What are the market implications for How should I be positioned? with Torsten Slok (Apollo) and Jason Draho (UBS CIO)?

Watch the USD/EUR technical levels closely for breaches of key support or resistance, particularly around the 1.075 mark as indicators of broader market sentiment. Any dovish signals from the Fed in Q1 could trigger significant shifts.

What are the risks to this view on How should I be positioned? with Torsten Slok (Apollo) and Jason Draho (UBS CIO)?

A reversal in the Fed's dovish outlook would undermine the current positioning and could see the USD strength diminish rapidly, particularly if inflation data surprises to the upside or employment indicators exhibit unexpected resilience.

How should I be positioned? with Torsten Slok (Apollo) and Jason Draho (UBS CIO)

Q: What's takeaway 1 on How should I be positioned? with Torsten Slok (Apollo) and Jason Draho (UBS CIO)?

Positioning towards risk assets is favored as US monetary policy appears to trend towards softness.

Q: What's takeaway 2 on How should I be positioned? with Torsten Slok (Apollo) and Jason Draho (UBS CIO)?

Expectations are set for potential shifts in economic indicators influencing Fed decisions in 2024.

The desk's interpretation revolves around the shifting landscape of global monetary policy as discussed by Torsten Slok and Jason Draho, emphasizing the need for positions that account for an evolving macro environment. Per the full note source, the conversation illuminated expectations for US monetary policy and its impact on asset allocations in 2024 and 2025. This is particularly relevant as economic indicators suggest potential easing from the Federal Reserve amid signs of cooling inflation, which could benefit risk assets and certain currency pairs. The reference to macro trends should stimulate careful consideration by traders seeking to align with anticipated market moves in the upcoming year.

What the desk is arguing

The desk aligns its view with the insights from the UBS podcast emphasizing a pro-risk stance as monetary policy transitions. As Slok and Draho discuss potential investment themes for 2024, the implication is that markets may respond favorably to stimuli that support growth amidst a softer monetary tightening cycle.

Supporting evidence includes ongoing trends indicating a gradual easing stance from the US Fed, with inflation management remaining a critical objective. This could imply a brighter outlook for the USD against a basket of currencies, particularly if the anticipated policy pivots materialize as expected.

Where it sits in our coverage

Our consensus target for the USD's performance against the basket stands at 1.075, with a 1.04 to 1.12 range as displayed by the following firms:

jpmorgan: 1.10 (Mar26)
bofa: 1.04 (Mar26)

The current desk view leans towards a higher target in line with jpmorgan, suggesting confidence in a potential USD appreciation as compared to bofa’s more conservative position.

How other firms see it

Several aligned firms share a positive outlook on US equities and risk assets, reflecting an overall optimistic sentiment. Firms like jpmorgan and morganstanley are reinforcing similar views.

In contrast, some firms such as bofa maintain a cautious stance, recommending a more defensive approach. Key related currency pairs to watch will include USD/EUR and AUD/USD, reflecting how changes in US interest rates may influence cross-border capital flows and risk sentiment.

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