly. 

That strength in equities, in such a short period of time, raises questions about where to next?"

In our Global Macro Reports we identify and explore key macro themes & the outlook for major economies. The reports frequently examine the US, Eurozone & China and, occasionally, other major economies.

"EZ Inflation: How Sticky is it… Really?"

"The widely held view in markets is that (i) the Eurozone growth outlook is relatively robust (e.g. compared to the US); and, somewhat linked to that, (ii) inflation is sticky, with inflation risks skewed to the upside. The conclusion, therefore, is that further ECB tightening is likely & necessary in 2H this year.

That view was reiterated by Lagarde at last week’s press conference. It’s also reflected in rates markets, which are priced for another 35bps of ECB hikes by September (and only 85bps of cuts next year*). In the US, in contrast, the market is priced for 54bps of cuts by year end (from a peak in May), with another 149bps by the end of next year.

The key question, therefore, is: Have markets priced Eurozone inflation and growth correctly? Is Eurozone inflation sticky (or indeed stickier than the US)? And, how quickly will it fall (if at all)?"

Commodities Fundamentals Reports provide deep analysis of the supply and demand dynamics for key commodities. We provide regular updates to our outlook on oil, gold, and copper; and infrequent analysis on silver, iron ore, agricultural commodities and energy.

“Gold Price Drivers: All Change”

“In 2022, the traditional gold price drivers started changing. 

The correlation of our multifactor model with the gold price, for example, started to break down that year (NB this model has been highly correlated with gold since pre GFC – see fig 1). As rates rose in 2022/23, the dollar strengthened and TIPS yields picked up, yet the gold price stayed broadly rangebound (between $1,600 – $2,100). That model, though, given such sharp rate hikes, suggests that a fair value for gold is considerably lower, around $500 - $1000 (see fig 1 below).

Added to that, the traditionally tight correlation of gold investment demand flows with the price has also broken down. This is illustrated in fig 2 which shows the level of physical gold holdings in gold backed ETFs correlated with the gold price. As the chart shows, the two typically move tightly together. Since late 2022, these two lines have diverged, with ~310 tonnes of gold leaving ETFs over that time. Similarly, a broader measure of investment demand (which incorporates ETFs) has also diverged (see fig 7, NB it’s quarterly data).