Macro Monday Week 46: Powell & China Watch

Macro 2 minutes to read

Kay Van-Petersen

Global Macro Strategist

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)

2019-Nov-11


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.  

Namaste

-KVP

**

 

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…

 

Week Ahead

Key Focus:

  • 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

Other (SGT):

  • Long wkd in the US with Mon being Veteran’s Day

Econ Data:

  • 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

 

From Home.Saxo

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.