Macro Monday Week 44: Fed, US 3Q GDP, NFP, BoC & The GoB…

(Note that these are solely the views & opinions of KVP & do not constitute any trade or investment recommendations)

Macro Monday WK 44: Fed, US 3Q GDP, NFP, BoC & The GoB...

2019-Oct-28

A  replay of the call is available HERE

TGIM & Happy Macro Monday everyone, and Happy Diwali – the Hindu festival of lights

It’s a long wkd here in Singapore with Mon being a public holiday, to which I believe that NZ is also out nursing their loss vs. England, yet taking 3^rd place in the 2019 World Rugby Cup   

Epic week ahead given the combination of Fed, BoC, US3Q GDP, US NFP & ISM Mfg., 3Q Aus CPI plus the ongoing Brexit Saga, as well as month end/start flows

Wishing everyone a healthy, phenomenal, smooth, profitable & lucky close to October & a great start to November

Lets all push hard over the next 6-7 wks before the usual year end, school & Christmas holidays kick in – there are always opportunities, KVP heard from well placed source/s that someone made to the tune of +$50m over the last few wks around the GoB (Game of Brexit)

What can $50m buy you? Well according to this about 500,000 goats amongst other things…

Namaste

-KVP

**

Summary of Prior Week:

• GeoPolitics: Brexit toxicity & saga continues, it almost seemed like we were on the verge of deal, then the UK parliament (again) threw us in limbo – two things to watch out for:
• EU extension potentially to Jan 31
• Vote for Bojo’s Dec 12 election call
• Needs 2/3 of parliament to pass, Corbyn has signaled he is not on board…

• HK – potential leadership change? Initially read as positive, once again KVP is not sure why. Similar to even a US bill coming through from the Senate (on Free Speech & HK special status), the underlying structural issues still persist

• ECB: Nothing to see here… enter Lagarde, we know her IMF white papers on negative rates. Challenge will be getting the North (of Europe) to eat it

• ECON: Latest Flash PMIs not exactly bullish for a bottoming out of global growth & downward momentum. German & Japanese Mfg. PMI hit 10 consecutive months of contraction south of the 50 handle mark, at 
  • Key outlier on the data was France last wk, that beat on both flash mfg. & serv. PMIs. Also US flash Markit Mf.g PMI best in 6m, does that signal the bottom is in on US manufacturing & potentially is a boon to Trump’s base & election prospects  

• EQ: SPX 3022 +1.2% is just a few points shy of making new ATHs. Bulls controlled equities across the globe

• FI: Touch wider for the wk on USTs, it should be noted we are in the top ranges of US10yr yields at these 1.80% lvls

• FX: GBP gets a big of ice water thrown on it, yet still holds at 1.2827 -1.2% as we wait on for the next Brexit episode

• CMD: Gold 1505 +1.0% & Silver 18.04 +2.8% had a great wk despite a stronger USD & higher global yields

• Vol: Lower lows, as we sink over -11% to sub 13.00 handle on the vix. Its worth noting that we seem to consistently be selling volatility faster & faster after every spike, i.e. the compression seems to speed up

• With that in mind, someone in the market last wk picked up quite a large order of April 2020 expiry 65 strike calls on the VIX. As always tough to know how directional of a bet this is, vs. saying hedging an overall short volatility (long equities + risk assets) strategy in one’s portfolio. We have not gotten to those 65 lvls since the GFC period of 2008, granted a move to “just 50” would likely still be a very profitable trade depending on when it happens
  
  • Oh and if you don’t know what direction your portfolio has on volatility, you are likely short volatility – its the default position, if you believe the default position is to be long

COT Report: [@Ole_S_Hansen]

• After 4 wks of USD additions, we come into a pretty big reversal on net USD positioning with a -28% drawdown to $15.2bn ($20.5bn)
• Continue to see big increases in CAD longs from 13K to 33K and Yen shorts from -7K to -18K
• Worth noting the market is still short sterling (despite a -28% reduction) & this does not account for the world’s AM being massively UW other UK assets
• i.e. post a firm Brexit & clarity on elections, KVP would likely expect a tsunami of capital into the UK assets. Caveats: things are still fluid, a Corbyn gov. & negative UK credit impulse. Our Chief Economist Jakobsen continues to believe that a recession is due in the UK regardless of Brexit & historically that has always coincided with a weaker sterling
• Two weeks of extensions in Net-Longs on the commodity side. Interesting to note that the overall positioning in Gold & Silver (despite the multi-year bullish break up) is still not at extreme levels from a 52-week positioning range

Week Ahead

Key Focus:

• Fed | NFP & ISM Mfg.| US 3Q GDP| AU 3Q CPI | China PMIs | The GoB (Game of Brexit) continues…

Central Banks (SGT):

• BoC 1.75% e/p (22) FED 1.75% e 2.00%p (31) BZ 5.00% e 5.50% p (31) BoJ -0.10% e/p (31)

FOMC Speakers (SGT):

• Clarida, Quarles & Williams all speaking early Asia Sat / US ET Fri afternoon

Other (SGT):

• Today is NZ Bank Hol - need it post the Rugby – ouch! Yet congrats on 3^rd place! Daylights Saving Time in Europe (e.g. SGT is now +7hr diff to CET) Draghi (28) Lowe (29) Jordan (31)

Econ Data:

• US: Trade Balance, Consumer Confidence, ADP, 3Q GDP, Personal Spending, Personal Income, AHE, ISM mfg. 49.0e 47.8p, NFP 90k e 136kp
• CH: Mfg. PMI 49.9e 49.8p Serv. PMI 53.7e/p Caixin Mfg. 51.0e 51.4p 
• EZ: Private Loans, M3 Money Supply, Flash GER CPI 1.1%e 1.2%p, Flash EZ  CPI 0.7%e 0.9%p CORE 1.1%e 1.2%p
• JP: Tokyo Core CPI 0.7%e 0.5%p, BoJ Outlook Report, U/R 2.2%e/p, Mfg. PMI 48.5e/p
• UK: Brexit discussions (hearing of Jan 31^st extension on draft seen by bloomberg), Tue Tentative Parliament Brexit Vote, Mfg. PMI 48.2e 48.3p
• NZ: Building Consents, ANZ Business Confidence
• AU: 3Q CPI 1.7%e 1.6%p CORE 1.6%e/p, Building Approvals, Private Sector, PPI
• CA: BoC Monetary Policy Report, GDP m/m 0.2%e 0.0%p, Mfg. PMI 51.0p
• Other: Turkey Central Bank Inflation Report – worth noting we went from c. 25% inflation a year ago to 15% in Aug this year, to 9% in Sep this year

Chartography & Price Action

• First table is an earnings snapshot so far of the US with c. 40% of the companies having reported, we have a revenue growth of +3.7% & earnings contraction of -0.51%. Sectors that are underperforming so far:
• Technology -0.5% Rev growth, -10% erns growth
• Oil & Gas -7.8% & -12.7%
• Basic Materials -15% & -29.2%

Whilst best sectors that have so far outperformed…

• Consumer Services +12.4% & +7.5%
• Utilities +8.0% & +12.8%

• SPX looking bullish & likely to make new all time highs going into month end… we are just points away from that & we could have a bullish breakout in the making
• Look at a few stock specific charts including Tesla – which has a c. +30% jump post its surprise & profitable earnings. Could it be like Netflix (another chart) & reverse after a few days. Plus Boeing & Amazon also look interesting, with the first being treated as better than expected given 737 Max still on schedule to return by year end (seems crazy to KVP, yet not done the deep dive) & Amazon apparently not having done as well as some expected - chart looks interesting above 20DMA yet south of 200 & 100DMA. 
• Lastly we look at DXY 97.834 bullish reversal last wk, gold 1504 & silver 18.03 holding up well despite the stronger US dollar & higher yields last wk, as well as sterling vs. the USD & AUD
•  Last chart suggests that if we are heading into a steepening regime, that may coincide with a weaker DXY & hence lower USD – yet a lot of event risks on that with the Fed & of course the GoB (Game of Brexit) saga still in play… as well as the key economic data out of the US this wk. Strong Data would be USD positive, as it would imply the Fed is likely to move towards being less dovish, whilst weak data & misses should have the opposite effect