Keith GrindlayPerformance



European economy to slow following the deceleration in Asia; therefore, there was a need to differentiate between economies and economics. Selling the Indian Rupee and Indonesian Rupiah was favoured, as EM currencies were expected to continue to underperform. Italian yields were expected to underperform those of the rest of Europe.

MT forecast UK GDP of 1.75% for 2018 and CPI to return to 2% by the end of the year. Having favoured buying GBP at 1.22, and continuing to hold at 1.32 into the new year, 1.42 was favoured, as well as buying against AUD.


Ahead of US Unemployment data, MT’s report ‘Volatility Wakes’ forecast a return of volatility after months of complacency, highlighting the painful risks of over optimistic consensus positioning.


Chinese 10 year yields had been following the US since September, but as Chinese and Asian economies were slowing, while US data had started to gather speed in anticipation of higher trade tariffs and tax cuts, this could not continue.High yield bonds were expected to outperform investment grade bonds, as a result of the increase in US Treasury issuance.


Dollar to appreciate after China cut the RRR rate, (buying against Yuan at 6.42, targeting 6.88, GBP at 1.38, targeting 1.28, and Euro at 1.24, targeting 1.17, 1.15 and 1.12). Bitcoin was expected to fall to $3,000.


As the IMF raised their global GDP expectations, this was seen as being too optimistic and failing to recognise MT’s fears for Emerging Market growth.


Net global central bank rate policies had changed from easing to tightening, as EMs (and not just those with high deficits) fought to defend currencies.


Despite the BOJ’s attempts to tighten policy, MT highlighted the bottom of their rate band may still be relevant. With financial conditions tightening globally, raising risks, Investment grade bonds were expected to start outperform High yield.


A month that started with extreme market volatility, returned to trend by the end of the month – MT commented, ‘August’s angst can become October’s trend.’


MT predicted both Merkel and May had limited time left and asked, ‘are central banks ready for more economic shocks?’

Australian and Canadian housing markets were in decline, therefore AUD yields were expected to fall from 2.73%, and Canada STIR curve flatteners were considered, while US Q4 GDP was predicted to fall below 3%.


MT forecast the reversal of oil prices, predicting a sharp correction lower, (WTI from $73.50, targeting $63 & $45) after the EIA conservatively (in MT’s opinion) lowered their oil demand forecasts. As a result, Inflation swaps/Breakevens were recommended.


MT expected the US mid-term elections to mark a reversal of the Dollar’s appreciation, with it returning to its long-term trend devaluation.

Macro Thoughts has favoured being long of the 5 to 7 year part of the US curve, especially as the 5 year (FV$) Call skew was so steep, encouraging Volatility strategies, as well as long duration. From 3.05%, 2.75% and 2.50% have been targeted, (moving averages are now crossing for five years, and two & ten years look to be following – a break of 2.50% could target as low as 2.125%, and is not being recognised by markets which remain short, looking for higher yields). A fall in German yields was anticipated from 0.42%, targeting 0.25% and 0.05%, and Italian BTP from 3.43%.


MT’s report, It’s not just tariffs – a major trend change, which could dominate markets during 2019, may have started’, highlighted the implications of a weaker Dollar (which had started against the Yuan and MCSI currencies) and the risk of lower demand for US assets, with $21tn of debt needing to be funded. Fears of a recession have been downgraded to global deceleration, as lower oil prices and EM cash flows will allow central banks to start lowering rates in 2019.


Macro Thoughts’ non-consensus market strategy choreography

21 months ago….(March 2017), prior to the US Federal Reserve raising rates, it was forecast that US 10y year yields of 2.63% were at a peak for the year and recommended buying Calls targeting 2.25%.

18 months ago….(June 2017), in Europe there was relief after the French elections, but Macro Thoughts warned Merkel was in trouble in Germany, and Italian bond yields were expected to continue to underperform.

In July, Xi Jinping was elevated to a deity, introduced ‘four comprehensives’ and started to clean up China’s economy; these changes were expected to have structural, long term and highly volatile implications for global economies. A UK rate increase was forecast for November.

15 months ago….(September 2017), anticipated a rise in US yields, despite geopolitical risks from South Korea pushing yields towards 2%.

As South Korea defied warnings from the US to test another nuclear bomb, China changed monetary policy, tightening financial conditions by taking back loose policies of 2015 and 2016. This would allow US yields to rise and, over the next six months, yields of both economies would run parallel.

12 months ago…..(December 2017), as anticipated, Asian economies were decelerating, (Indonesia, South Korea, Malaysia, India, Hong Kong, Singapore, Japan), which was caused by China’s policy move and, as also expected, negative cash flows across the region were starting to become a problem. This was predicted to impact on Europe early in 2018, particularly Germany, where wage growth had been decelerating since Q1 2016.

With a more hawkish Fed in 2018, it was natural to expect four rate increases in 2018, but these would have consequences, especially with the balance sheet being reduced. Tax cuts would have a limited impact on growth, particularly as consumer debt was so high, (Student Loans have now reached $1.5bn, and is the loan group with the largest defaults). With the increase in issuance and the opening up of the debt ceiling, the Fed would struggle to control the front end of the curve, impacting on loans, and CAPEX funding. Although debt issuance was an issue, because the US economy was not as strong as many anticipated, yields above 3½% would be a problem during the second half of the year, once the impact of tax cuts started to fade.

Macro Thoughts continued to be optimistic for the UK economy, forecasting inflation to fall to 2% and Growth of between 1.6% & 1.8% by the end of the year.  It was therefore recommended to remain long GBP against the USD, and Australian Dollar, as a slowdown in China would have material impact on Commodity prices, and Xi’s policies would restrict further investment in foreign property. Macro Thoughts did not anticipate any rate moves by either central bank.

8 months ago…..(April 2018) China changed policies as its economy started to stall. They cut their RRR by up to 100bp, decoupling Chinese rates from the US for the first time in six months.

This was expected to have a major impact on the US Dollar and Macro Thoughts anticipated a short term reversal of a long term devaluation; it was therefore expected that Euro$ would fall from 1.24, GBPUSD from 1.42 and, importantly, the Yuan to rise from 6.42, targeting 6.88. This would also drop fuel on the flames of EMs, which were suffering a slowdown, but the appreciation of the Dollar would create strong negative cash flows, reversing a central bank trend of lowering rates, as central banks would be forced to raise rates in defence of their currencies. It was therefore recommended to maintain short positions in the Indonesian Rupiah and Indian Rupee.

At the same time, the IMF raising their global growth forecast for 2018, while lowering Chinese growth, re-confirmed our expectation that global growth was stalling and the US would follow. It was felt that US tax cuts would have an impact for a limited period and that, by the end of the year, Household Debt (covering over 70% of the US economy) would weigh heavily on consumer activity.

Macro Thoughts maintained its above consensus growth expectation of 1.6% to 1.8% for the UK, while Europe was seen as the bellwether of the global economy, with the risks of more political discontent expected to spread.

Macro Thoughts, April 18, 2018: The UK economy is following Macro Thoughts’ path of expectations, despite the BOE and IMF’s more pessimistic forecasts

Macro Thoughts, April 24, 2018: The Fed needs to take responsibility for the global implications of allowing the end of a 35 year bond bull market

Macro Thoughts, May 10, 2018: The IMF raising their growth expectations confirms Macro Thoughts’ forecast to expect lower growth. 

Macro Thoughts, May 29, 2018: Interest in Italian politics may fade, but European & global risks won’t

Macro Thoughts, June 3, 2018: Bond tea leaves

6 months ago…(June 2018) Macro Thoughts released its half year review, including trade strategies, with YTD returns in double digit to portfolio…

  • Buy GBPUSD 1.32, Sell 1.42
  • Buy GBPAUD 1.72, Sell 1.82
  • Sell EURUSD 1.24, Buy 1.17, 1.15 & 1.12
  • Buy USDCHN 1.42, Sell 1.60
  • Tactically trading EM currencies
  • Various Volatility strategies in TY$ & Bund Future options, (as well as VIX Volatility ahead of February’s Volatility spike that saw the Dow Index drop 1300pts)
  • US STIR VOL versus EURIBOR VOL mid-curve RV
  • Tactically receiving US 10yr Treasuries on various occasions, including at 3.08%, 2.95% & 2.88%, achieving 13bp each time
  • Trading the Bund 10 year yield range that started in 2016
  • Widening Investment Grade Bond spreads versus High Yield (consider reversing)
  • Long FRA & ESP 10 year bonds versus ITL
  • Sell WTI OIL $65, Buy $60
  • Sell Greek 10yr 3.75% on spread, Buy at 4.25%

Macro Thoughts, June 30, 2018: End of half year report – Good, the Bad and the Ugly

5 months ago….(July 2018) the risks from Belt and Road initiatives and the consequences of default, and the strategic nature of the projects and subsequent loans, were highlighted. Pakistan was highlighted as the next economy to follow Argentina and Turkey needing financial support, while owing China billions.

Trade with the US was being pushed forward to avoid tariffs costs, boosting Q2 growth. Soya bean sales boosted Q2, but collapsed in Q3.

Macro Thoughts, July 12, 2018:Xi Jinping may be classed as a deity – but markets might need to start praying

4 months ago…(August 2018) warned early Volatility was a signal for more volatile price action during the final quarter of the year, despite markets quickly returning to type before the end of the month.

It was also clear the French economy was not strong enough for Macron’s policies and although for the first time in a decade the deficit fell below 3%, this would only be short lived. Therefore the French government and the Italian coalition were not so far apart and Macon could learn some lessons from the new Italian government’s policies, especially as Merkel’s days were numbered.

Macro Thoughts, August 31, 2018: Did the summer market breeze make you feel fine?

Macro Thoughts, August 22, 2018: Podcast

Macro Thoughts, August 13, 2018: M & Di M need to be Smarties

3 months ago….(September 2018) emphasised how Emerging Markets were under pressure, predicting this to continue to impact on developed economies in Europe and in Japan, and to hit the US hard.

Although the Bank of Canada had followed the Fed with rate increases, its housing market was being impacted by restrictions from Chinese authorities (impacting on property markets globally), as well as higher interest rates. Macro Thoughts recommended fading rate hikes in Canada and to price for potential rate cuts in Australia, (Buying AUD 10 years at 2.73%, targeting 2.35%, 2.25% & 2%). Australian 10 year yields had fallen below the support level of a trend channel that began in the summer of 2017, and moving averages are crossing.

Macro Thoughts, September 16, 2018: Central Bank competence: are they prepared for more economic shocks?

2 months ago….(October 2018) having expected a slowdown in global growth, and with increased talk of oil going to $100 a barrel, it was a matter of time before energy agencies started to lower their demand expectations, and to expect oil production to rise. In October, with WTI trading up to circa $75, this triggered our prediction that oil would eventually fall from $73.50 to below $50, ultimately targeting $45. With the fall of oil prices, inflation expectations were expected to be lowered. Macro thoughts recommended buying 10 year Inflation Swaps/ Breakevens.

Macro Thoughts, October 28, 2018: Higher Debt, Lower Growth, Disaster

Macro Thoughts, October 19, 2018: Who will help central banks when they are in crisis?

Macro Thoughts, October 14, 2018: Getting used to Volatility. As economic reality hits home

1 month ago….(November 2018) having anticipated the appreciation in the Dollar in April, we saw the mid-term elections as marking its peak, expecting a return to the long-term trend of depreciation. This included believing the Fed would need to scale back its 3 rate hikes guidance for 2019, which would be a relief to many central banks that had been forced to raise rates to defend against currency outflows, allowing them to concentrate on their economies.

Macro Thoughts has favoured being long of the 5 to 7 year part of the US curve, especially as the 5 year (FV$) Call skew was so steep, encouraging Volatility strategies, as well as long duration. From 3.05%, 2.75% and 2.50% have been targeted. On a break of 2.50%, yields could fall to 2.125%.

A fall in German yields was anticipated from 0.42%, targeting 0.25% and 0.05%, and Italian BTP from 3.43%.

It was felt that credit rating downgrades would increase in 2019, and with growth expected to slow, equity market valuations were under increased risk, further impacting on High Yields, Corporate Bonds and Volatility.

Macro Thoughts, November 7, 2018: Could mid-term elections mark a return to the long-term downturn in the Dollar?

December…Markets have adjusted to lower growth expectations and the Fed taking their foot off the pedal. Moves, however, have been dictated by position reduction and not repositioning, and the sentiment of the start of 2018, looks set to repeat in 2019.

The risks of recession have been reduced, but expectations are still too optimistic, and the fall in European, Chinese, Japanese and US yields looks set to continue, and the Dollar weaken.

Macro Thoughts, December 1, 2018: Has Fed Chair Powell finally started to consider the economy rather than economics?

Macro Thoughts, December 6, 2018: It’s not just about tariffs – a major trend, which could dominate markets during 2019, may have started