Macro Monday Week 42: "Phase One" - here we go again...
Summary: This week starts with equities rallying out of the gates on the euphoria of "Phase One" partial deal completion in the works between the US and China. Love it or hate it, believe or disbelieve it - respect the price action, our roles are to make money consistently over time. We could see a squeeze higher in risk-on assets and a pullback in risk-off assets over the near team.
Macro Monday WK 42: “Phase One” partial deal, here we go again…
A replay of the call is available HERE
TGIM & Happy Macro Monday everyone, welcome to WK 42
Regardless of whether you believe Trump that a partial deal is in the wraps, one must respect the potential price action & potential squeeze higher on risk-on assets, as well as pullback on risk-off assets.
In particular, areas that have lagged such as energy & biotech etfs on XLE & IBB, Kospi & Hang Seng indexes & of course the agri complex, could grind up much higher for quite a few sessions – alongside a USDCNH 7.08, which could go back to test the 7.00 level.
On the other end gold, silver & the precious metals complex (etfs, single stock names, etc) could see some serious pressure lower over the next few trading sessions. Especially if we continue to have another big move up in US yields (i.e. we’ve gone from c. 1.53% to +1.73% in a wk on USTs), USDJPY 108.31 & USDCHF 0.9961 could continue to climb. The former looks that much interesting as previously these 108.50 / 109.00 area has been key resistance area for DollarYen traders.
Wishing everyone a healthy, phenomenal, smooth, profitable & bell-curve setting start to the 4Q!
Summary of Prior Week:
- Geo Politics: After what was a lot of noise of the talks being on, then off, then back on – we got news on Fri prior to the US mkts close from Trump that the talks were going well. This Asia morning, we have tweets from him talking about Phase One being done, ice on tariffs hikes with China due to buy US agri products, give IP protection assurances as well as some kind of currency agreement
Regardless of whether you are skeptical (KVP) on whether this holds or not, respect the price action & potential squeeze higher on risk assets & pull-back in risk-off assets
- Econ: Global trends is still lower…
- FI: Wider from 1.53% to 1.73% in UST
- FX: 2nd wkly down move in the DXY at -0.51%, still 98.00 is the lvl to break for the bears. On G10 Cable stole the show with a +2.75% lift vs. the greenback, with CAD +0.88% 2nd. On the flip side the Yen & Franc were only losers again the USD last wk at -1.25% & -0.18%
- CMD: Bounce back in Oil, Silver, Platinum, Copper & Iron ore… most of the softs continue to move higher, apart from Coffee & Sugar
- EQ: Majority of last wk’s upside, in some cases over +100% came through on the Fri session
- Vol: After a pop through 20.00 on Tuesday, we pulled back c. -9% for the wk to close at c. 15.60 lvls.
COT Report: [@Ole_S_Hansen]
- Trend in USD Net-Longs increasing, goes on…3rd wk running, with a +5% pop to $18.4bn ($17.6bn)
- Slight shave in Kiwi shorts, yet they keep piling onto the Brazilian real & longs continue to peter away from the yen
- Second week running in net-long exposure being reduced across the commodity matrix
- Latest US / China Show – “Phase One” | Turkey’s War In Syria | Inflation Themed Week | China 3Q GDP | RBA Mins
Central Banks (SGT):
- MAS (14) BoK 1.25% e 1.50% p (16) HK 0.97% p (17-21)
FOMC Speakers (SGT):
- George 2x, Bullard, Evans 2x, Brainard, Bowman, Williams, Clarida
- Bank Holidays (US, CA, JP), BoJ’s Kuroda, BoE’s Carney, RBA’s Lowe, Bundesbank’s Weidman
- US: Empire State Mfg. Index, RS, Phily Fed Mfg. Index, Beige Book, TIC Purchases, Housing Data, IP
- CH: CPI 2.9%e 2.8%p, PPI -1.2% -0.8%, FAI 5.5%e/p, IP 5.0%e 4.4%p, RS 7.8%e 7.5%p, 3Q GDP 6.1%e 6.2%p
- EZ: GER ZEW, CPI 0.9%e 1.0%p CORE 1.0%e/p
- JP: Revised IP & Tertiary Industry Activity, National CORE CPI,
- UK: Jobs data due, CPI 1.8%e 1.7%p, CORE 1.7%e 1.5%p, PPI, RS
- NZ: Visitor Arrivals, Milk Auction, CPI 1.4%e 1.7%p, Credit Card Spending
- AU: RBA Mins, MI Leading Index, Jobs Data 15.3k e 34.7k p
- CA: CPI 1.8%e/p, CORE 2.1%e/p, Mfg. Sales & ADP
Potential Implications of “Phase One” Market Reaction: Near-Term Tactical view
- Respect near-term potential squeeze & look for jump-on momentum plays…
- We could decent pop ups in things that have been out of favor including XLE & IBB (energy & biotech etfs), Kospi, Hang Seng Index, Nikkei, Dax, European Banks, China Tech names…
- On the flip side, precious metals complex & their derivatives could face a lot of pressure as this wk kicks of from gold, silver, platinum to GDX, GDXJ, SIL & of course individual names
- Don’t mistake this for a structural done deal to the Trump saga on Tariffs…
- For now, KVP continues to believe, that the most likely 2020 campaign for Trump will be one that runs on Tariffs against China & the RoW, projecting the “strong man” of America & “USA, USA, USA First” theme…
Chartography & Price Action
- We focus on 6m horizon daily chart, given the potential tactical rally we could see in risk-on assets, as well as pullbacks in risk-off assets
- We can see the energy & biotech etfs of XLE 57.89 & IBB 100.24 look asymmetrical to the upside, with supportive indicators on the charts. On IBB key near-term resistance lvls to watch are 100D & 200D at 104.044 & 106.21. On XLE similar MAs are 59.90 & 61.54
- The Hang Seng Index 26,300 looking like its trying to break out higher given Friday’s strong session of c. +2.3% & general suppression given the HK protestors
- S&P 2978, seems to be in the midst of a bullish MACD trigger, all about taking out 3,000 before challenging the ATH of 3032
- USDCNH 7.0809, recall highs were 7.1965 on Sep 3, the market will likely look to test the 7.00 lvl if the trade talks stay positive – that’s also the 100DMA
- EURUSD 1.1029 looks like we have based for now, 1.1050 / 1.1100 are next key lvls – likely it has to be a USD weakening story rather than EUR strength story
- GBPUSD 1.2606, massive spike last wk with +2.75% (unlevered!) as things get a bit frothy on favourable Brexit expectations – event wise it’s a roll of the dice. From a purely charts & price action perspective, cable looks like its trying to break out higher… 200DMA of 1.2713 is what is needed on a weekly close
- Gold spot 1485.39, these 1480 lvls has been flagged as key by our commodity strategist Ole Hansen… from a moving average perspective 1446 is the 100DMA, with the real line in the sign being around the 1370/1380 range – which is the 200DMA
- Silver spot 17.5141, the chart shows that 17.00 to 16.56 should offer some range of support – the line in the sand is just under 16 at 15.92 (200DMA)
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.