Lotta Noise

Hello. It’s Friday. Thanks for signing up. I’m Brent Donnelly.

The About Page for Friday Speedrun is here.

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Before we talk about the macro setup… Let me tell you: My new book, TRADE OUTSIDE THE BOX: Advanced Thinking for Professional Traders is out! You can buy it on Amazon right here. Here’s the one-pager.

The book is written for experienced traders. If you are new to the game, I would suggest you start with Alpha Trader. If you have been trading or investing for more than five years, this book is for you (and you don’t need to have read Alpha Trader to enjoy it).

Let’s get started.

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Global Macro

The global macro world was infected with another skirmish in what has become another open-ended WMD goose chase war in the Middle East and that makes trading a bit more complicated. My advice to myself this week was to ignore the war headlines and simply trade whatever views I would have if that war were not ongoing. There is a good chance the war will still be happening in 2027, and you cannot sit paralyzed by random $3 moves up and down in crude oil. The shock factor of the shutting of Hormuz has passed, the experts were wrong about the impact on oil prices, and now life slowly moves on. Lotta noise.

When I saw the headlines with Trump saying the ceasefire is over, my monkey brain first thought (of course) was to buy oil. Then, my second order thought was to sell into the rally (because that’s probably the correct play) and then my third thought was that there is no alpha in touching oil on these headlines. They are probably doing another scoot and shoot tit-for-tat, but if they hit the wrong parts of Kharg, my short oil is going to be a risk management blunder. There is much to be said for avoiding booby traps and placing products in the TOO HARD bucket. This is a concept I discuss in Trade Outside the Box. Anyway, oil went up $3 on the news and back down $3 because nobody cares.

I took a strong view after Warsh’s June 17 appearance that it would be peak hawkish, and the data would not ratify his necessarily performative opening gambit. My hypothesis has not yet been proven or disproven as we got softish NFP and a mildly dovish Warsh appearance at Sintra, but 2-year yields are still hanging around. I am open to the idea that inflation is not just about oil, but my base case remains that we are entering a disinflationary period as crude becomes disinflationary and the AI capex and memory demand story will generate some, but not tons of inflation.

The jury is still out.

Outside of the U.S., the macro highlights this week were:

1. RBNZ delivered a rate hike and that triggered a short squeeze in NZD as the market is heavily short the bird and long USD.
2. The UK political situation has stabilized, and the market doesn’t have the chutzpah to try another UK fiscal blow-up trade. That triggered a short squeeze in GBP as the market is heavily short pounds and long USD.
3. Semiconductor stocks crapped out and the spike on Micron earnings is a distant memory and double top. MU touched 1255 twice, forming a perfect double top after earnings and now trades on three digits, not four.
4. The Japanese government announced a moral suasion campaign, encouraging Japanese pension funds to invest more in domestic assets to support the yen. You know who controls the Japanese pension funds? The Japanese government. This is probably a watershed moment for the yen, but time will tell.
5. Precious metals and crypto finally shook off the worms as a weaker USD and bombed out sentiment helped engineer a turnaround in price.
6. Macro vol is low even as many idiosyncratic stories churn below the surface.

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Stocks

There are the index moves and then there are the sector moves. Software vs. semis continues to be a major theme, and they remain inversely correlated.

This is highly unusual but has persisted all year as the market trades the idea that LLMs use a lot of memory while bankrupting SaaS companies. That narrative is quite old and more than fully priced, one might think, but even with the recent pullback in semis, the SMH/IGV ratio is closer to the highs than the lows.

Tech earnings come out at the end of July and into August and then we will see if there is any change to the rate of change of AI capex. I am particularly focused on META on 29JUL because they would have the most to gain from declaring an end to the capex fever. If Zuckerberg says something like “We believe further acceleration in capex is no longer necessary” (e.g.) the stock will rally 25% and semis and NVDA will drop 10%. Presumably META knows this and knows that further acceleration in capex will be punished by the market and so that earnings report is going to be lit.

The divergence between high-debt hyperscaler / neocloud names like ORCL, CRWV, and NBIS and better-capitalized megacaps like NVDA, GOOG, and AAPL has been stark of late. Everyone knows that everyone knows that OpenAI will never generate enough revenue to pay its bills, but the timing of the credit crisis resulting from confirmation of that fact could be six months or 24 months away. That said, the chart of ORCL is an absolute beauty as it hugged the 100-hour MAs from 220 to 140 and has now broken out above them. Long with a stop at new lows (sub-135) is a simple technical play that makes sense to me but is not investment advice for you. This part of July tends to be bullish for stocks overall and I feel like sentiment and positioning are fairly clean as we have chopped and/or corrected in almost all the most popular names.

Here is this week’s 14-word stock market summary:

Earnings season is going to be super interesting. I am bullish now ‘til then.

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Interest Rates

Yields are not doing much as the hawkish Warsh peak in 2s remains in place, but just barely.

If we take out 4.25%, I will abandon my dovish view and bullish bond bets because that would tell me that my thesis is wrong.

Meanwhile, Japanese finance minister Katayama is suggesting some suasion of GPIF to invest more at home and less abroad. This triggered a small rally in JGBs, but there are many, many skeptics out there who believe this is not a real announcement, just a random comment. I am more inclined to believe that the Japanese government will use GPIF to start stabilizing markets and this will not be a massive game changer right away—it will be a slow turning of the ship.

Owning unhedged JGBs is not for the faint of heart, but if you believe the policy ship is turning and we’ve finally priced in peak fiscal fear for Japan after 20 months of selling post-Takaichi election, you might make a lot of money doing that.

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Fiat Currencies

I have been playing the USD from the short side based on a variety of reasons. Some idiosyncratic (short USDKRW for the SK Hynix inbound flow and short USDMXN for good MXN seasonal and good carry) and also because I feel the long USD trade got extremely crowded after Warsh and became asymmetric. The USD short trade has worked okay, but hasn’t been explosive because there’s nothing much going on in terms of catalysts. Sure, the market is mega long USD, but the dollar longs aren’t scared yet.

GBP and NZD have performed well as much of the USD long has been against those two currencies and the politics in the U.K. have calmed down and the RBNZ was a tad hawkish at its meeting this week. There was a large cohort dreaming of a fiscal crisis in the UK, and that has not transpired. That has meant GBPUSD up and EURGBP down.

I published a short CHFJPY trade idea in today’s am/FX (subscribe here). This is the gist:

The yen and JGB reaction to the GPIF headlines is logical, but small relative to what I would have expected. It seems the market is a bit hesitant here. That creates an opportunity to get on board. The question, however, is what exactly to do. The government persuasion will very likely lead to a change of flows in Japanese time and could even be backed up with physical MOF intervention to show the market who is boss; but this is not the kind of trade where you will necessarily get instant gratification. And the carry remains an obstacle, as does downside USDJPY skew.

In order to avoid the carry problem, and avoid adding another USD short when I already have short USDKRW and USDMXN, I like buying CHFJPY downside. Short CHFJPY is positive carry and by doing a put spread, you benefit from the skew (buying a lower vol option and selling a higher vol option). I like a 2-month 199/196 CHFJPY put spread as the strikes as 196 is the 2026 low and should be major support while the current distribution pattern starts to break down if we take out 199.

Off 200.50 spot, the 199/196 put spread will cost around 37bps. Pay 37 to make 114 and September 10 expiry gives you plenty of runway. Some will laugh and say “CHFJPY short never works!” but that’s what they said about USDKRW too.  :]

For the dollar, CPI next week is key, along with Warsh at the podium. Both Tuesday. Here’s the calendar.

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Crypto

I am intrigued by the resilience in crypto, even as Saylor sells some low ones again this week. I got sucked into the idea that the MSTR doom loop had begun in earnest, but it looks like that story will take ages to play out as he can keep moving around money selling low and buying high for a long time before the debts come due.

In the meantime, I see a bullish setup as everyone has become bored of crypto and you have bad news (Saylor sold again) / good price (BTC is 4k higher). I have been following and writing about PURR off and on and this looks like a reasonable place to take a shot at longs. It’s building a good base in the $7.50 area and HYPE (the coin, not the stock) is trading quite well. PURR looks cheap relative to HYPE. Then again, one headline like “SEC investigates Hyperliquid” and it’s lights out. There’s quite a bit of existential risk being long that thing and to be fair, it doesn’t trade well at all.

CME Group and Intercontinental Exchange (ICE) have urged U.S. regulators to scrutinize Hyperliquid, warning it could enable market manipulation and sanctions evasion. Specifically, the exchanges told the CFTC and lawmakers that Hyperliquid’s anonymous, round-the-clock perpetual futures trading could distort key commodities benchmarks, particularly in global oil markets. This is partly competitive: Hyperliquid’s synthetic markets (oil, gold, equities) directly encroach on CME/ICE turf, but regardless, it puts the platform in regulators’ crosshairs.

All that said, I feel like given the relative strength of crypto these days, and the attractiveness of PURR’s narrative, it’s an okay place to plug your nose and take a shot. Below $7, the idea is wrong. Note that I have been bullish since $8.60, and I am losing money on it. Just sharing my view for your consideration; definitely not investment or trading advice.

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Commodities

Oil goes up; oil goes down. The Economist managed to stop out of their bullish oil call at the lows, after initiating it at the highs. Neat.

https://www.spectramarkets.com/amfx/the-magazine-cover-indicator/

There have been some zippy moves in less-liquid commodities like cocoa and coffee this week, but overall precious, ags, and energy are all a bit boring from the outside looking in. I am bullish silver on a 2-week time horizon because:

• Bullish seasonality
• Blown out sentiment
• Okay chart
• I’m bearish USD

Not the sexiest trade idea, but as long as we are above 55, silver looks to me like it’s setting up for a rally back to $70.

That’s it for this week.

Get rich or have fun trying.

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The fun stuff

TRADE OUTSIDE THE BOX: Advanced Thinking for Professional Traders is out! You can buy it on Amazon right here.

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An incredible trading story, extremely well written. Six minute read.

https://x.com/tleilax___/status/2075136211937583331?s=20

Hat tip to Tim Power

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I am a child of the late 1990s progressive house movement, so maybe this song trips a few dopamine switches because of that… But if you’re feeling a bit blue today, this video will uplift you.

Gareth Emery – Long Way Home

If you spent any time in clubs or at raves in the early 2000s, the bit from 4:00 to 4:45 will make you smile and give you goosebumps, guaranteed.

Via Jared Dillian

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Two good quotes from Steven Wright’s very weird book called “Harold”. I am not recommnding the book, even though I liked it. It’s incredibly odd.

1. Teeth are the only part of the human skeleton you can see while the person is still alive.
2. From his conversations with his grandfather and comments he made he learned that being in love with someone was a very tricky thing and was like gambling with the idea of yourself it was a package deal of positive and negative emotions–a pendulum Festival–like being served a birthday cake that might have poison in it

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