Barclays introduces Fairness Euphoria Indicator amid market shifts

On Tuesday, Barclays (LON:BARC) introduced a brand new analytical software named the ‘Fairness Euphoria Indicator’ (EEI) designed to measure the depth of investor sentiment within the inventory market. This announcement coincides with current observations of serious modifications in market positions and funding methods amongst numerous sorts of funds following the US presidential election.

In response to Barclays, long-only fairness publicity has elevated notably for the reason that election, whereas hedge funds nonetheless seem to have the capability to boost their positions. This pattern is especially evident in world macro and multi-strategy hedge funds, which have proven restricted exercise in re-grossing their investments. Regardless of a sell-off within the bond market, bond funds haven’t proven indicators of a large-scale exit.

Within the wake of the election, the US greenback has strengthened, main speculative buyers to amplify their brief positions in different world currencies, reflecting a rising perception in US financial outperformance.

Systematic funds, which embrace Volatility Management, Commodity Buying and selling Advisors (CTAs), and Threat Parity funds, have lately decreased their lengthy positions in equities, aligning their allocations nearer to historic averages. Volatility Management funds have the potential to extend their fairness publicity, however any inflows are anticipated to be incremental, given the volatility anticipated with the implementation of President Trump’s insurance policies.

CTAs have notably taken a big brief place within the Russell 2000 index, whereas sustaining a comparatively greater place within the NASDAQ index. With rising charges and volatility within the bond market because of inflation issues, CTAs have additionally established important brief positions in bonds, and Threat Parity funds have equally decreased their allocations.

The robust US greenback post-election has led to CTAs taking prolonged lengthy positions on the forex, significantly in opposition to the euro. Nonetheless, current benign inflation knowledge has created situations that would result in a partial reversal of those prolonged positions in bonds and the EUR/USD forex pair.

The EEI goals to offer insights into the underlying dynamics of the inventory market by analyzing derivatives flows, together with volatility technicals and choice flows. Regardless of current downturns within the fairness market, the EEI signifies a degree of investor optimism not seen for the reason that dot-com bubble of the early 2000s, suggesting that buyers ought to proceed with warning.

Present fairness positions are largely stuffed, prompting buyers to guard in opposition to draw back dangers whereas exhibiting skepticism in the direction of important upside potential. That is mirrored within the choices market, the place there may be proof of elevated shopping for of draw back safety and promoting of upside potential.

Notably, institutional buyers, reasonably than retail buyers, have been the first drivers of name overwriting circulate, with the provision of gamma from buy-write funds remaining at traditionally important ranges. Moreover, the optimistic intra-day auto-correlation indicators that sellers are brief on this surroundings.

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