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Recent FX Comments
For USD Crosses, as we outlined in our last FX comment on 15th April, we opined that the Dollar Bears were in control. The predicted higher levels on GBP/USD, EUR/USD and lower levels in the USD Index have come to pass in the weeks since that comment.
Both EUR/ZAR and USD/ZAR also met their forecasted price targets in the weeks since our last FX comment.
Recent Global Equity Indices Recommendation & Strategy Calls
After raising our concerns on sustainability of the rally in November 2024 and further Short Sell/Reduce/Take Profits recommendations in January and February, the market did correct nicely, with the MSCI World Index falling from 3900 to 3200 - a fall in excess of 20%. The S&P 500 Index fell over 30%. Our guide for both the entry and exit was the derivatives market - using several volatility and exhaustion models as well as options analysis. We had published a VIX forecast of ~40 as our target level. Once the VIX Futures Contract had reached our target of ~40, we unwound our shorts and reversed from Short to Long - re-deploying the capital that we had released only a few weeks before.
The return for conservative portfolios which do not use derivatives that adopted these recommendations, for the period above, was in excess of 35%.
The return for the Volatility and Derivatives programme, for the period above, was 210%.
Outlook
FX
Very early reversal signs in USD Major Crosses and the USD Index. Path of least resistance for the moment is still for a USD that is slightly weaker than the current print and a re-test of ~98.00.
However, there are clear indications that GBP/USD especially is in a rarefied atmosphere at these levels. GBP/USD at 1.36/1.37 is very possible but we would view such price action as a selling opportunity, rather than a target to aim for, as buyers.
We await clarity from our proprietary indicators on a trend reversal for the USD Index. Today’s up-tick would need to be followed up with some sustained upward bias over the coming trading sessions to >DXY 101.20.
Although today’s comments might appear circumspect, the probability of an upcoming USD turn-around is material enough for us to close all our Short USD positions - closing both our short DXY Index positions and also our Long GBP/USD positions.
Global Equities
We think the summit is in sight. All we need is a catalyst to set off a chain of events that will result in a medium-term top being set in the broad equity markets. For the S&P 500, there is room to run up to ~5925 with Volatility and Risk gauges looking prone to a further squeeze lower.
Trump tweets or other Tariff/Macro signalling could propel the S&P 500, Nasdaq 100 and the European Indices a little higher - but it’s getting more and lonely up here, the further we go. Marginal buyers are noticeably scarcer and the the undercurrents of economic data are indeed troubling.
We’ve been lightening up our exposures and will continue to do so.
Recommendations
Recipients of our emails will occasionally receive listings of Bonds or Equities (inter alia) that we find of interest, rather than precise or nuanced recommendations.
Trade Recommendations as well as recommended Bond and Equity Ideas that we may also own within our Investor Portfolios are provided in the section below.
Below is a list of high-yielding GBP & USD Bonds that we consider are a good fit for our Investors.
In the next issue, we will be circulating a list of Equities that we expect to outperform their Indices over the next 12-24 months.
On all the above - For current & precise entry/exit levels and intra-day position updates in real-time, please reach out to your Axis IM directly.
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