Video

#SaxoStrats
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
Denmark
  • VIX, Citi Macro Index signal risk warnings
  • USDJPY vols, Nasdaq puts strong potential plays
  • Trump's State of the Union a possible event risk
Volatility
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):

VIX
 
Source: Investing.com

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:

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail