SocGen’s Kit Juckes Is “Back From The Alps”: Here’s His Quick Pocket Guide To An Uncertain Market

This would be a good week to keep your shit together.

The tough thing about a market dominated by geopolitical concerns is that geopolitics is country- or at least region-specific.

There’s nuance, idiosyncrasies, thousands of years of history peculiar to this country or that, religious undercurrents, etc., etc. You have to take all of that into account when trying to make sense of markets in the context of multiple geopolitical powder kegs.

Quite frankly, that’s impossible to do without formal training in political science and history, which is why you see so many ostensibly “smart” websites simply copying and pasting copy they found on Reuters (sometimes without quotation marks). If all you know is finance, this is an exceptionally challenging environment in which to comment, let alone trade.

Indeed about all you can do is try to kind of keep a running tally in your head of the high points (or “low” points, depending on how you’re inclined to view things like Erdogan expanding his powers).

In the interest of providing readers with a good example of how to effectively synthesize and synchronize the flood of geopolitical headlines and markets, we present the following from SocGen’s Kit Juckes who’s been around long enough and has a diverse enough CV to know how to step back and quickly put the pieces together.

Via SocGen

I’m back from the Alps, my family are 24 hours into Chocolism and markets are not exactly very interested in trading. But for the record, 2.21% 10year Note yields are a reaction to soft the US data (notably CPI) on Friday and this morning, to softer oil prices. JGB yields are back under zero and Asian equities are mixed. In FX, the big overnight mover is the Turkish lira, up 1.4% against the US dollar after President Erdogan’s narrow, contested but hugely important referendum victory. It’s worth noting too, that behind the Lira, the other winning currencies are the Rand and Ruble as risk-appetite remains resilient in the face of geopolitical tensions. 29bp for 10year real yields on TIIPs is fuel for yield-hunters. A DXY-weighted real yield differential meanwhile, looks dollar-unfriendly.


How long does the prospect of a shift away from secularism and away from democracy drive investors into the Lira on the grounds that at least there’s stability and the alternative, a ‘no’ vote that would have raised fears of a response from the Government, was much worse in the short run? We’re getting a rally, it may go a bit further, but it can do so without us. Our EM team removed TRY from their long EM carry basket and are waiting to see what kind of policy changes we see.

As for the rest, Jason Daw observed overnight here that the US Treasury has refrained from calling any country a currency manipulator, while the Chinese released strong economic data that owe much (too much) to the housing sector. And in France, the latest poll (from Opinionway) puts macron and Le pen at 22%, Fillon at 21% and Melenchon at 18%. So where last week it was Melenchon who was surging, now M Fillon is closing in. Uncertainty reigns supreme and relative rates are going to struggle to drive the Euro higher against that backdrop

I don’t think we can have much risk aversion for long given the yield backdrop and the fading fear of inflation. But then, I live far, far away from North Korea and Asian markets may be inclined to be more nervous for longer. CFTC data for last week showed sizeable oil longs, but not much in the way of USD overall positioning, and not much in bonds either. The big GBP short remains intact and will go on providing some support for now

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