Is Risk-Off Nearing an End? with Steve Miley

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2:16It's what you call a no-brainer. Anyway, I hope to see you on Real Vision. It's an incredible community and my god this new platform is going to be extraordinary and will change as many lives as possible that's realvision.com forward slash last chance is the risk off trade nearing an end hi everyone welcome to the real vision daily briefing with me today is steve miley chief analyst coo and co-founder of trade day hi steve welcome to real vision hey thank you very much Maggie, pleased to be here. So this is your first time with us. So before we jump in and talk markets, why don't you tell us a little bit about yourself and Trade Day?

3:00Yeah, sure. So, well, I've been in the industry for a very long time, became interested in financial markets as a teenager. Through university, then went straight into financial markets. I actually started on the LifeGlo, which was the equivalent of the Board of Trade or the Merck here in Europe. That's where I started my, so with the, you know, the bright jackets and all the hand signals. So I started there. Very exciting times. But then segued into research. I was at Merrill Lynch Bank of America 15 years. And then I actually headed up the FX technical analysis department at Credit Suisse for three years.

3:37And then after that, I moved into my own business where I'm selling technical analysis research reports back to the industry. So back to hedge funds, institutional client bases, whether it's brokers or banks, and then also to high net worth individuals. So that's been my journey pretty much up until more recently. And in the last couple of years, we've kind of moved into the space of the retail space of funded challenges. So that's what Trade Day is all about. We're a funded challenge program where you come in and you can purchase a challenge, try to hit the profit target before you hit the loss levels.

4:17And as long as you stick to the rules, then we fund you into the real live market. So that's interesting. Kind of a gamification, quite not like sports betting, but there's a sort of a gamification aspect to it. There is a slight gamification aspect to it. Yeah. So the industry has been around for like 10, 11, 12 years, really. but we've kind of we've come into the industry the last couple of years trying to do it from a different aspect what we're trying to bring in is that say myself and my co-founder james he has a long institutional background as well but more on the the actual professional trading side the prop firm side setting up big prop firms prop trading floors in china and and so yeah we've tried to bring that kind of professional institutional kind of aspect to the to the retail space.

5:05So giving these guys, you know, institutional grade research, technical analysis, macro fundamental, also offering news school services. And then on top of that, some mentoring and psychological and risk management tools that we bring to the table that, you know, others in the space are not so much bringing. So we're trying to bring all of that to kind of level up as much as we can, the retail guy. And we think that's really important, you know, in the, it's been a that's been a big growth for the for the you know since you know well really the last 10-15 years anyhow but i mean i think a big push post-covid the whole you know reddit kind of explosion that we saw um and um you know there has been a bit of a leveling up and we're going to see hopefully more of that and that we need to right we all need to be taken care of and we're that's certainly our mission as well is to try to inform and arm people with the you know information they need so they can make smart decisions so happy happy to hear it so all right So let's dive in then and let's start with stocks as we kind of look, because you look across all assets, which is great because so to our community and listeners.

6:11So let's start with stocks. Mixed action today. It was kind of it felt a bit like a Monday. Everyone recovering from last week, trying to figure out what's going on. It seemed like for most of the day it was going to be it was a little bit of tough setting, a little bit mixed. We had the NASDAQ out ahead and then the Russell and the Dow lagging. Looking across, we've just closed here and the NASDAQ actually up 1%. So it kind of gained as the day went on and Dow managed to drag into positive territory, but Russell's still down a quarter of 1%. So we posed the question about the risk trade because you were talking about that in your research.

6:47So how are you feeling? You feel like an appetite for risk is returning or is there more danger out there as we look at equities? Yeah, I mean, so I've got a couple of charts I think we can share. I think starting off with the S &P is probably the main place to start, the broader index, the benchmark really. And from my perspective, this has probably got a little way to run. If I look at it just purely on the technicals, you've got a small topping pattern that's built up in year throughout July. We've reversed down through the trend lines you see coming up in year from March and the trend lines up from May.

7:21we're down through both those those those trend lines now and that's kind of topping pattern alongside the reversal of the trend lines you've now got a series of lower lows and lower highs so there's still some negative pressures despite the little pop you've seen today it's probably not enough yet and my kind of concerns i mean i'm kind of a bit of a natural ball i've got that in me i tried to you know see as an analyst you try to be as neutral as possible but i do have a little bit of a natural ball in me um and you're obviously wearing a you know a big bull run that we've been in right the way from October.

7:53But I think there is some downside pressure that's still probably due to come through. But I think we're nearing the end. And I think that's the case in a lot of these markets we're going to visit now, where probably these correction phases we're in, we've been in them now for like three, four weeks. We were in some cases fairly overextended, overbought, particularly in the tech area on individual stocks and in the Nasdaq, which we'll look at shortly. But I think there's still some more to come to the downside. I don't I'm thinking today's anywhere near enough to say that we're over yet. I think there is still some risk.

8:25So for me, down to like those swing lows that we had in June and July, 44, 11, 43, 70, maybe on the S &P. That's the risk on the downside for the broader index at the moment. So we're going to get some insight into the consumer this week. We have earnings from major retailers, the ones that are the last usually wave to come out. They're on deck. We get a monthly retail sales report. the following week we also get NVIDIA that's going to be a monster report that was like the linchpin of that tech movement. You see a catalyst in any of this? How important? How are you kind of positioning ahead of that?

9:01I think there is some risk as I say it will be interesting to see those. So we've got Walmart Target and who's the other? There's another biggie right? There are quite a few and Walmart if I'm not mistaken hit a new high or they got an upgrade today. They were on the move today. I think they were one of the Yeah. So I think they're going to be interesting to see, you know, after particularly, you said the inflation numbers, we've got the retail sales numbers, got the Fed in Fed minutes as well. Do we get an insight which way the Fed are going to be leaning? But for me, just, you know, on the technicals and the fundamentals, I think the initial the risk still remains slightly to the downside.

9:38And, you know, as you say, we're coming towards the end of those earnings. The big tech has all come through. Mostly it was positive. Right. You know, most of that big tech was positive and it still didn't allow markets to continue because I think they've built. I think we've very much been in that kind of buy the rumor, sell the facts. Right. So we've had a real strong push higher through mid to early July to those peaks that we put in at the end of the end of last month. Let's pull the Nasdaq up because we're kind of talking about tech. Why don't we pull the Nasdaq up and look at that? because that, and again, people felt like maybe most vulnerable, maybe the most overbought.

10:12And yet you see that kind of leading the way today, which is interesting. Yeah. So yeah, we have had that little bit of a rebound today, but you can see we're still going to kind of in that on the chart here. We're still in that kind of downturn. I mean, upside for me, if I'm just looking at pure technicals, it needs to clear 15, 6, 10, you know, that kind of swing that we had back a week or so ago. Only through there will I kind of shift it and see it really shifting more bullish back for me, I still think, you know, there is that risk of another small down leg in here, you know, one more phase lower.

10:43But then I think there's going to be a real longer term buying opportunity. I think we're going to get one more push lower. And then I think it kind of sits with what, and maybe we'll come to talk about it shortly, what, you know, we've seen in the soundbites regarding this potential for, you know, yields to push. Now one more spurt to the upside in yields before we kind of get yields turning around again. And I think that's going to be the key driver. And then I think that's going to be potentially pushed by a shift in tone from the Fed, which is a little bit further out, I think. But I think that is coming.

11:18That's down the line. That's, for me, going to be the catalyst going forward. So I think the risk in the short term is maybe another downlink, maybe a bit of disappointment around the consumers, as you said there, with the data we have coming up this week. and you've got to remember like last week we had that cpi data which was better than expected the initial market reaction was very bullish we had a real positive reaction and then the actual price action to end that day last wednesday was it was where it's last thursday excuse me was fairly negative and then ppi kind of was this a bit disappointing so for me when a market can't react to a positive piece of news and it reacts the other way that's that the writing's a little bit on the wall that we've got a bit more to come.

12:00Equally, kind of just switching focus very slightly and geographical focus, there've been a lot of headwinds out of China, right? And maybe it's a bit soon to go there. But we've had, you know, we've had the property market downturn. We've got deflationary pressures coming out of China. You know, those numbers continue to come through. We've had a few scares overnight regarding some non-payment of interest payments and maybe a contagion into the financials from the property world. And the markets have been pretty resilient given these kind of quite negative hedge winds coming out of China, which is effectively the factory of the world, these inflationary pressures.

12:43And the markets, I think, have been relatively resilient given that. And I think what we do have potential down the line from China is stimulus that they're talking about. They're kind of leaking very slowly, but we're not really getting that coming through. So I can fully see potential for a shift where we get some positive stimulus coming out of China and then maybe hand in hand with some hints from Fed speakers that we're going to shift. And I don't expect any kind of shift to dovish. I don't expect any kind of real signals of rate cuts coming, but there might be these little signs, these little signals of a shift to more dovish.

13:22And then that could see yields reverse significantly to lower yields and then allow obviously growth stocks, tech, NASDAQ to push higher and the broader market to go higher too. Hey everyone, we're gonna take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

13:45Yeah, so it's a sort of two-phase situation here where you see this very near-term potential for more downside for equities, but then maybe some reasons. And fantastic to bring up the China news. I mean, there was a time when an Evergrande-type headline crossed, and it really had ripples through the global markets. Are you thinking that it's markets resilient, or is it just that everybody's on vacation in August? So sort of people are not really focused on this or a bit of both. Maybe a bit of both, but I'm not quite by, I don't quite buy into that. You know, the, everyone's away in August, you know, low liquidity.

14:24I mean, that's undoubtedly the case, but you know what the players that are around, you know, with 24, with 24, not quite 24 seven markets, but you know, everyone to not pay attention. So maybe it doesn't exist anymore. Exactly. So you can't say, OK, I'm going to wait. You know, I'm on hold for two weeks. We're on holiday. We're on vacation. So I think, you know, if that news was felt to be that significant and, you know, then I think we would have been. And, you know, China was down. You know, stocks in China were down. The Hang Seng was down overnight. You know, when I got up in my morning, I mean, I'm in the UK and European stocks were under pressure from Asian stocks off the bat, you know, and the S &P and the Nasdaq were making lower lows than we posted back on Friday, you know.

15:10And then by the time the US opens, it's kind of turned around and that news has been discounted out. So I think there is an underlying resilience. You know, there wasn't any kind of real contagion outside of Asia. You know, it doesn't mean that that couldn't escalate a little bit. But for me, I think, you know, we are seeing a lot of headwinds, you know, being kind of ignored or we're battling against it. I don't mean they're being ignored. I think we're battling against those headwinds in out of Asia, out of China and markets. You know, even though there is a say, I think there is a risk lower.

15:43And I think that kind of ties into, you know, what we'll probably discuss on, you know, on the bond markets and. Yeah, I think it's worth and I think it's worth getting into that. I just want to share something. And I think Joshua S makes a good point. He's saying more push lower thanks to consumer spending decrease from Walmart earnings call. I'm just highlighting that because I think, and I'd love your thoughts on this, it's not going to be just a headline. And it's kind of been this way with tech, too. It's not just going to be the beat on the headline, on the revenue. I think people are really going to start to pay attention, especially for the retailers, really start to pay attention about what they're saying about the consumer and how they're holding up.

16:19Indeed, yeah. I couldn't agree more. I mean, if you look at the actual numbers, you know, the where we were versus consensus on, you know, most of earnings, you know, it was a sea of green, you know, everything pretty much be earnings. But a lot of that guidance was a lot more suspect. So, yeah, I think, you know, Joshua's like nailed it there. It's going to be, you know, where the guidance is, where the guidance is, read the consumer and what we're really seeing, you know. And I think, you know, the markets have been, you know, actually, you know, probably for the last six to nine months, really, we've had this kind of almost like counterintuitive.

16:53But, you know, once you kind of understand it, these counterintuitive moves, you know, it could just be a little bit of a slowdown, right? A little bit of slowdown from the consumer could be a very slight positive. It doesn't mean we're going to fall off a cliff edge. It doesn't mean we're going into a recession. But, you know, that kind of natural slowdown, you know, a slight rise in unemployment, you know, is probably what the economy needs in order to assist the slowdown in inflation. And then for allow the Fed, you know, if we're, you know, if the employment situation is really strong, if the labor market is tight, it's going to put the Fed off, you know, being more aggressive on any kind of rate cuts.

17:32So I think you need that kind of Goldilocks, right? Not too hot, not too cold, just about right. And I think a little bit of negative guidance from the retailers could actually be seen as a positive, almost counterintuitive as a positive, in that it means we're slowing down without tipping the economy into any kind of recessionary fears. Great point. I think that's a great point. We often get people say, so is bad news good news? Is good news bad news? A little bad news might be good news here. So let's talk about the bond issue. We were talking before the show, sharing thoughts. For those of you who watched all last week and have been watching our other coverage, we've been having a lot of concerns creeping up.

18:12A lot of great insights coming out last week of people were saying, hang on a second. Much like you just said, Steve, there was a reason for the market to do well. The inflation data was pretty well behaved and it kind of fell apart, especially on treasuries. We saw volatility. We saw yields on U.S. treasuries moving higher. and a growing concern that maybe yields at the long end are vulnerable to a further move higher, at risk for a further move higher. My colleague Ash Bennington was doing an AMA with Raul, Real Vision co-founder Raul Powell, and we asked him, I asked Ash to put it to Raul because Raul's been talking about bonds.

18:49Get his thoughts on what's going on. This is what he had to say last Friday. Have a listen. But actually, I spent a long time thinking about this because all of the business cycle indicators, all of the inflation, forward-looking inflation indicators, all of the unemployment indicators are all suggesting that bond yield should come down and that inflation continues to fall both at core level and at headline level, and that unemployment continues to slowly grind higher. So why are bonds not suggesting that? Well, equity markets already started pricing in the fact that there's more liquidity in the system.

19:24And I think it's down to supply. I think it's really down to supply because the Treasury has to issue a lot of bonds to finance both the interest payments from the bonds that are coming from maturity, set at higher rates, and the new borrowings that they have. The bond market is already trying to absorb a bunch of this stuff. And there's just not the ability to absorb it all. So supply is pushing yields higher for the time being as the Treasury rebuilds its coffers. The issue is there's about$6 trillion of debt maturing between now and the end of the year. What the Treasury have been doing is issuing short-dated notes generally to finance it.

20:12The reason they're doing that is they don't want to lock in 5 % rates because before you know it, the budget deficit explodes high. RAOUL PAL So there's a game that I think they're playing here is the Federal Reserve have to, and all the central banks doing the same game, because I think they're all in cohorts, part of this everything code theory. They are going to try and hold this rates up as long as possible to make sure inflation undershoots. Because when it undershoots, they have the cover to cut rates back down to trend rate of GDP growth, which is like 1.75%. So I think the narrative will break by Q4 when we'll start to see the Fed cutting aggressively.

20:51In the meantime, do yields go higher? I don't know. I'm watching them closely. There's a risk that they do. And I'm stuck in a bond trade that's losing money. I've had a great year on technology and crypto and having offset some of that in bonds. So I still think bond yields end lower, but there is a risk that they lose control here because of the supply side, and there's not enough liquidity in the bond market right now. And therefore, I think that increases the chance of some yield curve control, whether it's like an intervention in the bond market. And we've seen that in the past. It's not uncommon for the US to do.

21:31Japan obviously does it. The UK did it recently as well. So listen, I think this turns around, but could it squeeze higher first yields for sure? We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing. All right, that was a long one, but it was worth it because a lot of you were asking last week, knowing that Raoul had a position in bonds and had been expecting yields to go lower. So we wanted to make sure that we got his thoughts on that and shared it with you. So that was for all of you who asked.

22:08And for those who want to dive deeper into the topic, maybe ask some follow-up questions. Raul Julian, Brigden, and Harry Malandri will be doing a Pro Macro Insiders Live this Thursday. Roll up and ask more about it. I'm sure this topic is going to come up. And Andreas and Ash just wrapped the business cycle AMA, which is available on our platform. So Thursday, it's at 11 a.m. Eastern, Raoul, Julian, and Harry, and the AMA already happened. So you can get full access to that on our platform to access both and all of our other conversations about what's going on with this bond volatility, scan the QR code, and come join our community.

22:44And it's important because see that what's happening in yields has the potential to impact equities. Everything will become interconnected, especially if you get sort of an outsized move in treasuries. That volatility is problematic and unnerving to some people. So we've got people asking, what's your view on what's happening with treasuries? What are you looking at? Yeah, so if we can bring up the – we've got the US 10-year note future chart. So we can look at that. But, I mean, I think I'm going to reference more the yields because I think it's more important. So as you can see near the 10-year future, we're sitting right down on the recent low at 109.24, having already pushed below the July low at 110.05, having previously pushed then below the March low at 110.27.5.

23:28But if we look at it from a yield perspective, starting on the 10 years, we're pretty much sitting right at yield peaks around 422 at the moment. And that's also a yield peak going back to last year, we're like November last year. And I think there's a real risk. And Raul was really, I'm kind of on the side, I don't want to sound like a suck up, but I mean, I'm kind of on the sort of same page as Raul. I mean, I think there is real risk that we get a spike higher in yields. You know, if 10 year takes out like 425, you know, the peak from last year or the second half of all of last year, the peak has been around 433, 34, 35.

24:08So we can easily be there in like a heartbeat and then maybe up towards like four and a half percent. And it's kind of similar numbers on the 30 year as well. So like through 435 takes us up to 442, 443 and again, maybe 450. So those long ends could easily spike, I think, to higher yields in the short term. However, you know, my underlying view would then be that then the risk is still then back to significantly lower yields after that move. And I think it's interesting, you know, you know, Roy was talking about his positioning. You know, you've had Bill Ackerman, excuse me, at the beginning of August talking about, you know, putting on significant, you know, shorts in the hedge fund community.

24:52If you look at the CFTC data in here, you know, the latest data is put even a bigger extreme on particularly on the long end, on the 10s and the 30s. We've got it's becoming a bit of a crowded trade. So it doesn't mean it can't go. It can't go further. This this short positioning by the hedge fund and the fast money community. And I think that is the risk. It does go there. But then, you know, inevitably, if it flashes out to those kind of levels, you know, 10s and 30s going out to four and a half percent. then it could really, as they all unwind that, it could really then come back just as viciously.

25:27And then we see a reversal back down to lower yields. Okay, that's super important. So because, and thank you for sort of giving some color on that, because it's not just about the Fed or the Fed minutes. There is the market positioning matters here. So first of all, it sounds like volatility a real concern, that big up and down. What happens to risk in that? What are the implications of that? Because Raoul said something very important in that statement. And he's obviously watching things and with concern. One thing to just put a pin on that, we have to remember Raoul has a long term perspective.