Aurelia Butler

According to Barclays, long-only equity exposure has increased notably since the election, while hedge funds still appear to have the capacity to enhance their positions. This trend is particularly evident in global macro and multi-strategy hedge funds, which have shown limited activity in re-grossing their investments. Despite a sell-off in the bond market, bond funds have not shown signs of a large-scale exit.In the wake of the election, the US dollar has strengthened, leading speculative investors to amplify their short positions in other global currencies, reflecting a growing belief in US economic outperformance.Systematic funds, which include Volatility Control, Commodity Trading Advisors (CTAs), and Risk Parity funds, have recently reduced their long positions in equities, aligning their allocations closer to historical averages. Volatility Control funds have the potential to increase their equity exposure, but any inflows are expected to be incremental, given the volatility anticipated with the implementation of President Trump’s policies. CTAs have notably taken a large short position in the Russell 2000 index, while maintaining a relatively higher position in the NASDAQ index. With rising rates and volatility in the bond market due to inflation concerns, CTAs have also established significant short positions in bonds, and Risk Parity funds have similarly decreased their allocations.The strong US dollar post-election has led to CTAs taking extended long positions on the currency, particularly against the euro. However, recent benign inflation data has created conditions that could lead to a partial reversal of these extended positions in bonds and the EUR/USD currency pair.The EEI aims to provide insights into the underlying dynamics of the stock market by analyzing derivatives flows, including volatility technicals and option flows. Despite recent downturns in the equity market, the EEI indicates a level of investor optimism not seen since the dot-com bubble of the early 2000s, suggesting that investors should proceed with caution. Current equity positions are largely filled, prompting investors to protect against downside risks while showing skepticism towards significant upside potential. This is reflected in the options market, where there is evidence of increased buying of downside protection and selling of upside potential. Notably, institutional investors, rather than retail investors, have been the primary drivers of call overwriting flow, with the supply of gamma from buy-write funds remaining at historically significant levels. Additionally, the positive intra-day auto-correlation signals that dealers are short in this environment.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The report outlined the reasons behind the firm’s belief in the dollar’s continued strength. Wolfe Research had initially identified a stronger U.S. dollar as a primary investment theme at the beginning of the year. The firm’s stance remains unchanged, as they foresee the currency gaining further ground.Wolfe Research also addressed the future of interest rates, particularly the U.S. 10-year yield, which has been primarily driven by the term premium since mid-September of 2024. The firm anticipates that rates will gradually decrease throughout 2025. This forecast is based on inflation moving closer to the Fed’s 2% target, which could lead to additional rate cuts, and a reduction in term premiums following a significant increase due to concerns over Trump Administration policies.In light of the expected stronger dollar, Wolfe Research has provided a screening of S&P 500 companies that generate a high percentage of their revenue from outside the United States. These companies could potentially experience weaker growth due to the currency implications.The report serves as a guide for investors who might be considering the impact of currency strength and interest rate changes on their portfolios, specifically targeting companies with significant international exposure that may be affected by these macroeconomic trends.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

ORLANDO, Florida (Reuters) -As Donald Trump begins his second term as U.S. president, currency speculators are giving the dollar their strongest backing since before he was first given keys to the White House.The question now is whether this signals more USD strength ahead or marks the peak of the current cycle for the “mighty dollar”, as Trump referred to the greenback late last year.The bullish dollar trade has had a remarkable run since late September when investors began betting on a stronger U.S. economy, ‘higher for longer’ U.S. interest rates, and a Trump victory. In the three and a half months since then, Commodity Futures Trading Commission funds have flipped a leveraged net short dollar position against major and key emerging market currencies worth around $15 billion to a leveraged net long position worth over $35 billion. That’s the biggest ‘long’ since January 2016. A long position is essentially a bet that an asset will rise in value, and a short position is a wager its price will fall.At the same time, the dollar index, a measure of the dollar’s value against its G10 peers, rose 10% to its highest level in more than two years, posting multi-year peaks against sterling and the Canadian dollar as well as record highs against emerging market currencies like the Brazilian real and Indian rupee.As the ‘Trump 2.0′ era begins, the dollar index is some 20% higher than its average over the past quarter of a century and at levels rarely seen since the 1980s. As Societe Generale (OTC:SCGLY)’s Kit Juckes notes, the dollar might be “mighty” but may also be “getting a little bit ahead of itself.”TARIFF TENSIONS COOL?Analysts at Morgan Stanley (NYSE:MS) agree, announcing on Friday that they were turning bearish on the dollar and recommend selling it against the euro, sterling and yen. They argue that most of the economic fundamentals and dynamics that have strengthened the dollar recently – and there have been many – are fully priced into the dollar’s exchange rate or even over-priced in some cases.They suggest that Treasury yields have topped out, the “U.S. exceptionalism” narrative has little juice left in it, investors are too optimistic on the size and scope of Trump’s dollar-friendly tariffs, and the doom and gloom surrounding Europe’s fortunes is overdone.Put all that together, and the near-term outlook for the dollar isn’t all that rosy, at least from a tactical if not long-term fundamental perspective, especially with fund and investor positioning so one-sided.As Morgan Stanley’s FX strategists wrote on Friday, “we acknowledge that there is considerable uncertainty about the sequencing and outcome of U.S. policy. But in the near term, we think the asymmetric risk clearly favors dollar weakness alongside lower yields.”Their take on the dollar certainly isn’t unanimous. For example, analysts at Goldman Sachs last week upgraded their bullish dollar outlook citing continued U.S. economic outperformance, supportive Treasury yields, and the belief that the dollar-positive impact of Trump’s expected tariffs has not yet fully been priced in.Still, given speculators’ stretched dollar positions, it might not take much to send the “mighty dollar” sliding from this lofty height.And right on cue, a Trump administration official on Monday said that tariffs will not be slapped on U.S. trading partners immediately. This pushed the dollar down more than 1%, putting it on track for its worst day since August. (The opinions expressed here are those of the author, a columnist for Reuters) (By Jamie McGeever; Editing by Andrea Ricci) More

“We regret Mr. Trump’s announcement to leave the Paris Agreement, which was not a surprise,” Villeroy, who is also the French central bank chief, said in an interview with Bloomberg TV from the annual gathering in Davos, Switzerland.Even before Trump returned to office on Monday, the U.S. Federal Reserve withdrew from the Central Banks and Supervisors Network for Greening the Financial System, a group launched in 2017 to police environmental risks in finance. But Villeroy said the group, which still has more than 140 members, “is more committed and active than ever.” More