Chart of the Day
The CFTC Commitment of Traders shows non-commercial traders have now built a sizeable long position across USD contracts, the largest since 2019. The theory behind the trade appears sound; either recent concerning developments lead to a slowdown in global growth and the USD benefits as there is a flight to safety in Treasuries, or the outlook remains strong and the USD benefits as the Fed signals tighter policy – these are the two sides of the so-called “Dollar Smile”. Yet extreme long positions tell us the trade is getting crowded, and often coincided with a peak in the USD – sometimes only on a short-term basis – such as in early 2017, late 2019 or mid-2019.
Macro
The Job Openings and Labor Turnover Survey showed the job openings rate unexpectedly dipped but remains high. The quit rate is now the highest in decades, as workers grow more confidently to leave their job.
US small business price plans rose again in September.
That may be the reason why small business confidence dropped.
Markets
The S&P 500 has generally underperformed the other advanced economy equity indices lately, with the FTSE gaining the most ground.
The Spanish Ibex has also done well. Unlike the Asian indices on this chart, the European indices are less exposed to tech stocks, which have performed poorly.
Traders have not taken the run-up in oil as a sign to get back into other commodities.
US stocks performed poorly again yesterday even as implied volatility declined.
The US 10-year continues to rise – it others good value to foreign investors as well, even when they hedge the position into their own currency for a year.
That could spark some inflows into the US market, especially from Japanese investors where yields remained pegged to 0%.
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