Ever wishing our readers had an enjoyable holiday season, the first trading days of this year were very positive for our portfolio as we took a relatively large position in shipping services to hedge the risks resulting from the ongoing situation in the Red Sea, nonetheless, we are aware that the disruption in naval traffic may have significant implications in the supply chain resulting in a “transitory” spike on CPIs, particularly in Europe.
Under these circumstances we may see a short term bounce in the performance of trades exposed to the primary sector as they have continued to lag during the last month. As always we keep an open mind but we do not see any similarities to the commodities super cycle of the 70s:
Getting into monetary theory, the facts that money supply is contracting and money velocity remains under pre-pandemic levels, the scenario seems unfavourable for the inflationary/commodity boom thesis:
Entering into currencies, as renminbi bounces back towards 7.30 (our long term target has been 7.50 for a while) it pulls DXY back up, we think this move in the dollar index will consolidate around the 105 mark, and at the moment we see little reason to expect it breaking the previous high of 107 unless the CCP is unable to hold the 7.30 level, which, given the clear lack of liquidity within the system (one can see it in the Hang Seng’s dismal performance) could not be as improbable as one may think.
Nuclear energy has been trending lately, unfortunately for us as we sold our rather large URA position back at just above 27 waiting for a pullback to 22 which at the moment seems rather unlikely, we very much like the trade as a structural overweight and will get back in soon.
It comes as a surprise to us that real dividend yield in the SP500 remains at these depressed and negative levels, we expected this to turn positive as rate cuts became consensus yet it has stagnated here for over a year.
And finally, while our conviction on being long MXN is not as high as we’d like, we do like the current levels of yield they offer, and picked up some 1 month bills at auction yesterday at 11.30% which is over 6.20% in real terms
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Bills on MXN tradeable for intitutional? Would love an ISIN