Institutional insights: Citi Desk Talk 'CTA Fuel Now, Ask Questions Later'
Global markets have rallied sharply overnight following the US-Iran ceasefire. While we would not stand in the way of a sizable CTA-driven buying wave, we remain cautious about adding fresh positions at these levels, which would require more positive headlines. The European morning sees elevated but easing volumes.
Europe has led the moves, breaking CTA levels across the board in equities. Eurostoxx (up 4%) is through multiple triggers, now at "max long" levels should we hold above 5814 into the close. Barriers to reduce shorts have also cleared for both e-minis and Nasdaq futures (6802 and 25106 respectively), with levels to flip long ahead at 6864 and 25159. Elsewhere, European FI are also close to CTA triggers with the closest levels in Bunds (126.94) and OATs (120.58) to cover shorts. FX levels are still far off - with CTAs max long USD against all USD majors, barring AUD.
Our equity sales trader notes that cash volumes are 2x above average, largely dominated by systematic flow, though desk flows are not as elevated. They are still very skewed to the sell side, with futures/cash so far running at "only" 5.5x. This trend corresponds to momentum stalling in the European morning. With the positioning squeezed largely behind us, the key question now is, "What comes next?" Macro strategist Jim McCormick's favorite de-escalation trades include receiving front-end SEK and GBP (alongside CHF) and receiving EM rates, particularly BRL. He remains short USD and retains a UST steepening bias. CETS remains selective for now. They like materials, growth and momentum stocks, Korea or QQQ upside as the best ways to add exposure. Ultimately, markets will be keen to watch whether we see a lasting ceasefire as risks remain elevated. Reports of Iranian strikes across the Gulf continued overnight, and uncertainty persists around control of the Strait of Hormuz. Pakistan has invited US and Iranian delegations for talks on Friday, but the outlook remains fluid. White House Press Sec Leavitt holds a presser at 13:00 ET (18:00 GMT) today, with President Trump featuring in multiple interviews in his afternoon.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!