TACTICAL SHORT MINERS

Given sterling listing but non sterling revenues the miners have been well protected since the market collapse post Brexit. But should this continue?

When the dust settles I think we will be in an increasingly bullish world for the USD. Not because the US economy is particularly strong but because its various crosses are likely to weaken further as people seek safe havens.

It is interesting because it has been the intention of the Fed to weaken the dollar with the Shanghai accord and despite the fact the market isn’t pricing a hike until 2018 the dollar is rallying, ie the Fed has lost control.

Ironically the only thing that might save them is evidence of more US economic weakness but clearly there is a negative feedback loop between a strong dollar and EM/commodities. And any economic weakness will not bode well for commodities either.

There hasn’t been a huge amount of attention given to the move in CNH yet but the headlines recently that the PBOC has intervened confirms that we are back in the realms of outflows and the CNH back to Jan lows.

The question from here will be do they continue to intervene or do they continue to allow it to depreciate. Either way the chart of the SXPP vs inverted CNH has a very tight correlation…until recently.

Commodities have rallied which has been helpful but valuations are now above average their historical averages and global risks have increased.

Tactical short SXPP.

Sell a basket of GLEN/AAL/RIO/BLT or XME US.