Macro Monday Week 49: Does "China Strike Back" Amid An Action Packed Week?

Macro Monday Week 49: Does "China Strike Back" Amid An Action Packed Week?

Macro 3 minutes to read
Kay Van-Petersen

Global Macro Strategist

Summary:  The action packed WK 49, kicks off with a bullish sentiment this early Asia Mon Morning. Santa Rally getting earlier & earlier? We have US equity futures up +30-35bp, yields higher as UST reverse from c. 1.77% to c. 1.80/1.81%, DollarYen 109.69 +0.18% higher & Kiwi continues to be on fire 0.6442 +0.31%. The will get decisions out of Australia, India, Canada & Chile, as well as final PMIs, ISMs, NFP & AHE. Watch out for Lagarde's first testimony to European Parliament.


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

2019-Dec-02

Does China Strike Back in an Action Packed Week? 


To catch the replay of the please click HERE


The action packed WK 49, kicks off with a bullish sentiment this early Asia Mon Morning. Santa Rally getting earlier & earlier?

We have US equity futures up +30-35bp, yields higher as UST reverse from c. 1.77% to c. 1.80/1.81%, DollarYen 109.69 +0.18% higher & Kiwi continues to be on fire 0.6442 +0.31% (we flagged bullish bias for Kiwi crosses c. 3 Macro Monday’s ago, would have some trailing stops in place now as views are well ITM)

Over the wkd we got big beats on China official PMI data, marking the first time in 6m with a manufacturing PMI print above 50. That seems to have been underwritten further this morning as the Caixin Mfg. PMI also beat 51.8a 51.5e 51.7p

Yet what we are still missing is China’s response, from the signing of the HK Bill by Trump early Asia last Thu. Why is Beijing taking so long for the repose to Washington. And even thought we have heard that it would be “forceful measures”, the market seems to be calling that a bluff. So far KVP’s tactical risk-off post the Asia Thu morning looks wrong. Still let’s wait & see how the wk unfolds, as the US comes fully back in from the Thanksgiving weekend

So final PMIs due across the board, as well as US ISMs/AHE/U/R. We also have key rate decisions out of Australia, Canada, Chile & India

The market is expecting unchanged decision on the first two, KVP thinks RBA has a risk of a surprise cut, whereas BoC will almost certainly be on the sidelines (Poloz & Wilkins very comfortable for now).

While India is a on a dovish skew & expected to ease by markets, the exception of similar moves in Chile may not be as well placed given steps by their central bank to join the Brazilians in intervening in their currency – both are seeing new all-time highs vs. the US.


Namaste

-KVP

**

 

Summary of Prior Week:

  • Geopolitics: Asia Thu mrn saw Trump sign the Congress Passed HK Bill much to China’s chagrin. Beijing has warned of “forceful” measures as a response… 
  • KVP still surprised that we’ve not had a more bearish risk-off period. Hard to see how this keeps the phase one talks intact – mkts are acting (rightly or wrongly?) like a phase one deal is done
  • Also GER politics sees risk to Merkle’s coalition, not a game changer imho  - key thing to focus on here is when will need for fiscal policy become the central agenda
  • Protests: Cont. around the globe, be it HK, Chile, Colombia, Iran, Iraq
  • Econ: CH official PMI Mfg. bit beat 50.2a 49.5e 49.3p, Breaks 6months of sub 50 prints – likely seasonal. Serv. 54.4a 53.1e 52.8p.
  • EQ: US & EZ green last wk, Asia & EM predominantly down, with ASX, Nikkei & Nifty outliers to upside
  • FI: Same lvls as last wk across G3
  • FX: DXY unchg. For the wk, odd to see USDJPY at 109.52 +0.79% especially given lower yields over last 2-3wks. USDBRL making new ATHs at over 4.2765 +1.0%. USDCLP 809.46 +1.3% seeing intervention as well from their central bank
  • CMD: Last wk dominated by big oil sell-off on Fri -5.1% to 55.17 on WTI & -2.3% to 62.43 on Brent. NatGas also massive almost -10% sell-off on a warmer expected Dec 
  • Vol: VIX in the 12 handle, +7.4% on Fri, still c. -4% for the wk

 

COT Report: [@Ole_S_Hansen]

  • Delayed release given US Thanksgiving wkd – should be out tonight Asia time, meaning Ole will like have something out latest by Tue CoB

Week Ahead

Key Focus:

  • Finals PMIs + US ISMs / AHE / UR | US-CH Latest | UK election Countdown | RBA / BOC / RBI

Central Banks (SGT):

  • RBA 0.75%e/p (3) BoC 1.75%e/p (4) CL 1.50%e 1.75%p (5) RBI 4.90%e 5.15%p (5)

FOMC Speakers (SGT):

  • Quarles 

Other (SGT):

  • Lagarde’s first testimony to European Parliament could set precedent for changes in the ECB & EZ MP (2). RBNZ’s Orr (4 + 5)
  • Probability of rate cut for RBA & BoC are at c. 9% & 4%. KVP feels former is likely a higher probability, whilst latter will almost certainly leave things unchanged. Chile also suspect

Econ Data:

  • US: Final PMIs mfg. 52.2e, Serv. 51.6e, ISM Mfg. 49.2e 48.3p, ISM Non-Mfg. 54.5e 54.7p, Durable Goods, ADP, AHR 3.0%e/p, NFP 188k e 128k p, U/R 3.6% e/p, UoM
  • EZ: Mfg. 46.6e/p Serv. 51.5e/p, GER mfg. 43.8e/p GER Serv. 51.3e/p, GER Factory Orders 
  • CH: Caixin Mfg. 51.5e 51.7p, Caixin Serv. 51.2e 51.1p
  • JP: Capital Spending, Mfg. 48.6e/p, Monetary Base, ACE, Leading Indicators
  • UK: Mfg. 48.3e/p, Serv. 48.6e/p, Construction PMI 44.5e 44.2p
  • AU: Building Approvals, Company Operating Profits, CA, 3Q GDP 1.6%e 1.4%p, RS, TB
  • NZ: Milk Auction, ANZ Cmd Prices
  • CA: Mfg. 51.2p, TB, Ivery PMI 498.3e 48.2p, Employment Change 10k e -1.8k p, U/R 5.5% e/p


GST Greater China Focus:

  • People’s Bank of China (PBOC) celebrates 71st anniversary
  • Raymond takes us through the PBOC – from background, to how they likely view things & that they are not on same race to the bottom as other CBs
  • KVP highlights people forget that greatly reducing the shadow banking economy in China has been a form of tightening that a lot of people are missing, the estimated size of the shadow economy was c. 30 trn yuan. The net-effect is more likely a PBOC that has been measured rather than dovish, as you need to factor in the liquidity that is being taken out of the system by the clamp down on the Chinese economy   

 

Chartography & Price Action

  • Snapshot of 8 charts highlighting the recent range bound ranges of gold, USDCNH & DXY
  • The fact that DollarYen seems to be breaking out higher from its 6m trading range, despite yields not breaking out higher
  •  USDBRL at new all-time highs, as are US equity futures which are making new all-time highs this morning in Asia 

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992