Multithematic

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Current Views

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Flat

Don’t forget to sign up for Macro Roadmap 2025. Coupon code BRENT gives you $200 off so you pay $299 not $499. Coupon expires Friday.

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Many Themes

A lot going on as China, Middle East, USA and Germany are all grabbing attention in macro space. Let’s start with China.

Bloomberg: China Finance Minister to Brief on Fiscal Policy on October 12

At a briefing that will start at 10 a.m. local time on Saturday, Finance Minister Lan Fo’an will introduce moves to strengthen fiscal policy to shore up growth, and answer questions from reporters, the State Council Information Office said…

…In a nod to the concerns of the private sector and investors, Chinese Premier Li Qiang on Tuesday vowed to “listen to the voice of the market” when formulating economic policies.

The stakes are high here as this will either ratify the “Whatever It Takes” sentiment or put us back on the wrong end of a deflationary disappointment like all the other China Stimulus!™ sad trombones over the past four years.

China stocks rallied on the headlines, then closed at the lows. In a world where bond market vol is at the highs, VIX didn’t pull back on a 200-point NASDAQ rally, the hot trade was to sell puts on FXI and ASHR, and there is a binary event on the weekend… Things could get hairy pretty quick. For your reference, the highest volume ASHR put is the 20DEC24 $26 and the put with the most open interest is the 17JAN25 $23. If you look at the chart, you can see why people sold those particular strikes.

You’ve got that binary event on the weekend, along with geopolitical fears around what’s next between Israel, Lebanon, and Iran, plus you’ve got quite a lot going on in the US. There’s gonna be a lot of short gamma from $26 down to $23 in ASHR. That said, given the current setup, where expectations have now been greatly deflated, the real surprise on the weekend would be a Bazooka stimulus announcement.

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This is weird

When bond market vol rips, and VIX jumps, stocks normally go down. In the past 10 days, VIX is up 6 points from 15 to 21 and MOVE is up 30 points from 90 to 120. Filtering for moves of at least 5 in VIX and 20 in MOVE, NASDAQ has been down an average of around 6% over the corresponding ten days.

But right now, it’s unchanged. For comparison, here are all the times this has happened since 2010, and what the NASDAQ did. Note this is not forward performance, it’s the performance of NASDAQ in the contemporaneous 10 days where VIX and MOVE soared.

Normally I would interpret this as bad news / good price and I would say it’s bullish, but I think there is an idiosyncratic nature to yesterday’s NASDAQ rally as the RV trade of Mag7 vs. China has become a big thing in both quant and discretionary worlds.

For ages, it was a big short China / long tech play and now it’s flipped over the course of the past 20 days or so. There is a seesaw element to this, and I think that’s what we saw yesterday. As China disappointment hit, and Hang Seng and friends dumped, there was forced buying of megatech. That isn’t a particularly sustainable reason to buy stocks. On the other side of the ledger, high volatility and deflationary price action in commodities plus disorderly volatility and policy uncertainty in China might be OK reasons to sell stocks.

Then again, much of US-centric volatility has been driven by good economic news, and GDPNow is printing 3.2%. If good news is still good news, the bull case is that stocks weather this mini vol shock and soar after China announces 4T of stimulus on the weekend. Note that market expectations for the weekend stimulus announcement are in the 2T to 3T range. Meanwhile, in Berlin:

*GERMANY REVISES DOWN 2024 GDP FORECAST TO CONTRACTION OF 0.2%
*GERMAN ECONOMY MINISTRY HAD PREDICTED GROWTH OF 0.3% THIS YEAR

Finally on the US: I think CPI will end up overshadowed by hurricane news, geopolitical news, and the weekend announcement out of China. As such, I would not trade that release aggressively, or at all. Even if you have the best-programmed algorithm in the world, mean reversion is more likely than continuation after CPI.

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Final Thoughts

1. People had given up on playing the election via USDCNH but over the last two days we have seen a huge flurry of topside interest as the levels are just too sexy to ignore.

2. Today, Alfonso Peccatiello showed me a cool feature I had never seen before on Bloomberg. MIPR. It shows implied policy rates going out 3m, 6m, 1y, 2y, 3y, along with the recent range for those figures, and some other cool stuff. Screenshot below. It’s a great place to scan the world. It also has a world map feature which is nifty but totally useless.    :]

Have a beautifully cloudy day.

https://x.com/hollyanndoan/status/1843102381808234876/photo/1

Asperitas is a distinctive and rare cloud formation that takes the appearance of rippling waves. These wave-like structures form on the underside of the cloud to make it look like a rough sea surface when viewed from below.

Although they look storm-like, they almost always dissipate without a storm forming.

https://en.wikipedia.org/wiki/Asperitas_(cloud)

good luck ⇅ be nimble