COMPLETELY BACKWARDS - So one central bank is way too dovish and needs to start talking tighter policy, while another is way too hawkish and needs to scale back. I have been positioned short US equities on the expectation the Fed will need to move towards higher rates faster than the market is pricing, and I have been positioned short New Zealand Dollars on the view the RBNZ will need to slow down its tightening cycle, with the economy already responding to the higher rates and at risk for too much of a cooling off should rates move too far too fast. But the Fed has been slow to respond to the guidelines it set out for policy reversal, while the RBNZ is not taking external risks seriously enough in setting its own monetary policy. Yet, I am not discouraged with these developments and continue to find comfort on the technical side, which suggests both US equities and the New Zealand Dollar are poised for major reversals.
CYCLICAL COMFORT - If we look at the technical picture, US equities are grossly overextended and screaming for corrective reversal. The market has moved at a furious pace, setting fresh record highs on what seems to be a near daily basis. However, you all know the story here. Volumes have been abnormally low, and volatility is nowhere to be found. There hasn't been anything new to grab onto to justify additional upside, and everything here continues to hinge on Fed policy. I would look for a break and close back under 1900 in the SPX to officially trigger the onset of a legitimate reversal. Meanwhile, the New Zealand Dollar has completely separated from its commodity cousins in recent months, and still tracks at longer-term cyclical highs, despite moves away from these cyclical highs in the other respective currencies. I don't believe the New Zealand Dollar should be immune to the power of cycle analysis, and as such, will be looking for a bout of underperformance over the medium-term, even with the higher rates.