June 2024


Shark Tank: A live Street Signals podcast

Our Markets and Financing Research Retreat offers a wide range of academic expertise and timely market insights.

During a first-of-its-kind live edition of our Street Signals podcast, on day one of the State Street Markets and Financing Research Retreat in Boston, our experienced multiasset and macro strategists presented their best trade ideas for 2024.

Moderated by Tim Graf, head of Macro Strategy for Europe, the Middle East and Africa (EMEA) at State Street Global Markets and host of Street Signals, “Shark Tank 2024” featured ideas from Dan Gerard, Marvin Loh and Ning Sun of our team in Boston, making their respective cases to the audience in a rapid-fire, Shark Tank-style presentation, with ideas as wide-ranging as how to think about United States financials, the US yield curve and the state of emerging market foreign exchange (FX) carry trades. Here are highlights:

Dan Gerard: Short US financials

Dan Gerard highlighted the challenges facing the US financial sector, emphasizing the intricate ties between valuations, growth and policy. He underscored the difficulty in meeting high earnings expectations amidst liquidity constraints, signaling potential headwinds for financials. The historically low credit growth rate of under 5 percent is a strong recession indicator, as high interest rates suppress demand and complicate expansion in the mortgage market. “We're seeing delinquencies rise. It's not extreme yet, but the direction of travel is quite worrying. Achieving that earnings growth through either securities or lending growth is going to become extremely hard when such high expectations are baked into the cake,” he added. According to Gerard, the looming predicament faced by financial institutions is prompting a shift toward shorting US financials.

Key takeaways:

  • Lofty expectations for financials’ earnings growth face challenges amidst liquidity constraints.
  • Liquidity provisioned by commercial banks becomes crucial with the end of quantitative easing (QE) period.
  • Challenges in both loan growth and securities growth pose risks to achieving expected earnings growth.
  • Institutions and hedge funds are beginning to divest from financials, signaling potential headwinds.

Marvin Loh: Underweight US duration

Marvin Loh's insights focused on the US rate markets, emphasizing concerns about inflation and rising term premia. He proposed strategic underweighting of duration and highlighted opportunities in the belly of the curve amid supply and demand imbalances. Loh also highlighted escalating debt and deficits, foreseeing challenges in debt servicing and fiscal stimulus. With diminishing central bank support, he predicts a turbulent Treasury market. “We're already seeing those supply and demand imbalances enter the market. Clearly a steepening of the curve is what you would expect where the long end underperforms,” he added.

Key takeaways:

  • Inflation remains a primary concern, influencing the trajectory of the Federal Reserve’s policy.
  • Rising term premia are expected due to inflation volatility and growing debt and deficits.
  • Increasing debt levels and deficits contribute to supply and demand imbalances in the Treasury market.
  • Strategies should focus on the belly of the curve for opportunities versus underperforming long-end duration.

Ning Sun: Long TRY (Turkish Lira), short CNH (Chinese Yuan)

Ning Sun's perspective centered on emerging market currencies, particularly advocating for a long position in the Turkish Lira and shorting the CNH (Chinese Yuan traded on the offshore market). Sun highlighted the attractive interest rates and political stability in Turkey, contrasting it with weaker Chinese economic growth. She offered insight into the Central Bank of Turkey's efforts to mitigate volatility. “I think the CNH should still have this depreciation bias. At the same time, the Chinese also need to cut their interest rates. I don’t think inflation is a problem for them, they worry about deflation. I think the Turkish Lira is a star performer for investors. Long Turkish Lira, short CNH is the best trade idea,” she concluded.

Key takeaways:

  • Turkish Lira is an attractive opportunity with high nominal interest rates and the potential for inflation reduction.
  • Political stability in Turkey and the strong banking sector support the turnaround narrative.
  • CNH offers a cheaper alternative for short positions amidst weak Chinese economic growth.
  • Turkey's reserve-building efforts help mitigate volatility and support currency appreciation.

Street Signals is a weekly podcast from State Street Global Markets, which provides comprehensive insights into the latest developments in financial markets. Leveraging innovative tools, proprietary data and extensive expertise, our research team delivers highly valued market analysis daily to the world’s top institutional investors.

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