Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 30 January 2018 at 12:09 GMT

Macro Digest: VIX close to alert level (14.58-60 trigger)

Chief Economist & CIO / Saxo Bank
  • VIX, Citi Macro Index signal risk warnings
  • USDJPY vols, Nasdaq puts strong potential plays
  • Trump's State of the Union a possible event risk
Are markets poised for a period of big swings? Photo: Shutterstock

By Steen Jakobsen

Objective: Risk warning on a potential break-up in volatility and downside in risk.

Action: We suggest buying USDJPY volatility downside as the “cleanest” way of playing the risk-off. Alternatively, you could buy downside NASDAQ puts.

We are entering a potential risk alert on volatility and macro risk as measured by the VIX and Citi’s Macro Risk Index.

The chart below is drawn using the “momentum model” of the 100-day Donchian line .
Donchian line
Source: Bloomberg

Also, from a friend of mine... (GertH):


Furthermore, one of the best risk-on/risk-off models is that underpinning Citigroup’s Macro Risk Index. Note how the model has not been above 0.5% since the US Election in November 2016.

Citi Macro Risk
Source: Saxo Bank, Bloomberg

What is “odd” here, of course, are the compressed credit spreads and equity valuations.

We will keep you posted on the daily and monthly closes of these indices but for now a small warning is warranted We also see some event risk overnight from President Trump's State of the Union address despite the widely leaked content indicating a more conciliatory, Davos-like tone.

-- Edited by Michael McKenna

Steen Jakobsen is chief economist at Saxo Bank 
30 January
RealNail RealNail
Can anybody clarify what means “buying USDJPY volatility downside”? Is it shorting USDJPY?
30 January
Michael S. McKenna Michael S. McKenna
Steen is referring to FX Options and not spot FX.
30 January
brandon lee brandon lee
Perhaps buying usdjpy puts at lower than spot right now?
30 January
Steen Jakobsen Steen Jakobsen
Sorry for late reply - yes buying OTM USD p like strike 105/106 - generally USDJPY volatility and direction is "fast" and highly correlated to risk off
30 January
brandon lee brandon lee
Thanks Steen!
30 January
ka26 ka26
TLT decreased to 122. Bay ?
31 January
do you mean to be long on usd/jpy or buy call options ? do you mean to be long on usd/jpy or buy call options ?
do you mean to be long on usd/jpy or buy call options
01 February
Steen Jakobsen Steen Jakobsen
Re TLT - Yes I think its about time - We expect by end of February to see weakness in US data - doing piece on our forward looking model over weekend, but here is the 2018 2019 projection in chart:


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