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Macro Monday Week 41: Highlights from Saxobank's Q4 Outlook - The Killer Dollar

Macro 3 minutes to read
Kay Van-Petersen

Global Macro Strategist

Summary:  This week we will focus on our latest 4Q Outlook, The Killer Dollar. Where we highlight the various contribution from our diverse group of analysts. We also run through the potential implications from the impeachment investigations. The week ahead with China back from Golden week so next steps on talks with the US, plus FOMC mins and Fed speak this wk will be key.

Macro Monday WK 41: Highlights from Saxo's Q4 Outlook - The Killer Dollar



A  replay of the call is available HERE

TGIM & Happy Macro Monday everyone, welcome to WK 41

This week we will focus on our latest 4Q Outlook, The Killer Dollar. Where we highlight the various contribution from our diverse group of analysts.  

We also run through the potential implications from the impeachment investigations. The wk ahead with China back from Golden week so next steps on talks with the US, plus FOMC mins & Fed speak this wk will be key.

No major central banks are scheduled to meet this wk.

Wishing everyone a healthy, phenomenal, smooth, profitable & bell-curve setting start to the 4Q!




Summary of Prior Week:

  • Geo Politics: Impeachment investigation moves on. Meanwhile Bernie hospitalized as the 78 year young seems to need some rest – could be advantageous to Warren if Bernie pulls out.
  • And as we outlined on the potential impeachment implications… if Joe Biden is forced to drop out due to corruption linked to his son, then it would be pretty much in the bag for Warren – implying a likely -20% to -30% repricing lower of the US equity market
  • China 70th Anniversary NK fired another missile. HK recorded its first death in the protests.
  • Econ: In what seems like ages, we finally got a wk of big misses from key data out of the US, from both ISMs, to ADP, to NFP, to AHEs the trend was lower. ISM Mfg. 47.8a 50.0e 49.1p, ISM Non-Mfg. 52.6a 55.0e 56.4p, NFP 136k a 145k p, AHE 2.9%a 3.2%e/p.
  • This basically took us from c. 40% probability of a Fed cut on Oct 30 to 81%, this jumps to 94% for Dec 11
  • FI: Tighter on USTs to 1.529%
  • FX: -30bp on the DXY to take us down sub 99.00 handle, with both yen & euro gaining vs. the USD.
  • CMD: Bears cont. to do well in energy & platinum given the pullbacks. Where as once again, the bulls did well on the softs.
  • EQ: Red across the board, with the noticeable exception of the Nasdaq & the Emerging market etf [EEM]
  • Vol: Similar lvls on EQ in the US with 17 handle for the VIX. Pop up in EZ EQ of c. +15% & a touch higher on bond’s MOVE +4%


COT Report: [@Ole_S_Hansen]

  • Trend in USD Net-Longs increasing, goes on… this time around at a marginal +2% to $17.6bn ($17.5bn)
  • Seeing same increase in kiwi & real shorts increasing to new highs. Interestingly enough, seen a pause in the pullback in yen & cad longs. As well as a slight trim on GBP shorts
  • First pullback in net-long exposure to the commodities at -25%, in close to a month. Whether this is linked to the overall stronger USD remains to be seen, one week’s data point, does not a make a trend


Week Ahead

Key Focus:

  • FOMC Mins | Fed Speak | US / EZ Trade | Impeachment Show | China / US Trade Negotiations

Central Banks (SGT):

  • No major Central Bank on scheduled rate decision meeting 

Fed Speakers (SGT):

  • Evans, George, Mesters, Bostic Powell (9), Kashkari, Rosengren (12), Kaplan

Other (SGT):

  • Daylights Saving Time Change (AU) Aus Bank Hols (7) China back in tmr from Golden Week (Oct 1 to Oct 8) Carney (8) Olsen (8)

Econ Data:

  • US: Inflation, FOMC Minutes, JOLTS jobs, UoM Consumer Sentiment, PPI
  • CH: Caixin Serv. PMI, Trade Balance, New Loans, Money Supply
  • EZ: GER Factory Orders, GER IP, ECB Mins, GER CPI
  • JP: Leading Indicators, Bank Lending, PPI, M2 Money Stock
  • UK: Manufacturing Production, Industrial Production, Trade Balance
  • NZ: Business Mfg. index
  • AU: Home Loans, M1 Inflation Expectations, RBA Annual Report
  • CA: Housing Starts, Building Permits, Jobs Data

Q4 2019 Outlook – The Killer Dollar [some highlights]

  • Steen Jakobsen: A weaker USD gives the game extended time for play, yet it would mark final nail in the credit cycle that has been in play since the 1980s
    • Weaker USD has bipartisan support, yet it does not offer a structural solution to the issues in the system


  • John Hardy: The more the Fed drags its feet, the more Trump pushes. So far the Fed has not gotten in front of the curve, just a question of when, not if


  • Peter Garnry: If we are entering a weaker USD regime, then the end of US EQ outperformance vs. rest of the world is here. Overweight EM & EZ Equities
    • Notes that in periods of strong USD regime, US EQ outperform vs. RoW


  • Christopher Dembik: Seeing an increase in dollar shortage likely peaking at an annualized $800-900bn over next few months
    • Great charts showing correlation of USD liquidity with MSCI world, the likes of EuroDollar & DXY… higher USD liquidity => higher MSCI world


  • Ole Hansen: See gold $1505 at $1550 by year end, copper $256 to stay in $250 / $280 range & Brent Crude $58.16 to close at c. $60.00 by E-2019
    • Biggest risk to precious metals is a US / CH trade deal that sticks, which probably lowers the pressure on the Fed to cut rates furthers


  • Eleanor Creagh: Favours active management over passive as things get more complicated given high valuations & tail end of a slowing business cycle


  • KVP: Outlines some of the challenges of getting a structurally weaker USD, apart from the Yen what is going to strengthen? Euro? Yuan?
    • USDCNH 7.13, being above or below 7.00 by year end will likely be determined by Trump’s 2020 Campaign… will it be based on Tariffs or Deals - likely the former so likely to have a DollarYuan above 7.00 for the rest of the year. Biggest movers for a turnaround in the USD are: Successfully real US / CH trade deal & a Fed that starts cutting rates by -50bp (note curve is steepening again)

Potential implications of impeachment investigations [Reflagging from wk 40]

No clear near-term market impact (to KVP at least), yes it creates more noise & uncertainty… yet not too surprising given it is Trump

It’s worth noting that Pelosi has been hesitant about the democrats pursuing an impeachment investigation of Trump

Yet, her hand & voice were finally forced last week

We now have increased probability that Trump will get more erratic (more pressure on him) & volatile – this likely increases the probability of:

  • Trump running a Tariffs Campaign for his 2020 Election Strategy
    • Trump is not likely to seek a lasting deal with China. With a ‘Tariff Man’ & a ‘strong patriotic “USA” image’ he will likely control more of the political airwaves & headlines


  • There will be an increased likelihood of military conflict abroad…
    • Depending on how under pressure he gets, & how much focus he needs to divert from the domestic & election agenda, as well as how the underlying US economy is doing in early 2020
    • It worth noting very much to Trump’s credit, that he is a lot more reticent about getting the US even more entangled in foreign conflicts


  • The impeachment investigation, whilst potentially catapulting Joe Biden back as the sole real democratic nominee, will suck the air out of the room overall on the Dems 2020 campaign
    • i.e. one more big distraction & Trump gets way more clicks than “sleepy joe”


  • This likely averts what would have been a potential -20% to -30% pullback in US Equities if there was a chance of Warren or Sanders sitting in the White House
    • Biden is considered way more pro-business than MMT advocates Sander & Warren. It should be noted that Warren has been climbing the polls of late


  • This new “witch hunt” as Trump calls it, is only going to motivate & empower his base more. At the end of the day, it’s the most motivated electoral base that gets out there to vote. And this likely ups the ante on the motivation behind Trumps’ base. The key risk to the Dems is that Biden’s base may not be as motivated as Warren’s or Sanders’


  • An impeachment investigation & proceedings will take months, & in the event that Trump is found guilty of impeachment, the republicans control the senate (53 / 100) – so they could sweep it under the rug & choose to do nothing. This is a big part of the reason why a lot of the democrats have been so reluctant to go down this path
    • You need 2/3 majority in the Senate to be convicted on the grounds of impeachment
    • Just to give you context of how rare this is, there has only been three previous instances of US presidents coming under impeachment proceedings:


      Andrew Johnson who was impeached in 1868, Richard Nixon who resigned during the process & Bill Clinton (the original Teflon Don) in 1998 who was acquitted by the, then Democrat-controlled Senate.


  • News flows from this will be Trump, Trump, Trump, BidenTrump, Trump, Trump, Biden


  • Still a long way to the Mid Jul 2020, democratic nomination for their presidential candidate. One flipside of all this to be wary of, if Hunter Biden is found to be clearly linked to corruption (which we know was rampant in the previous Ukrainian regime) it could force Joe Biden out of the race, in which case Warren takes nomination & US EQ markets tank


Greater China Focus  – team out for a well deserved break given golden week.  


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