Markets Behaving Like Space Mountain

The worst thing about coming back from a holiday in America is the jet lag. It’s been four days since Macro Man returned from the States, and he’s still struggling mightily to get to sleep before 2 am. Ugh. Hopefully he can get caught up over the weekend and have a little bit more energy next week.

Unfortunately, markets aren’t providing much inspiration thus far upon his return. He referred to the market “roller coaster” yesterday….well, it’s continued apace today. It’s beginning to feel a bit like Space Mountain, actually.

FX is a particularly fruitless field at the moment. Macro Man has zero G10 FX risk for maybe the first time in history, and frankly at the moment he can’t see anything that looks attractive to him on the horizon.

He has a couple of charts to illustrate how difficult that market has been. Consider two of the more consensus macro FX views out there: long NOK and short NZD. The love for the NOK is virtually universal, with something like 4 sellside research groups separately recommending the same exact trade (short GBP/NOK.) The reaction to today’s Q2 GDP figure was telling…although overall GDP was much weaker than expected, sellside focus was exclusively on the solid mainland figure. The hatred of the kiwi is longstanding and, if Macro Man examines his own views in the harsh light of day, possibly a little stale.

Anyhow, the street hates NZD and loves NOK. So naturally, NZD/NOK has enjoyed an uber-rally for most of the year.

FX struggles are hardly confined to thematic macro punters. At least we can decide to stay the hell away. CTAs, meanwhile, have to run their models continuously. Their payoff profile is one that replicates a long vol position; in a world where VIX (^VIX) has gone from 45 to 25 over the past 5 months, this has unsurprisingly not been a pleasant time for the trend followers.

The Barclay FX CTA index, shown below, would dearly love to ride a roller-coaster; at least passengers on Space Mountain have to go up before they go down.

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