Fotis Papatheofanous is a member of the Investment Committee for a global asset management & investment fund. However this a copy of the recording of the live session that he hosts each week at his Fotis Trading Academy.
Here he teaches students how to assess what is happening around the financial world, using a global macro, top down approach. He then shows them how to create a trade plan for the week (s) ahead. In this session Fotis explained what he is looking to trade for his clients. Notes can be found below the video.
Supporting notes taken by Judith Waker:
Another theme now is the USD which may strengthen, so another reason to take profits but we can still watch for another move outside the balance and reassess. It is the last week of the month so a good time to take profits. If you are still in the trade, just follow your plan, you may be following the trend line…it just depends on your style.
Quick update to begin, the EURAUD trade was closed, it is reacting at resistance and we are seeing that the fundamentals are not supporting it. Also PMIs are out this week which puts it at risk.
USDCAD is now a long. We took this with CAD retail sales dipping on Friday and crude oil is moving down ..on supply concerns: the market is being flooded. This creates pressure in price and this is not good for CAD and other producer countries.
It was a Friday trade …Fotis had a limit order…it is now at resistance and it is struggling, you can get good opportunities when you recognise the structure and buy at the bottom. Fotis is keeping this position and letting it run…the morning call at zerohedge highlights more hawkish comments from the US for an interest hike. Expectations of higher rates are good for the currency.
Kuroda has not ruled out rates in deeper territory. The 100 level is a big and dangerous level for an intervention. For 10 consecutive months there has been a drop in exports. We focus this week on the USDJPY. Question is, where to do business.
We are below the big balance, so wait to move 101.20, this is short term, then look at the structure…if the sentiment does not change this is the place to long. This is top of the watch list. We are favouring a strong USD .
Commodities...Oil prices are pulling back as we mentioned, production building
Bloomberg report on Stanley Fisher at the Fed …he is number 2, the vice chair and influential. He says December is in consideration for tightening and that the economy is close to the target and seeing signs of growth
These are the big macro themes.
The other catalyst, China and emerging markets is the other big theme and this is vital for the global economy
High net worth clients are looking for advise, so Fotis has a presentation for his clients on ETFs.
Scenario Of Inflationary pressures:
The 2 yr and 10 yr bond comparison, in the US bonds are likely to drop if Fischer is right and the rate goes up. The rally has been impressive, in 2008 in the aftermath of the financial crisis, the US was printing money and the yields came down. Now we will see the bonds coming down if this US policy/inflation scenario plays out. The vast majority are not paying attention to the return of inflation. We do not know if they are right to expect deflation and no growth. However if Fischer is right the market will be caught odd guard.
The return of inflation woud bring weakness in bonds , sowe can use ETFs
this moves up when bonds are moving down…only a small position but it can hedge the present climate. This will protect portfolios
This is inflation protected bond. If you understand global macro you can protect yourself. If the BOJ does move further we can sell JPY, but what else? Buy a small DTYS position because it is like insurance. We can reduce exposure to government bonds and get this type of insurance.
Emerging market bonds: These have risen since the start of the year. 99.9 % bonds are below New Zealand yields. So in good times the commodity currencies do well because of the yield. AUD and CAD are included. 51.5 % of government bonds have negative yields: ie… you are paying the government to lend them money. So since the beginning of the year we have seen risk assets outperform…not a surprise…investors need returns, thus mortgage backed securities and emerging markets benefit and we see a flow away from safe haven and towards risk assets.
This is not 100% sure. For example there is an upcoming referendum on the constitution in Italy, and this can cause a crisis in Europe which in turn can cause risk aversion. Trump also can cause panic and a change in sentiment.
Yellen may now be unreliable…officials saying we can go forward but this is not for sure. So the focus is on the Fed in September and the BOJ. So will Yellen give the signal? This is our environment now and it is uncertain. Last year we did not have these issues we had a strong theme. We made good profits but now it is different. If negative rates continue, so will the search for yield.
Emerging market ETF, rising we have a balanced market and we are in the middle so wait for 122.50 for a break or a move back down.
JP Morgan, corporate refinancing risk for next 12 months in chart form (in the attached video)
What has changed…Bloomberg. They show comp between price to book value in emerging markets and in developed markets. The merging sector is cheap compared to developed markets. Not in the short term, but further out they will outperform because they are cheaper. PMIs see improvement. The evidence might lead to stabilisation and growth
Vanguard, VEIVX (in the video)
BRIC 40. 40 different emerging markets. This is a good pattern. If we break the balance pay attention.
Investors are hungry
Emerging markets for consumer…a rising middle class, long term. There will be a demand for products.
In fundamentals we use the same analysis to set up the portfolios and manage them
Upside target, the high of the balance, buy again on breaks upwards.
The rhetoric can continue. Watch for a balance and a test of the lower trend line.
On market profile, we can see on merging that we broke above the value area. And this is the reference balance. We can see the value area high so look for accumulation and tests the high volume note (the target)
Where to do business…a move back inside balance. 101.20, back inside the balance. Do not participate below. The Fed speak is supporting this outlook.
Scanner picking up the bonds moving down.
USD rising and bonds falling. Yields are moving up.
WE are looking to sell commoditieseventually but not yet.
NZDUSD, wait for the pattern to break. It has a strong trend
AUD, do not sell but we can look at higher tests…70/80 is possible medium and long term: it is a sell as they will be forced to cut rates. Exposure of the 4 largest banks with loans to real estate is very big and the loan defaults are growing.
Potentially we can sell the four largest banks. This environment is not right yet.
There is a flow to higher yields so they can still move up.
We do not have the right pattern!
We saw the move down and the balance and it is in the middle so wait
GBPAUD, see chart
The indexes are moving up…DAX wait for higher areas or a move back to balance
A long on pullbacks, 1298/1300
This is a sell at higher levels near 1.14. Look for a consolidation this week. PMIs due this week so wait.
WE are into resistance but we need the structure and the data.
The key is to determine where to do business
EURJPY…look at the structure, higher lows and the BOJ considering a move to lower rates. Also libor moving up in Europe. So this is a long above 114.
WE are looking at BOJ and the USD moving towards arate hike.
USDJPY is a buy
Could be good in the short term if we see improvement in the UK. Prefer the JPY against the USD that is Fotis’s trading style…less volatility
Similar tested the bottom ..if we move to the bottom it could be a long we have a trend line but we still have an unclear idea about Brexit. Technically it could be good high probability trade.
Correlated with EURUSD, which Fotis prefers. Currently at the bottom of the balance. The return of the inflation and if the Fed delivers this will work. After the intervention last year we do not trade Swissie.
This week, key theme, US and BOJ
Opportunities are in the bonds and the possible return of inflation. Times are changing so do not look at one asset class and one strategy. There are many interesting opportunities.
Politics In Europe
The goal is to see how news is manipulated,not to discuss politics.
In the last few days, hackers have released files…see RT.com, and twitter, Soros has been manipulating elections with instructions to journalists! Including in Greece.
Soros decided he wanted immigrants in Europe, so look at zerohedge and RT.com to see how the manipulation is managed.
See also dcleaks.com
Why does he make a society to promote this? He was against Israel, Russia and strong governments in Europe.
France does not like German policy of austerity…so we have to reminded of war crimes. This creates a sentiment and it happens just before a meeting to discuss policy. It is about promoting interests and their own agenda.
Soros was also instructing Hilary Clinton on Europe…
This week is not rich in forex ideas. Focus on the three:
EURUSD, USDCAD, USDJPY
Emerging market bonds are also on the watch list.
Remember this is the last week of the summer.
Europe is in trouble and there are many manipulators. Let’s pay attention to the short term as it may be different.
Monday is for the ideas for the week and we will have a training session Wednesday and Friday.
Final thought: Health care in the US …think about the deficit here. ETFs to sell this sector may be the next subject of interest.
Gold is interesting and a long because we are at risk of downside shocks…also in an inflationary environment it would make gold attractive as an inflation hedge.