Markets rallying and sending VIX lower but watching ley levels as we remain elevated through the Fed this week.  I want to see the VIX close below 15 today but it’s difficult to expect vol to disappear no matter what the Fed tells us on Wednesday. 


The rates scare we had 2 weeks ago after the NFP number has left and we may be challenging below 2.00% after we hear from the Fed.  Any sense that “patience” is left into the statement means yields can break back lower.


How oversold was the Euro?  In our view, very and how crowded has this trade become?  Some of the biggest macro funds in the world have been pushing this button.   If the Fed sends more of a message of caution on their move to hike rates, you could see more profit taking.  We said that 1.06 would hold and that a move to parity needed a more aggressive Fed of a European Greek or credit crisis.


…Meanwhile the DAX breaks to cycle highs, being the best way to have played Europe so far this year.  Industrials and exporters remain the horses(Daimler, Siemens, BASF, BMW, Volkswagen)


We now prefer to own Italy with relative valuation attractiveness and having underperformed.  Higher dividend yield as well.


The EWP which tracks Spain offers a 5% dividend yield as has underperformed the whole group.


The story today remains Oil.   Oil prices are walloped on a combo of OPEC saying they expect US production to0 hold until 2H despite lower prices and Genscape data.   The signal here is that OPEC won’t cut in their June meeting and bother to defend price while respecting market share instead. 


You can see that oil prices in the last 7 days are -15% and -19% from the recent highs.  Bear mkt rallies can be violent especialy when short covering is making fundamentals.   New cycle low for WTI.

Thus commodity prices remain under pressure with fresh lows for CRB.  We highlight our 200 call on CRB to hold but we have been clearly fighting a losing battle on commodity prices with Dollar strength. What is disappointing today is that DXY is -75bps today and commodities cant rally.  Copper with best fundamentals in the group is holding up.



EM outperforming small today but you can see still struggling to get back above the 50mda with the 200mda a distant memory.


All EM currencies rallying back today but have a long way to go.  Today’s move not terribly impressive – see Mexico:

We continue to think we are building towards a capitulate moment for Em but are not there yet.  Getting the Fed out of the way will prove much tough than we thought as we see markets unnerved by the concept of a hike even if it would only be one or two on the road to waiting for a proper recovery.


Chinese internets largely better but gamers getting crushed again proving that the small rally was a head fake and a value trap.  Melco to fresh lows…


Countries overall continue to show Asia outperforming ass a region.  We remain OW in Korea and think rate cuts continue along with Taiwan.  After a nice pullback of 5% in 7 sessions, India near key level of 28000 on Sensex.


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