Macro Monday Week 38: From Spiking Oil Prices to FOMC Decisions...

Mon 16 Sep 2019

A  replay of the call is available HERE

Start of the week to be dominated by weekend event in the Middle East, with the drone strikes on Saudi oil processing plant.

This week’s call focuses on that – so very tactical horizon – as well as looks into the more important – structural horizon – implications of the FOMC decision due our on Wed.

Do keep in mind for the Asia Pacific we also have monthly China growth data (which have missed earlier today across the board), RBA mins on Tuesday, 4Q NZ GDP of 2.0%e alongside Aus jobs data on Thu.

Wishing everyone a healthy, phenomenal, smooth, profitable & lucky wk up ahead.

Namaste

-KVP

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Summary of Prior Week:

• Geo Politics: Kick off Mon Asia morning with huge spikes upwards in oil of c. +20% in Brent Crude following the back of the wkd drone attacks on the worlds biggest oil processing plant. With some est. putting the slashed output by half being equivalent to 5% of world supply (5.7m b/day lost).
  It worth noting the Saudi Arabia have flagged that they have enough stockpiles to meet client demand (for c. 60 days)  & have indicated that c. 1/3 of production will be back on line on Monday.

Trump also tweeted that he has advocated the opening up of the US Strategic Reserve (USR) “if needed”, which has over 700m barrels of oil. There have been only a few drawdowns of the USR during the first 1991 Gulf War, 2005’s Hurricane Katrina & 2011’s halting of Libyan export (Arab Spring).    

• Bojo’s attempted coup shatters. Now its will the EZ entertain an extension
  
  Econ data: Inflation beats in China (pork?) at 2.7%a 2.8%e. Whilst US Core also beat 2.4%a 2.3%e. UK GDP & jobs data also beat (amazing). Misses were seen in EZ regional IPs

• ECB: Likely summed up with bund yields closing at the highs of the wk, despite big intraday swings on ECB day. Looks like our potential Not So Super Mario thesis played out…

• FI: Bond price correction cont. as yields climb. USTs now 1.90%, Bunds -45bp & JGBs -15bp.

• FX: Been a whilst since cable smoked the G10 +1.79% vs. +0.50% from AUD, on other hand -1.09% from JPY vs. the USD.

• CMD: Apart from oil & precious metals, was a bullish wk for CMDs

• EQ: Sea of green, back above 3K on SPX which is now +20% YTD.

• Vol: The compression cont. down c. -8.4% for the wk to 13.74.

COT Report: [@Ole_S_Hansen]

• Reversal in the previous CoT Reports – which saw USD net-long spike higher – as we pull back c. -6% in USD Net-Longs $12.7bn ($13.1bn)
• Note the big tick-up in BRL shorts & delta to other EM FX like MXN & RUB
• Commodity Net-long exposure reverses close to 2months trend of drastic reduction in net-exposure, as we get a +3x spike in Net-Long exposure in the commodity complex by HFs

Week Ahead

Key Focus:

• FOMC | Brazil Central Bank | Energy / Middle East Focus | NZ 4Q GDP | RBA Mins
• Central Banks (SGT):

• #WK 38 – BZ 6.00% p (19) FED 2.00%p 2.25%p (19) SNB –0.75%p (19) NO 1.25%p (19) BoE 0.75%p (19) BoJ 0.75%p (19) SA 6.50%p (19) ID 6.50%p (19

Fed Speakers (SGT):

• Williams, Rosengreen, Kaplan

Other (SGT):

• Mon JP Hol (16), Further ripples from Energy / Middle East, Weekly US oil Inventories that more significant this wk, Scenarios around Oil Sell-Off this Mon Mrn AM Asia (covered over the call, check out replay link)

Econ Data:

• US: Empire mfg. Index, Cap Utilization Rate, IP, Housing Data, CA
• CH: FAI, IP, RS, U/R
• EZ: GER ZEW, Final CPI 1.0%e/p, CU, GER PPI
• JP: TB, All Industries Activity, National Core CPI
• UK: CPI, House Prices, RS, BoE Quarterly Bulleting
• NZ: Milk Auction, CA, GDP +2.0%e +2.5%p
• AU: RBA mins, House Prices, Jobs data 15.2k e 41.1k p, 5.2% U/R e/p
• CA: Mfg. Sales, Inflation, ADP, RS

Greater China Focus (GST: slides 10 to 13) – Focus on Oct 1^st 70^th National Day, CNH, EQ & Yields

Chartography & Price Action

• Very tactical simple focus this wk, showing the context of the gap up & down in prices this wk across both Brent Crude 66.22 +10%, WTI 59.75 +8.9%, S&P Futures 2991 -0.52%, Nasdaq100 Futures 7816 -0.89%, as well as spot gold 1503 +0.98% & silver 17.85 +2.3%. Worth noting energy is off the highs, as are precious metals & equity futures are off the lows – in the Asia morning at least, so far.  
  

Don’t forget to bookmark & check our Daily SaxoStrats calls from the European morning session c. 09:00 CET