Navigating Macro Trades with 3 Core Principles
A Trader's Perspective on Market Headwinds, Government Intervention, and Finding Opportunities
Hey Crew,
Two months into the new year.
Continue doing the work that moves the needle forward.
That’s it.
In this report, I want to open your mind to three core principles that help me with generating macro trades and managing positions:
Strong opinions, weakly held: When presented with new data, don’t revert to old decisions. Interpret the situation for what it is, not for what it was.
Don’t fight the house: When there’s a clear brick wall (central bank or a government) committed to supporting markets don’t fight. Wait until the environment has settled before re-evaluating.
Always look for the spread trade: Find two economies, one with high interest rates, the other with low rates, one with high inflation (UK) the other with low (U.S), one with strong growth (U.S) the other with low growth (EU/UK) and analyse the necessary data to build your macro trade. Spread trades present the most clear opportunities.
Currency Plays
In one of my previous reports I mentioned my currency play on the Chinese Yuan, expressed through my long position on USD/CNH, earlier this week I closed out as a flurry of macro and non-macro factors affected the potential outcome of the position.
I exited the position earlier than anticipated due to the intervention of the Chinese government entering the equities market to backstop the short-selling seen across the HSI (Hang Seng Index) & CSI 300 (Shanghai Shenzhen).
The Chinese government continued to tighten trading restrictions on domestic institutional investors as well as retailers in a measure to prevent widespread panic in its equities markets. This extensive red tape on short selling has prevented top quantitative hedge funds in China from gaining access to selling small-cap stocks or any Chinese listed equity. If you’re wondering what’s the cause behind this extremely negative sentiment surrounding China I summed it up into four points in this article:
Recent economic data from China paints a concerning picture, suggesting the weakest post-pandemic performance in several years. Key indicators released today reveal a continuation of deflationary pressures, with CPI falling 0.8% year-over-year in January (although showing a modest 0.3% monthly increase). This, coupled with the first annual decline in exports since 2016 (a 4.6% drop compared to 2022) and a 5.5% decrease in imports, dampens optimism for a swift economic rebound.