HSBC Strategist Max Kettner on Market Catalysts and the 'Sell America' Trade

The Next Market Catalyst: Benign Nothingness

• 💡 The primary catalyst for market movement is identified as 'benign nothingness', meaning a lack of further bad news.
• 🎯 This absence of negative news allows realized volatility to decrease, which in turn encourages systematic strategies like CTAs and risk parity to re-risk and increase exposure.
• 📈 Current systematic strategies are noted to have very low risk and equity exposure, indicating potential for upside if the 'benign nothingness' persists.
• 📉 Earnings and top-down growth expectations have already seen substantial decreases, making a lack of further bad news sufficient to drive markets higher.

Analyzing the 'Sell America' Trade

• ⚠️ The 'sell America' trade and capital flight are discussed as an ongoing issue, but its execution depends on the specific asset class.
• 🌎 The cleanest execution is seen in FX, where the dollar is expected to continue struggling due to increasing global hedge ratios and repatriation.
• 📈 In rates, the curve may steepen further, but rising yields could reignite growth concerns, leading to lower yields again, thus giving the rates trade an expiry date.
• 🚫 Credit and equities are considered the wrong places to play this trade, as technical pictures in credit remain strong, and many mega-cap US companies (like the Magnificent 7) derive significant revenue from overseas, benefiting from a weaker dollar.

Impact of a Weaker Dollar on US Equities

• 🚀 A weaker dollar provides an artificial boost to EPS for US mega-cap companies.
• 💰 This boost is expected to keep US equities, particularly the Magnificent 7, well-bid in the coming weeks.
• 📊 The dynamic is described as US exceptionalism for equities, where profits from the rest of the world are brought back and valued at high multiples.