Axis Tactics 6th November, 2024 - US Election Aftermath

Update on prior recommended positions : The US Dollar, Gold & Silver

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The USD Index, Gold & Silver

Readers will recall our Long position on the USD (via a Long on the USD Index at 102.30) on ~8th October, with a potential quoted upside target of 105+. Today the USD Index is at 105.36 and we are closing out and taking profit here. We are optimistic about the continued uptrend - but it is a very noisy day and we prefer to wait for the dust to settle and then re-calibrate.

This USD Index move corresponds to 3 Full Points profit on EUR/USD (300 pips) or 3 full points profit on GBP/USD (300 pips). For those that follow USD/JPY, the move in the USD Index corresponded to 7 Full Points or 700 pips profit.

A linked position to the above was a Short on Gold and Silver. These positions took a little longer to perform. But today - with Spot Silver falling over USD 1.70 and Spot Gold falling over USD 90, we are lightening these short positions as well.

Today’s Reaction

There will be plenty of news today on all fronts, so we will simply set out a few observations.

US Bond Yields have risen sharply. So Bonds in USD will yield far more income today, than they did yesterday. There are good, structural reasons for this. However, from an asset allocation and global macro viewpoint - what matters - actually the only thing that matters - is creditworthiness.

And that is not greatly altered by the shift in yields or the Election result - within a 0-3 year timeframe. So, for those with cash USD available, there is an opportunity to pick up any of (i) short dated Treasuries, CDs, Bills or (ii) Corporate Bonds, at a very attractive yield, relative to cash deposit rates.

In addition, USD-denominated Sovereign Bonds from other Nations are also yielding more (e.g. Pakistan 2026 - now yielding 11%). We would steer clear of long-dated bonds, as we are just looking to rent debt here for a 1-3 years maturity.

Equity Indices across UK, Europe and the US have spiked higher since the results started to demonstrate the Red Sweep. At the time of writing, the House has yet to be called - but it’s looking like a very poor show for the Democrats. Euphoria in US Banks (JPM was up 7% pre-market), Regionals and some Tech may continue for a while, however this is an Administration with a Tariff obsession. The EU is heavily exposed here and the UK neutral at best. The trade and tariff war with China, higher rates and a steeper interest rate curve will at some point place a speed limit (or a breeze block) in the way of equity appreciation. Hence, we are fading these moves of today, ever so gently.

Typically, precise and timely recommendations for trading positions and investments across asset classes will be in the section below. Please reach out to your usual contact for access.