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Macro Summary
Equities
G10 Equity Indices still in a broadly Bearish Trend with Medium term risk-reward as balanced at best and downside skewed otherwise. No material upside juice to be found based on our analysis and forecasted price action, at Index Level, over the next 2 years. Sector Rotation, Income and Themes are the likely sources of returns for the medium term.
Interest rate curves pointing to sharply lower rates from a year’s time onwards have been telegraphed and priced in, so further incremental updates on G7 interest rate policy are unlikely to catalyse a particularly strong equity performance in isolation.
Favour Sector allocations as described below and both Value-based and Long-Short investment methodologies. Specific ideas further down.
FX/Metals
USD trend dominates all and we expect this basing spell to broadly hold, with an eventual reversion to 105+ on DXY. A little over-bought on daily metrics and hence we are being cautious on entry levels. Details will follow in lower section updates.
Updates on Tactical Trades, Risk Arbitrage and Pricing Dislocation Model
Regeneron (REGN) - We suggest that you consider closing your short position, as we have done so. Previously we were advocating (and held ourselves), a Short on REGN at USD 1125 and added to the Short at USD 1160. We closed the full Short position and booked the profit at USD 998.
Over 15% Absolute Return in 2 Months. >90% Annualised.
Pepsico (PEP) - Yes, yes - We know this one has been boring. But it still worked out. Closed our Short at a 5% Profit in 1 Month. Still far better than a kick in the pants…..
Capri (CPRI) - This Risk Arb trade has been tough to watch and the FTC is still right in the middle of it. We took a Long position at USD 33 and closed our position yesterday at USD 42.25.
28% Absolute Return.
The takeover price is almost USD 10 higher than here, so lots to play for if you’re minded - but we were happy to cash out and watch out for another entry point, from the viewing gallery.
DarkTrace (DARK) - A Bread ‘n’ Butter Arb trade. Acquisition by Thoma Bravo LLC closed a few days ago and netted 7% Absolute Return in c. 2 Months. It’s just lovely when it’s painless like this…
Actionable Trading Recommendations
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