27/08/26

August will soon be over. It was mostly a quiet month. As most bankers, hedge fund and pension fund managers go on vacation, the volatility drops. We did have some opportunities though. Most of them came from the BOJ intervention on USDJPY and Bessent’s intervention in the bond market.

Now is the time to start thinking about positions we can put on going into September. We can front run all of the big players as they come back from vacation half asleep. The managers will likely put on size as they want to pump up the performance numbers going into years end. Their performance is directly linked to how much capital they receive. And capital goes directly into management fees. Oh do they love their management fees. So September could be big. Strap in.

Upcoming Volatility

To position ourselves correctly, we first need to identify upcoming catalysts.

Here are the events I am watching:

• Jackson Hole - August 28th. Title is "Financial Innovation: Implications for Payments and Policy.” That means it will probably be a non event. Especially because Warsh is against forward guidance. These symposiums used to be market moving in the past but for this one I don’t have my hopes up.

• NFP - September 4th. I do think the number will be better than the last print which was negative but I am not expecting a big beat of forecast. Jobs market seems to be slowing down in the US. That’s dovish.

• US CPI - September 11th. If you look at Polymarket, people are pricing 3.4% as the y/y number. That is the same print as last time. So inflation seems to be under control and below 4%. The FED won’t hike rates with these numbers. Dovish.

  

• FED meeting - September 16th. This is a big one. 4 times per year we get the FOMC economic projections. That is when all of the committee members note down their thoughts on the future interest rates. This is one of those 4 times. Markets are still pricing in at least 1 rate hike this year. I don’t think that is correct. I don’t see a reason why FED would hike since inflation is falling in the US. So a repricing is needed. That repricing is bearish USD.

  

• US Midterms - November 3rd. I know the midterms are still far away but the preparations start in September. We already saw Bessent announcing an intervention to try and help the bond market. FED probably doesn’t want to hike and anger Trump. The current administration will do what they can to help risk on assets. It’s a classic move. Every administration does it. IMO this is also bearish USD.

USD

The main trade that I have in mind is selling USD. I have 2 reasons to be bearish.

First is the FED. Market is pricing in at least one rate hike as mentioned above. I don’t think this is right. Jobs market in US is starting to fall off and inflation is fine. Sure it’s above the 2% target but we have been above target for 5 years! 3% is the new 2%. As long as inflation does explode up and cross 5-6%, I see no reason to be hawkish. Strait of Hormuz is still closed (Look at IMF portwatch) and inflation doesn’t seem to be rising. That’s a tell. Polymarket is pricing in 3.4% (Same as last print) for the August print. No need to panic.

Second reason to sell USD is Bessent. US treasury made an interesting announcement that they will double the long end bond buybacks. Basically they will use financial voodoo magic to help lower the long end bond yields by introducing more liquidity into the system and hurting USD.

The bond market is very important to the US government. If the long end yields are rising, it makes the US debt more expensive to repay. Of course the best way to lower the long end yields would be to lower the actual US debt. But that doesn’t get you reelected. Spend baby spend. 40 trillion and counting.

So you have 2 scenarios and both are bearish USD: