Macro Monday Week 49: Does "China Strike Back" Amid An Action Packed Week?
Global Macro Strategist, Saxo Bank Group
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?
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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.
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
- 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):
- 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
- 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
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