JPM: CTAs & Discretionary Macro HFs Increase U.S. Bond & Equity Pos

J.P.Morgan note that “the Fed’s pivot in this week’s FOMC meeting, in particular by Powell stating that “it’s time to go to meeting-by-meeting basis”, boosted the positive trend in both equities and bonds. In turn this induced further position build-up by momentum traders such as CTAs. Our position signals for momentum traders such as CTAs have now risen to neutral for U.S. equities and the 10-Year UST for the first time since last March. These momentum signals had reached extremely negative territory in the second half of June. While in principle CTAs have room to start building up long positions from here, at the same time we acknowledge that their previous short base has been wiped out. This implies that if, because of some negative news such as a strong U.S. payroll report that triggers significant repricing re: the Fed, momentum turns negative again there is plenty of room for CTAs to start building up short positions again. Where CTA positioning is still very negative is in the euro vs. the dollar.”.

• “Momentum traders such as CTAs are not the only ones that have been increasing their positions in equities and bonds over the past month. Discretionary Macro hedge funds appear to have, at least modestly, increased their positions. These funds appear to have increased their bond and equity positions perhaps in anticipation of a dovish Fed pivot in the July FOMC meeting amid weak growth indicators over the past month.”