Macro Monday Week 46: Powell & China Watch
Summary: This week we highlight the YTD spectacular returns, i.e DAX +25%, SPX +23% CSI +32%, alongside very low volatility, VIX c. 12 -50% YTD, with KVP view being, not buying protection over a +6-12m horizon is likely equivalent to imprudence. Monthly growth data out of China, as well as Powell testimony on the US economy will be center watch. Rate decisions out of NZ & MX also key. Biggest risk continues to be reversal in US-CH trade deal euphoria.
(Note that these are solely the views & opinions of KVP & do not constitute any trade or investment recommendations)
Macro Monday WK 46: Powell & China Watch
A replay of the call is available HERE
TGIM & Happy Veterans & Remembrance day to the North Americas
Short & sweet this wk, highlight that with such stellar returns YTD on equities, alongside such low volatility in KVP’s world, it would be the paragon of imprudence not to have some sort of downside exposure even if it was 4 – 6 – 12 in horizon.
Did you know the DAX is +25% YTD, vs. +23% for the S&P, +30% for the Nasdaq-100 & +32% for the CSI-300 in China. Meanwhile the VIX at a c. 12 handle is down over -50% for the year. We have yields breaking higher out of recent trading ranges & gold + silver breaking lower.
Key focus on KVP’s side this wk is on Powell testimony – Fed for now looks right given the ISM Non-Manufacturing beat last wk – as well as rate decision out of New Zealand & Mexico where the market is expecting further cuts.
Biggest risk to the bullish sentiment is once again, a potential reversal in the frothy euphoria around a US / CH ‘phase one’ deal
Lastly US 2020, looking that more interesting with billionaire & ex NY Mayor, Michael Bloomberg now having a call option to join the presidential fray…
Wishing everyone a great wk ahead.
Summary of Prior Week:
- GeoPolitics: US /CH euphoria on a phase one deal moving towards fruition goes to new lvls with the breaking of a lot of asset classes out of recent trading ranges
- Banks & Econ: RBA as expected left rates unchg. At 0.75%, alongside the BoE at 0.75%. US ISM Non-Mfg. beat at 54.7a 53.5e 52.6p. CA housing starts & Jobs data missed on Fri
- EQ: Great YTD performance! SPX +23%, Nas-100 +30%, DAX +25%, CAC +25%, CSI +32%, ASX +20%, Bovespa +23%
- FI: USTs at 1.9417, punched through the 1.50/1.80 range of the last few wks – big liquidation on long bond positions. Plus big steepening on the curve, 2/10 are +26bp
- FX: So much for USD weakness, we are back over 98 handle on DXY with a +1.15% wk (biggest since E-Aug)
- CMD: Really precious metals grabbing the CMD headlines, as recent support lvls broken. Gold & Silver dropped -3.7% & -7.3% for last wk. Coffee on the other side was back c. +5%
- Vol: With such low vol & stellar performance, for KVP not considering protection = imprudence. And of course can play upside through calls
COT Report: [@Ole_S_Hansen]
- Post 4 wks of USD additions, we are now into wk three of lower net USD positioning, albeit just a touch lower at -3% (-17%) to $12.3bn ($12.6bn)
- Again CAD net-longs higher & JPY net-short higher by +24% & +35% respectively
- Decent reduction in AUD net-shorts by c. -33% to c. -27K (-40k)
- Slightly less reduction in GBP net-shorts, as well an increase in EUR shorts…
- Now, its wk 4 of commodity net-long expansion. The Tues report, likely does not capture the capitulation in Gold & Silver longs…
- Powell | RBNZ | CH monthly growth data| US / CH
Central Banks (SGT):
- RBNZ 0.75% e 1.00% p (13) BSP 4.00% e/p (14) MX 7.50% e 7.75% p (15)
FOMC Speakers (SGT):
- Rosengreen, Clarida, Quarles, Evans, Williams, Bullard, Powell due to testify on the economy on Thu, Nov 14
- Long wkd in the US with Mon being Veteran’s Day
- US: US CPI 1.7% e/p CORE 2.4% e/p, CORE PPI, Natural Gas, Crude Oil Inventories, RS, Empire State Mfg. Index, Import Prices, Capacity Utilization Rate, IP, Business Inventories
- CH: New Loans, M2 Money Supply, FAI, IP, RS, Unemployment Rate
- EZ: GER ZEW, CPI 1.1% e/p, GDP YoY 1.1% e/p
- JP: Monetary Base, BoJ minutes, Avg. Cash Earnings
- UK: 3Q GDP 1.1%e 1.3%p, IP, Mfg. Production, CPI 1.7% e/p, CORE 1.8%e 1.7%p, PPI
- NZ: Visitor Arrivals, Inflation Expectations Q/Q, RBNZ 0.75%e 1.00%p, Biz Mfg. 48.4p
- AU: NAB Business Confidence, Wage Price Index, MI Inflation Expectations, Jobs Data
- CA: Light wk data wise
Chartography & Price Action
- Update of US growth & surprises on S7P 500, with most of the results in. We can see that despite a negative earnings growth, there was actually ‘positive” surprises in earnings growth vs. expectations. Note there is generally quite a bit of sandbagging that wall street analysts play, lowering earnings expectations that they know the companies will beat, etc.
- We take a look at a few charts highlighting the big steepners move we have seen, i.e. 2/.10 are now at +26bp, just a few wks back we were -5/6bp… USTs at 1.94% have broken above the key resistance of 1.80%... Gold 1460 & Silver 16.83 with big moves lower last wk of c. -4% & -7% also took out the support of recent trading ranges
- Peter’s latest monthly piece on equities: Macro & Equities Divergence Increased in October
- Peter on potential equities upswing: The risk of a melt up in equities is real
- Hardy’s latest FX Chart Highlights: USD Bears are running for cover to end the week
- Jakobsen on all things Brexit: The UK General Election Finally Agreed, Brexit Not So Much
- Dembik latest Macro View: Slowdown or Meltdown? + Saxo’s Inflation Monitor: EM & MP