Macro Dragon WK 15: Saxo’s 2Q Outlook + US Dominance Theme with Yields Higher, Gold Much Lower, USD Higher, US EQ > RoW EQ
Summary: Macro Dragon = Cross-Asset Quasi-Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
Macro Dragon: Saxo’s 2Q Outlook + US Dominance Theme with Yields Higher, Gold Much Lower, USD Higher, US EQ > RoW EQ
Top of Mind…
- TGIM & welcome to WK #15…
- For those back from the Easter WKD, hope you capitalized on some well needed R&R, plsu reading + reflecting, some quality time with people that you love & of course some selfless time by yourself.
- Most folks are still out until Tues, including most of Europe, Australia, New Zealand & China – meaning its really gonna be the US setting the potential bell-curve on the start of the wk
US Dominance Theme
- Again re-iterating something that is not yet consensus in positioning from a cross-asset basis (yet) but will be by E-2021, the US Dominance theme – for those of you who may have missed the re-published latest Dragon Interview, would encourage you to pay attention to AVM’s Ashvin view on the US Dominance Theme…
- From KVP’s take some things to reflect on in regards to the theme:
- The DXY at these 93 lvls (two wkly closes above the 200DMA of 94.481) likely has an easy move to the 96lvls before we have even gotten to the critical Jun 16 Fed meeting.
- Gold $1730, is heading much lower… the $1676 lows last wk on the 30th of Mar is but a taste. The bulls will say the c. 1680 line has held well, the bears will be point out then why do we keep testing it & why are we not breaking back above the key $1770 lvl? KVP reckons we are heading to the $1500-$1600 lvls at least on Gold over the next 1-2months (that’s a -9% to 12% move) – with the lows likely being set around the time we get the first Fed hike, which could be upgraded to 2022.
- Yields with UST at 1.72 (1.7742 was set last wk, when gold was 1676), have a path of least resistance to the upside. We are seeing trillions being added to bills, before even one is out of the kitchen… $3trn in infra is now $4trn & there is more on the table.
- The Macro Dragon is not surprised… this is why we went from being bullish risk from the US Nov elections, to being mega bullish post the Blue Ninja Sweep of the Senate in Jan. This administration is dead set on delivering on what they promised, plus making up for 4yrs of a presidential debacle in regards to execution on nearly everything.
- The Fiscal Dominance regime is here to stay, this is not a drill.
- The US bond market is the biggest in the world & if yields are going up there, it will pull yields up globally. USTs are not gonna ‘rest’ until c. 2.25% to 2.50% & if then it will be a function of how much we are spending.
- Bottom line, the world largest economy at +$22trn (c. +25% of global GDP), with the deepest equity (+$50 trn) & government bond markets (c. $20 trn), plus also having +60% of the global reserve currency & the biggest spending on the fiscal front… is going to likely be growing at +6% to +8% in the 2H of the year. That will be the equivalent of +$1.3trn to +$1.8trn in growth, or the equivalent of larger than Turkey, Mexico or Australia on the low end to bigger than a Russia, South Korea or Canada on the high end.
- Why would one look to EM or the RoW to compete with that level of both percentage & nominal growth? i.e. the risk-premium in other countries just does not justify that.
- This is the point that folks operating in Investing, Macro & especially life forget – it’s a relative world & it’s by no means a maximalist world. You can moan about the debt lvls going up in the US economy, yet where else will you find that level of transparency, rule of law, talent, resources, ecosystem, size, yield, etc.
2Q SaxoStrats Outlook
- Also check out our 2Q Outlook that focuses on Scarcity & captures the latest analysis & thoughts from the SaxoStrats team
- KVP’s very own cut is entitled:
Rest of the Week & Other Reflections
- Easy to read too much or too little into last wk’s price action, given both month finish/start, as well as more importantly the 1Q to 2Q transition. I.e. there can be a lot more noise than signal on those calendar transitions due to rebalancing & other structural needs.
- You know what is a lot of signal & very little noise? That’s right… US jobs numbers… another blowout session on the NFPs… including upgrades on previous numbers. This economy is going from Moto, to Moto Moto (hot hot)…
- Mar NFP came in at 916k vs. 660k that was expected. Plus Feb figures got upgraded by almost 100k from 379k to 468k.
- The unemployment rate is at 6% at expected from a previous 6.25%. It worth noting that a year ago, in Apr 2019 the U/R got to 14.8% from a previous Mar figure of 4.4%. The handle pre-Covid was 3.5%.
- Don’t forget that the one sector that has not fully re-opened up yet is the F&B space, which pre-Covid was responsible for c. 10m workers. Its likely not going to be a linear move lower, especially at the amazing progress that the vaccines have been making in the US.
- Econ wise this wk, final service PMIs due this will + US ISM Services 58.3e 55.3p.
- CBs: Rate decision out of Australia’s RBA on Tues
- Hols: Most major markets (outside of the US & CA) are not back in until Tues
- Other: We got daylights saving time shift over the wkd for AU & NZ.
- Dragon Interviews U-Tube Channel for easier play-ability…
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