One Big Macro Trade - Macro Monthly

The world has morphed into one big macro trade. We’ve been saying for a while how financial markets are increasingly driven by global policy rather than underlying fundamentals. As a result, elevated intermarket correlations between major asset classes puts financial markets on fragile ground, especially given the increased sensitivity to fluctuations in the US dollar.

Speaking of which, the most dominant trend over the last few months has been the rapid sell-off in the US dollar. Conversely, one of our biggest concerns recently has been how exposed investors are to a reversal in the greenback as many of today’s most popular trades have an implicit short USD bias.

Market volatility is likely to remain elevated as we inch closer to the election, but in our view, the dollar bull trade is driven more by the rising risk of insolvency and deflationary pressures rather than an adverse election outcome; several indicators suggest the market is beginning to price in a more