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The S&P 500 tried strutting its stuff on Monday as Wall Street braced for a whirlwind of corporate earnings and a crucial policy update from the Fed. Meanwhile, cross-asset investors seemed adrift like leaves in the breeze while big players jockeyed for prime positions. Unfortunately, this laissez-faire attitude offered no lifeline to oil prices, which nosedived ahead of what promises to be a frantic week in the financial jungle.

In the FX arena, traders play a high-stakes chess game ahead of two tight central bank calls. The BoJ is teetering on the edge of a 15bp hike, while the BoE remains the wildcard everyone loves to hate. On the other hand, the Fed is expected to sit tight but might drop hints about a September rate cut or perhaps even a dramatic cutting spree.

Even with risk markets finding their footing, oil prices have boomeranged back to where they were two months ago, thanks to China's shaky economy. China's oil appetite dropped 8.1% y/y to 13.66mb/d in June, likely due to slumping gasoline and diesel consumption. And let’s not forget that the rise of new energy and autonomous vehicles is like a sprinter grabbing the EV baton and running with it, and negative for the oil price outlook. China is now leading the charge in the EV race, leaving oil demand in the dust.

Speaking of autonomous cars, EV giant Tesla (TSLA) revved up more than 5% after a bullish call from Morgan Stanley. This electrifying boost helped keep the broader index trading in the green, giving investors something to smile about amid the market madness.

There's a lot of buzz about the current market giving off strong 2022 déjà vu vibes. The Nasdaq took a nosedive back then, plummeting 35% as interest rates and bond yields skyrocketed. The bear market wasn’t just about soaring yields but also about unwinding the excess optimism and positioning. Bond yields might give us a tailwind this year, but the market's irrational exuberance feels like a rerun of the end of 2021. Remember, it only took a few lackluster forward guides to start the snowball rolling downhill.

I've been pretty vocal about my disdain for these markets. What we’re seeing isn’t a rotation; it’s more like a short positioning shakeout than a wholesale attitude shift towards lower-quality names. Flow data backs this up, showing that small-cap shorts were the hedge fund darlings during the Fed's "higher for longer" mantra. While I'm a staunch believer in mega-tech AI as a must-have generational trade, we've completely avoided the bottom-of-the-barrel end of the cap curve. With the US economy teetering, this week's NFP could be one of those economic doomsayers where all boats sink.

In a late-cycle economy where growth is fizzling out and not translating into earnings growth for most companies—especially the small fry—it doesn’t make sense to be a bag holder. I'm still aboard the AI train, but I'm not keen on getting caught in a volatility storm in August, especially with many US political flashpoints. The state of US politics genuinely gives me the jitters.

I'm fully bracing for a volatility and liquidity crunch next month. We'll have a clearer policy picture once we get past month-end rebalancing and these pivotal central bank meetings—none more crucial for stock market operators than the Fed. With that in the rearview mirror, we'll likely have a cleaner slate to work with, and we can then fine-tune our dog days of summer trades. Until then, buckle up and stay nimble.

But as far as reading more on the markets, I’m hardly a fountain of wisdom today. Yesterday, I played it safe and put zero risk on, letting the TWAP program work its magic. During Asia's session, it covered a solid 50% of our USDJPY short position. Although we’re betting on a BoJ hike, the central bank’s wishy-washy antics give me some pause. I might be misreading the tea leaves here.

There’s a time and place to go big, but this isn’t it. Each trade is just a drop of water in the vast ocean of the market. There will be plenty of opportunities to dive back into long JPY and gold to our heart’s content. For now, patience is the name of the game.

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