Macro trading is an investment strategy that is designed to take advantage of structural imbalances in global asset markets caused by economic, financial, social or political factors. On a tactical level it utilizes a pre-determined measure of risk to gain maximum leverage in asymmetric investment opportunities. Based on fundamentals, it also utilizes technical analysis to identify potential opportunities and set optimal risk parameters. The initial step in macro trading is to develop an investment framework that not only captures current investment themes, but also assesses the potential of other factors to impact future investment opportunities.
Several factors emerged in the macro world that added quite a substantial amount of volatility to several markets. The China US talks came to a head in the beginning of the month as headlines were fast and furious. The prospect of China leaving the meetings early put the equity markets on edger until we saw the meetings had a conclusion and the appearance of progress. Tariffs were to be postponed in October which was a relief that led to the equity markets rallying and bond market yields rising. Not even 48 hours passed until we heard from China that further talks would have to be had and hopefully progress can be made to put the stage 1 part of the deal in writing when the two presidents meet again.
Bond markets also had some movements where a risk on posture was immediately taken after the China talks. US bond markets started to widen out and the 2/10 year spread which briefly inverted last month has now started to widen out along with the rest of the curve. European bond yields also gained strength where the Bund has moved to levels we haven’t seen in several months. While the Bund and Gilt have seen bigger moves than the US 10 year. With an upcoming fed meeting in the US and several economic numbers will be watched closely. Last month we saw a weak production and services number come out in the US which if continues could lead to further rate cuts in the upcoming months taking away some of the movements, we have seen in the last month in the bond markets.
Commodity markets had some rather large moves during the previous month where cattle had a move higher. Oil market were rocked on the drone strikes in Saudi Arabia taking supply off the market, but it has started to come back online, and prices retracted after a significant move higher.
The 4th quarter will answer several questions and could move several markets and create several opportunities in the strategy. Earnings season is underway where outlooks will be closely watched which could move equity markets in a decisive way. Oil markets will have to be watched if any further actions happen in Saudi Arabia or if any actions taken against Iran. The Federal Reserve will decide whether to cut rates again or leave them the same which will move the bond markets. Brexit will also come into some clarity which could move the currency especially he British pound. The 500lb gorilla in the room will be if a China deal gets more traction. Specifically if the December tariffs get implemented. Our strategy which has now completed 12 months of trading has yielded profits while having very low volatility using extremely low margin to equity ratios. Of course, past performance is no indicative of future returns.
To access the most recent performance from Tyche Capital, please visit: Tyche Capital Advisors LLC – Global Macro Strategy
Tariq Zahir
Tyche Capital Advisors, LLC
www.tycheadvisors.com
Special contributor to aiSource