Thanks for this Alfie. Think i'm broadly in agreement with your view on this. Just a few comments from me, would be interesting in hearing your thoughts:
To confirm the view, i'd really like to see the persistent outperformance of Europe / ROW equity vs US equities. Why? Because at the margin, it's a reinforcing mechanism of the weaker dollar thesis, not just a by-product of it i.e global capital allocators rotating out of US equities into non-US markets. This would obviously require selling dollars and buying foreign currency exposure which would add incremental pressure on the dollar. I'm not sure we're massively seeing this right now given the amount of liquidity that is being pumped into the US economy to fund the AI Trade / buildout?
Obviously, this view represents FX changes at the margin, but for me, it's an important bit of info re. how i'd want to express the trade in FX terms. For me, SOFRZ7 probs has the greatest R:R here, but i'm very keen to wanting to express this on the FX side too (EURUSD, GBPUSD). Do i think inflation prints are going to come down again as the geoplitical shock fades? Yes. Do i think rates come down in US? Yes. Do i think ECB and BoE keep rates on hold? Probably. Do i think ROW equities outperform US, in particular Euro..., i'm not sure...
Yeah the good thing about your view is that it can coexist with a weaker dollar. I still think US will outperform the Eurozone in most scenarios. Nice reasoning I like it
I think SOFR is more asymmetric that trading the FX pairs at the minute because of how fast changes in differentials are happening, too many different drivers in my view right now
Nice read! Thank you for your view and input as always.
While I align with the forward curve mispricing argument, I fundamentally disagree with the rest of the thesis.
My take on this bullish dollar is that the global economy is structurally short the dollar through trillions in offshore USD debt. When an oil price spike hits without a real wage bounce, consumers get crushed, triggering a severe economic slowdown. This contraction kills the organic dollar revenues of these countries. Because their fixed dollar liabilities remain rigid while their dollar inflows dry up, mechanical demand for dollars rise, forcing a procyclical short squeeze that drives the dollar higher.
However i am on the opposite side, i hope youre thesis plays out, and if you have some counter arguments i can learn from theyre always welcome :)!
👍💐
Thanks for this Alfie. Think i'm broadly in agreement with your view on this. Just a few comments from me, would be interesting in hearing your thoughts:
To confirm the view, i'd really like to see the persistent outperformance of Europe / ROW equity vs US equities. Why? Because at the margin, it's a reinforcing mechanism of the weaker dollar thesis, not just a by-product of it i.e global capital allocators rotating out of US equities into non-US markets. This would obviously require selling dollars and buying foreign currency exposure which would add incremental pressure on the dollar. I'm not sure we're massively seeing this right now given the amount of liquidity that is being pumped into the US economy to fund the AI Trade / buildout?
Obviously, this view represents FX changes at the margin, but for me, it's an important bit of info re. how i'd want to express the trade in FX terms. For me, SOFRZ7 probs has the greatest R:R here, but i'm very keen to wanting to express this on the FX side too (EURUSD, GBPUSD). Do i think inflation prints are going to come down again as the geoplitical shock fades? Yes. Do i think rates come down in US? Yes. Do i think ECB and BoE keep rates on hold? Probably. Do i think ROW equities outperform US, in particular Euro..., i'm not sure...
Yeah the good thing about your view is that it can coexist with a weaker dollar. I still think US will outperform the Eurozone in most scenarios. Nice reasoning I like it
I think SOFR is more asymmetric that trading the FX pairs at the minute because of how fast changes in differentials are happening, too many different drivers in my view right now
Yeah this is fair. Cheers !
Fully agree here!
BOOM!!
Nice read! Thank you for your view and input as always.
While I align with the forward curve mispricing argument, I fundamentally disagree with the rest of the thesis.
My take on this bullish dollar is that the global economy is structurally short the dollar through trillions in offshore USD debt. When an oil price spike hits without a real wage bounce, consumers get crushed, triggering a severe economic slowdown. This contraction kills the organic dollar revenues of these countries. Because their fixed dollar liabilities remain rigid while their dollar inflows dry up, mechanical demand for dollars rise, forcing a procyclical short squeeze that drives the dollar higher.
However i am on the opposite side, i hope youre thesis plays out, and if you have some counter arguments i can learn from theyre always welcome :)!
Your thesis is definitely something that could play out. Always love hearing the other sides of my thesis’ so thanks for sharing man!
Great article mate
Thanks man !
Great piece mate 👌🏽
Thanks Dom !