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Variant Perception’s Leading Indicator Watch
Each month, we produce a report which we call our Leading Indicator Watch. In it we update all our main leading indicators that give us leads on global growth, liquidity, commodities, US growth, US consumption, US manufacturing, corporate profits, volatility and...
read moreSovereign CDS Spreads Highlight Low Risk Premia
Much in the way that monetary stimulus has turbocharged equities, unprecedented low interest rates in developed and emerging markets have artificially compressed credit default swap spreads. As the charts below show, CDS spreads are anchored at the bottom end of the...
read moreWatch the Real Yield Curve
Real yields are an indicator of risk appetite. Persistently negative real yields are often a precursor to extended levels of leverage and credit bubbles. When they start to rise they point to tightening financial conditions which stresses firms’ equity, causing equity...
read moreNosebleed Valuations Persist in US High Yield
In August, we had reviewed a few charts showing that US high yield valuations were divorced from fundamentals, as well as to other yield products. This week, refreshing those charts, we can see that things are just as bad. US high yield seems to be the most vulnerable...
read moreThe Yield Curve and Volatility
Falling liquidity was one of the principal reasons behind our call for a flatter US yield curve this year. Excess liquidity often drops towards the end of an expansion. At the same time the relative demand for credit falls, while the central bank is reacting to...
read moreNegative on EURINR on Divergent Rate Differentials
Rate differentials are a key driver of FX moves, and we look at rate differentials by adjusting for the effects of both inflation and embedded risk in the market. We do this by looking at 2y nominal-rate differentials, adjusted for CPI and then divided by the implied...
read moreFX Hedging: A Hidden Risk for Eurozone Equities
With a synchronised recovery in economic activity underway, memories of the 2015-2016 deflation shock fading and a slew of benign election results (Dutch, French and German), confidence in the euro area has improved markedly since the beginning of the year and has...
read moreThe Anatomy of a Bubble
In addition to our usual shorter blog posts, we will be posting a series of longer, more in-depth posts that illustrate our framework, and explain how we look at markets and the economy. In this first post, we tour through the work of Hyman Minsky and Charles...
read moreDollar Very Stretched to the Downside
The DXY index has fallen in a straight line this year, with the Sharpe ratio of the YTD move at almost 2.4. Although we have been bearish on the dollar from a macro point of view since last year, the dollar does look vulnerable at present to a short squeeze. The top...
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