Global Macro Strategy: Taking profits on European positions

Research evidence excerpt

Global Macro Strategy: Taking profits on European positions

ties and Hungarian

bonds, our only naked receiver position. We leave our bullish US equity position in

the more medium-term Global Asset Allocation unchanged. Note: Futures trading

involves substantial risk of loss.

Taking profits on HGBs. We had gone long the belly of the curve before the election

as the incoming president was expected to be very bullish for markets, lower risk

premia whilst the central bank had an easing bias. This had largely played out, with

term premia compressing 50bps+ and the EU unfreezing 16.4bn (EUR) in funding.

We took profits on half the position shortly after the initial rally and today, we take

profits on the remaining half. Positioning is significant and the move in oil will

dampen any local bullish stories. The next political catalyst (credit budget plan

announcement) will come at the end of August. The central bank has kept its

dovish bias, revising down the inflation outlook and guiding towards further cuts in

the summer. However, we found it slightly concerning that duration failed to rally

even after the weaker CPI this week. The easing cycle seems well priced and is

closely in line with our economist's forecasts for a terminal at 4.75%.

Close our European equities long. With the MoU in place, we tactically bought

European equities given lower oil prices and improving ToT. Now once again,

without a strong AI exposure, European equities have been left at the mercy of oil

moves and vol, as shown below by how closely they have traded the peace deal and

ceasefire odds (Figure 1 and Figure 2). If the rally in oil continues the pullback in

European equities can be significant having priced out most of the conflict. We

close the trade with a tiny profit.