Macro Dragon: Limitless Upside!
Global Macro Strategist, Saxo Bank Group
Summary: Macro Dragon = Cross-Asset 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: Limitless Upside!
Top of Mind…
- Happy Monday Folks & Welcome to WK # 47…
- Getting into the spaceship on Mondays is not too dissimilar from dropping into the Ascension Arena - code word for gym/exercise activity, etc. Some Mondays you are feeling like, “yep, looks like another grinding wk… lets embrace the process & routine”. Other Mondays, it feels like your tanks are already empty & the wk already feels like a wash “Looks like another plus & hold on for dear life wk”.
- Yet, there are those Mondays, such as today… when you are so, so, so on point. You know its going to be an outrageous wk, in every good way possible.
- Hence, Limitless Upside. Enjoy the Ascent.
- Macro & Markets: Yes, there is still a lot of uncertainty around Georgia (US state not country), as well as pathways, structure & timing on next fiscal relief package out of the senate. Yet when KVP takes a step back & recalibrates on the events over the last few wks, price action & charts – the skew to the Dragon is very much conducive for risk-assets.
- Coming into WK 47, KVP would have a tactical risk-on skew that also resonates with strategic positioning… being long gold, silver, oil, bitcoin, equities (EM in particular) as well as having a bullish respect for the AUD, NZD & EUR crosses. AUDCAD, NZDCAD & EURCHF in particular stand out. USD is once again, yours in size. Your size, is my size. We will soon be retesting & likely crushing through the 91.746 DXY lows (granted a US bill, would likely be the highest conviction catalyst for this, as well as a number of other things) from these 92.58 – incidentally ze DXY close +0.6% last wk to 92.577. If you look at the broader EM Dollar Index, you can see the US dollar has already broken down with really only one lvl left to take out (chart does not have the same resistance lvls of the DXY).
- EM Assets - EM FX in particular is screaming in divergence (always an interesting exercise), given the shock & awe in USDTRY reversal last wk at -10.10%, as it looks like Erdogan finally woke up on the right side of the bed – with a new CB governor put in place (with respected creds is KVP’s understanding), as well as a new Finance Minister (Erdogan’s son-in-law resigned, who would have thought he was not up to scratch!). Hard to know how much of this is posturing vs legit, yet KVP would not be short Turkish equities which are breaking out hard to the upside (Check out US listed ETF TUR close , also has options, was up +23% last wk to 22.73 & still well south of pre-covid lvls of 26-30).
- The real TRYial is coming through this wk with their central bank meeting on Thu, mkt is expecting a hike to 15.00% from 10.25%. If they hike by more than 425 basis points, TRY & EM FX in general is going to have a field day. And lord help long TRY assets if they cut (low delta given the political moves taken last wk). On the Dragon we love the proxy & still widely distressed plays of the R-U-B & the B-R-L. These crosses (& respective country assets, be they EQ or Credit, both), could clock +10% to +20% before anyone appreciates what is going on over the next few wks & into 1Q21. RUB & BRL are the two worst major EM FX names vs. the USD for a total return of -16.2% & -24.7% respectively. For context on MXN its -2.5%, on CNY & PHP its +8.0%
- Long & OW EM is likely to be consensus view for 2021 & 2022 – end of the day, outside of energy & misery index (which the Dragon also loves, ex. Long-term buys on Commercial Banks), EM is the levered play on vaccines & a world reopening. KVP would not be structurally short EM FX, nor structurally long the USD. Worth also noting MXN has done a pretty good job of rerating… leading the pack.
- Lastly check out the JPM EM FX etf EMLC, breaking out higher. And yep, our EEM etf (emerging markets) bullish call from Sep is very much intact, after a touch of turbulence into the US elections. And Mexico’s central bank surprising last wk with not cutting as expected, may start to become a trend in the EM space – especially if the USD gets off the ledge & goes back to its freefall (DXY 70 lvls).
- Precious Metals – Yes got hozed last Monday… so what? Name of the game, loving the basing price action towards close of last wk & think we kick of to a decent wk with gold & silver. Remember they closed down last wk at -3.2% for gold 1889, -3.7% for silver 24.67. Not looked at it, yet word on the Dragon-Vine is that platinum is basing well at c. 900 lvls.
- Energy – smashed it on this, was the symmetrical play regardless of election outcome & last wk was big price action wise. Not just oil doing +8% yet the energy etf, XLE that we’ve been flagging for wks on the Dragon, clocked +17% to 33.88. That’s like Bitcoin doing +200% or something… speaking of which the ascension there continues as it clocked +4.8% to 16,294 – we’ll do a Dragon piece on this later this wk… as there is a lot of misconceptions, lets just say… we ain’t seen parabolic yet in Bitcoin. Yes its up c. +130% YTD, yet Zoom [ZM] is still +500%. So wait for it…
- Equities – all I see is bulls, bulls, bulls. You seen the Russel-2000 recently, that’s right back-to-back +6% wks. You seen the FTSE-250? +9% last wk… yep & that’s with no one following Brexit, positioned for it & the entire world being super UW UK assets – when it comes, its going to be a site to behold. Some chatter on potential Brexit deadline extension, yet whether that’s marginal (current feeling) rather than seriously structural, remains to be seen. For now Dragon skew is for a favourable outcome & hard date of end of 2020, yet playbook is for post the event, as don’t think there is a viable edge on the Dragon’s side at least.
- Been interesting to see the continued bidding of the industrial space, no doubt part of the whole growth to value segment. Space could be in for a hiccup, as first priority from Senate is likely relief package, before we got to infra bill… yet respect the price action.
- Bonds – big pivotal close on UST at 0.8963% last wk, after getting to a high of 0.9753%. This is something that is of huge divergence internal & with other peers… KVP would not be short US duration (unless its an intraday jump on/off play), he would rather eat glass.
- If one wanted to be short, puts would be smarter, yet KVP would be more inclined to pick up calls on UST bond futures or on the TLT bond etf. Remember, the Dragon got the blue tsunami dead wrong. Implications? Enter. The. Fed. Again. Delta for magnitude & speed of YCC & neg rates in the US took a big leg up with the currently Reps skewed Senate. Yes Jan 2nd see’s the two seats in Georgia at play – yet hard to see what Dems can do different given that literally hundreds of millions they set on fire, trying to flip republican strongholds (i.e. $100m in South Carolina alone).
- Economics: Relatively light, with US seeing Philly Fed, Empire State, IP & Cap Util, alongside quite a bit of housing data. EZ will see final inflation figures, Current Account & Consumer Confidence figs. CH already has reported monthly growth numbers with beats in FAI 1.8%a 1.6%e, IP 6.9%a 6.7%e yet a big miss in Retail Sales 4.3%a 5.1%. UK will see inflation & house prices, as well as public sector borrowing & retail sales – latter of which may not capture full effect of recent lock-down measures. JP flash GDP beat quite healthy at +5.0%a 4.4%e, vs. the previous -7.9% contraction.
- Central Banks: BoT 0.50%e/p, ID 4.00%e/p, PH 2.25%e/p, TU 15.00%e 10.25%p, SA 3.50% e/p
ECB’s Lagarde speaking Mon Nov 16 @ 2100, 18 @ 0000, 19 @ 2300, 20 @ 1615 SGT
BoE’s Bailey Tue 17 @ 2200
RBA Tue Minutes @ 0830
- Fed Speak: Clarida (Tue on Economic Outlook @ 0300 SGT), Williams, Bullard, Kaplan, Barkin, George, Bostic
- Holidays: No major holidays on the Macro calendar, worth noting that backend of next wk tends to be the bridged Thanksgiving Wkd in the US.
- Other: Do not underestimate the power of hope, positivity & significantly lessened uncertainty. We got two mega unknowns out of the way in the markets over the last 2wks:
1. We know Biden is going to be the new POTUS with a check on tax increases by Moscow Mitch & the Reps
2. We know there is now a credible vaccine by a pharma power house out of the west (i.e. would not be as trusted if out of CH or RU).
Yes, the logistics & distribution around the vaccine is not going to happen overnight. Yet almost all of 2020 has been characterized by the strangulation of Covid-19 on so many things that we took for granted & people (including allocators of money) are fed up, exhausted & tired of the virus.
The benefit of the doubt, to the speed & distribution of the vaccine – be it Pfizer or another – will be huge. We are also likely to be getting similar positive news around the globe (Russia & China have also announced their versions). The rumours of a potential pullback in risk-assets will – in extrapolation – be viewed looking backwards, as greatly exaggerated.
At the end of the day, you are either aligned with the vaccine & humanity, with the world screaming to going back to being open, or the failure/delay to that happening. Plus we also know, blue wave or not, we are in this liquidity regime for years – at the end of the day, whether it’s fiscal, monetary or both – someone is going to need to print more money.
Being bearish with this backdrop is the paragon of being “penny wise, yet pound foolish”.
Or as they say in Texas, “Big Hat, No Cattle”.
Don’t overthink it. Keep it simple.
Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Idea.
This is the wayKVP
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