Macro Trading Ideas

Thought I'd try and get some NON TA discussion going. What d'ya reckon?

Long AUD vs JPY

1) Breakdown in Correlations

90d and 30d Correlations between AUD/JPY and the $SPX are now below their pre "cheap money buy anything" levels that we saw this time last year, indicating a move away from the risk on / risk off market that dominated most of 2009.

{red line = AUDJPY, green line = SPX]

2) Non Commercial positioning at 2008 highs

Last time Non commercials were this long, the SPX was closing at pre-lehman levels (still another 100pts higher than where we are now), and AUD/JPY was up at over 100.

3) Positive carry and getting better

3m IBOR's currently leave a long AUD/JPY position with 3.9119% positive carry - and it's getting better.

{red line = AUDJPY, Blue area graph = 3m AUD IBOR - 3m JPY IBOR}

Plenty of fundamental reasons why you would want to be short JPY (and similarly long AUD), but none of them are my own so I've left them out.

Interesting thread idea.

Any thoughts about the sharp fall in AUD/JPY on Friday?

(I was long, for fundamental-ish reasons, and got burned :-( ).

AUD led by the fall in commodities..?

Dunno if this counts as FA but as you had a clip from COT report...the net long exposure to WTI last tuesday was highest since 4 of July, which was the high of oil rally last year (i believe)...found this quite interesting, tomorrows report should be quite interesting...no strict fundemental reason but the idea perhaps correlates with ideas that the econ aint out the woods yet and china is slowing down commodities purchases...but main point was COT report, what software did you use for the graph btw?

as an aside USD/JPY could be good this year fundementally

Today AUD/JPY has sold off quite a bit, on what I think is due to these rumors of RRR hikes and cessation of lending...

... well, this is something I hadn't considered, and I really don't want exposure to it because I don't understand the full implications of yuan revaluation vs rate hikes - I can consider cases for China's commodity demand going up and down and don't want to pick one.

It follows that I want to hedge out the "china commodity demand" factors out of the trade. In that case, I have made up a weighted index of Australia's leading exports to China - Iron ore, Coal, Copper ore and Wool:

Iron + Copper = LME base metals index (50%)
Coal = Dow Jones Coal index (25%0
Front month Cotton future (as proxy for wool) = 25%

A short position in this index (via its constituents) goes on top of the original AUD/JPY position to take out the china risk.

In the chart, Blue area graph = Aussie export index, Bar chart = AUD/USD. Correlation and Beta are there too.

Right, was just having a little think about this; Presently I'm long AUD/JPY. I've tried to limit the exposure to commodities / china / AUD with a short position in the aformentioned index, so the PnL is now primarliy driven by JPY strength / weakness and the interest rate differentials.

Thinking about the foreign trade relationships that will be a driver of spot prices, I want to add another position onto the same trade - a CDS relative value trade. Let me explain:

If, as I expect, the yen weakens, this should encourage an increase in Japanese exports - i.e. a net inflow of yen into the country. Similarly, if emerging markets keep up their demand for commodities, this will see more dollars flow into Australia.

If these happen, AUD/JPY should rise. But what if it doesn't?

If the yen doesn't weaken, or exports don't start to pick up, the japanese are really screwed - credit should become more expensive. On the same note, if the demand for Australia's commodities falls off a cliff => Australian credit should become more expensive too. I rate the Australian situation over the Japanese one - ergo, I'm going to sell Australian credit and buy Japanese credit with the proceeds. I tried to find information for prices / products from Markit, it was a bit messy to say the least (coupled with the fact that I wouldn't know which products to trade, I'm guessing just country specific IG CDS indicies?).

So a quick review of the trade is:

LONG AUD/JPY

Looking for the interest rate differential, and hopefully some gains from the spot rate too thanks to Mrs. Watanabe.

BUT I don't like the idea of being so heavily exposed to China's demand for stockpiling commodities (via AUD) so I've taken out a trade weighted hedge against them. This leaves us with a position that is largely driven by the JPY side of the equation (AUD rates aside).

AND what if I'm completely wrong? If that turns out to be the case and the JPY doesn't weaken (through intervention and positioning), then Japan is really up sh!t creek and the Credit position should cover some of our losses.

adding to this here

Got any macro plans with GGBs as one leg? Seems right up yer street...

Interesting thread. I'm not a forex guy and can't contribute much but I will read with interest.

Keep it up !

re: GGB's, I think that the best opportunity for going long Bunds vs. Gilts + 10yrs has passed us. A few more rough trade ideas in the mixer at the moment are:

# Canada - CAD 10yrs vs US 10yrs? CAD vs CL?

# Europe - Periphery long shorts, e.g. short Spain vs long Norway (or France?)

# Short Equities (but w/ Beta < 1)... Sector ETF long/Shorts maybe

Had a bit of a sh!tstorm in the out-of-work life past 10 days so don't hold your breath...

MrGecko said:

# Europe - Periphery long shorts, e.g. short Spain vs long Norway (or France?)

Click to expand...

Just for lulz

sterling flattener over election. controversial....

I like that actually

Sterling flattener, bor steepener... And long CHF.

i hear that bor, sterling box is the trade de jour. the guy that bought 45k of the dec-mar sterling at 29 did nciely.

Martinghoul said:

Sterling flattener, bor steepener... And long CHF.

Click to expand...

Long CHK is never bad when the SNB are likely to intervene again at some point. Bor steepener??? short end led?? (shatz is yielding something like .78bps) or long end led, greece bailout bund dumps???
other question, could shatz yield libor???
as for sterling, why do you see it is a flattener??

you STIR guys actually speak in another language!

red army said:

Long CHK is never bad when the SNB are likely to intervene again at some point. Bor steepener??? short end led?? (shatz is yielding something like .78bps) or long end led, greece bailout bund dumps???
other question, could shatz yield libor???
as for sterling, why do you see it is a flattener??

Click to expand...

mean reversion and we're fcked up sh1t creek with no paddle and a large hole in the boat.

the world and his wife have been short schatz this year-how many times can you stop your account out is the question!

red army said:

Long CHK is never bad when the SNB are likely to intervene again at some point. Bor steepener??? short end led?? (shatz is yielding something like .78bps) or long end led, greece bailout bund dumps???
other question, could shatz yield libor???
as for sterling, why do you see it is a flattener??

Click to expand...

Short-end led, as the ECB wheels out the big nukes... As to the bund dumping on a Greek bailout, I think we have seen now what a Greek bailout actually does to the bund.

Not sure what you mean about schatz yielding LIBOR.

As to sterling, I really don't think hikes are on the agenda for Mervynator. Obviously, all depends on the election.

interesting this morning. libor v 1 year repo