Weekly macro review

Fixed Income:

Rates: US: rates modestly higher and mildly steeper; UK: modest bear steepener; Germany: rates “Draghi”ed lower across curve; Japan: pivots tepidly flatter

MT & LT US Inflationary Expectations: Breakevens biased higher in MT, modestly higher in LT; 5y E(inflation), 5y fwd higher; inflation swaps divine similar signals

Fed-Funds Pricing: Oct prognosticates 6% chance of 25bp hike to 0.25%-0.50%, +/-0% w-o-w. Dec postulates 38% chance of 25bp hike to 0.25%-0.50, +4% w-o-w. Jan-16 estimates 50% chance of 25bp hike to 0.25%-0.50%, +4% w-o-w. Mar-16 conjectures 78% chance of 25bp hike to 0.25%-0.50%, +8% w-o-w. (Oct, Dec, Jan-16 & Mar-16 use next month’s contract to avoid late-month calculation leverage; further-out rates tend to reflect liquidity/term premium; calcs assume path independence)

Short-term fwd 3m LIBOR curve (liquidity barometer): Euro$ future yields commensurate with short UST rates, leaving ST swap-spreads unchd; nearby TED, spot 3m Libor-OIS & fwd (near IMM date) 3m LIBOR-OIS flat

Credit Spreads: swap-spreads biased a bit tighter in MT; IG CDS tighter; HY CDS 3x so; AAA MBS CF spread marginally tighter (relative to swaps); decisively tighter further down B spectrum (BBG composite; relative to swaps); high-yield spreads nicely tighter per BBG (BBG trade-based data; relative to swaps), emerging-market spreads grudgingly so

Foreign Exchange:

Dollar index surges, gaining, in order, vs. EUR, CHF, JPY & GBP, amongst majors; CAD weaker, AUD less so; carry generally weaker and depends on funder; BRL firmer, MXN lower; spot CNY flattish, implied 12m forward CNY depreciation at -3%, -0.4% w-o-w as forward underperforms spot

Commodity:

CRB stumbles, crude tumbles; 2:1:1 crack spread higher, exaggerated by low base, as gasoline & heating oil outperform crude; nat gas sinks lower; cattle gores higher; softs, save flattish corn, mildly lower flagged by rice; industrial metals all lower with Al worst; steel equities flat; Baltic dry-goods noses firmer; precious complex tepidly weaker; nominal Au off, less than telegraphed by much firmer DXY, leaving ccy-protected Au firmer

Equity:

All celebrate Oktoberfest with Germany best, amongst developed-markets tracked; NJ-Asia all gain though largely in the decimal; EU Eastern-Euro mild off, Russia mild on; Latin Am modestly higher, amongst developing-markets followed

VIX mildly lower on firmer market, implied avg correlation a shade firmer; Top/bottom 10 realized weekly industry returns biased green, magnitude and direction, as reflected in attached statistical summary

S&P 500 Sector: Info tech, industrials and financials best in green; energy, healthcare and utilities worst, and only three, in red

S&P500 Industry: Distributors (GPC), software (MSFT best) and airlines (LUV best) best in green; textiles & apparel (PVH & VFC worst), healthcare providers & services (THC worst) and multiline retail worst in red

Fundamental-based implied-ERP indicator: ST Trader: FV zone 3m & 6m; MT trader: FV zone, cheaper end, 1y, biased cheap 2y and FV zone, cheaper end, 3y; LT trader: FV zone 5y & 10y and ultra LT marginally cheap

Trend-based technical indicator: SPX classical LT trend-based signal stays with downtrend with ST, and now MT, moving averages dissenting on price reversal. NDX classical LT trend-based signal flips to uptrend with LT moving average cautioning. Signal switching typically causing headaches for trend-following CTAs.

Hedge Fund:

Inter-Asset Class Greed/Fear Indicator:

Composite-level G/F index round trip back to summer sanguinity with SPX and VIX insouciantly throwing all caution to the wind

(Please review pdf link below for statistical summary)

Note: calculations Risk Advisors, data Bloomberg

Proprietary and confidential to Risk Advisors