Macro Dragon: Flash PMIs, Fed Mins, EZ Hols, AU/CH, NOK, JPY...
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: Flash PMIs, Fed Mins, EZ Hols, AU/CH, NOK, JPY, Gold, Silver...
Top of Mind…
- Good Morning / Afternoon / Evening / Night to the Asia Pacific, Americas, MEA & Europe
- So we got the Fed minutes o/n, should not have been a surprise given that Powell was on the US show 60 minutes, plus also testifying for the first two days this wk…
- SPX closed up +1.75 to 2972 lvls, with the NDQ clocking +2.0% to 9485, VIX is now down -20% in the last 5 trading days at 27.99. Still c. +8 point above the historical mean & likely +15 points above the post GFC bull cycle mean.
- If one is looking to play long vol, probably better value in FX as the vol compression there continues. Yet despite DXY being in this 98 – 102 range since the back of Mar, we are seeing some currencies that have come quite a bit & potentially looking toppy as in AUDUSD +4.33% over last month, despite continued icy relations between Australia & China: see China putting tariffs on Australian Barley and others like the NOK crosses (USDNOK, EURNOK, CADNOK, NOKSEK) that potentially have a lot more room left to run – remember the class of one thesis here on Norway & NOK assets. This is one of potentially max 8 ultra-prime conviction calls from the dragon this year (First was US Duration in Jan & Feb ‘one cannot own enough US duration’, then it was short oil, then it was long gold/precious metals complex, NOK tactical & structural strength is numero 4 – thesis?
- Class of one, Norway will be the one only country that potentially funds the vast majority of its fiscal spending by selling down some of the foreign assets in its $1 trillion plus SWF. Everyone else is playing the QE infinity, inflate central bank’s balance sheet & the government can just exponentially grow debt forever game. Have we had some decent near-term moves in NOK since KVP reiterated this theme 2wks back? Sure, yet the medium to long-term move still very much intact & feel the overall move so far, has been more risk-on, oil stabilizing that the underlying fundamental facts around the Norwegian economy, the fact that Norges bank is picking up +2 yards of NOK a day in the market & again – class of one. The tail-wind of an eventual USD structural decline over the next 6-24m is just icing on the layered cake.
- Here were Hardy & Jakobsen’s original flag on this theme: FX Update: NOK to break higher on massive stimulus?
- Back on the cross-asset front, we are rallying on UST bond prices from the Mon sell-off. Gold & Silver cont. to grind on up for the first 3days of the wk, we are seeing both softer this Thu morning despite US equity futures down c. -0.50%, gold spot 1740 -0.46% & silver 17.1690 -2.2%... structurally you know the Dragon bullish take… tactically we need solid closed tmr to end the wk.
- Again, silver has proven from the last two wks that it is breaking up higher, so it can consolidate here & upside still very much intact, gold (which has lagged silver of late, yet still massively outperformed it YTD +14.7% vs. -3.7%) again needs to ideally get that close above 1750, to consolidate for the next trading range higher – i.e. take us from these 1680 – 1725 ranges of the last few wks. Note unlike gold, silver has note yet cleared its highs of 2019.
- DollarYen at 107.65 just seems bonkers to KVP (i.e. should be like sub 100), think folks reading & putting way too much faith in the BoJ scheduled unscheduled meeting that is due tmr. Again perhaps KVP should have taken the think piece yest - Re-Up... on High Probability Pathways? Part III - to another level to clarify that it’s a relative world (i.e. Jan 2020, Fed at sub 25%, BoJ at +100%, US economy is +4x JP & also happens to be global reserve currency, deepest equity & debt markets & global trade is prices in USD – who do you think is going to win the QE infinity game? Yes, as we highlighted with a focus on the Fed… central banks have theoretically unlimited fire power given their ability to re-write the rules of the games & how the participants get to play. However, the band for buck… like excessive credit in the system starts to accelerate in regards to an inverse economies of scale… & the BoJ BS at +100% of Japan’s GDP has gone from a 2012 Mike Tyson like punch at the start of Abenomics to a faded & washed out quadriplegic of a boxer.
- Also anyone remember what market the highs in USDJPY? That’s right, it was when the BoJ followed the ECB by taking rates negative. With all that said, near-term technicals on USDJPY are not exactly bearish, so looks like the bulls will try to take out the 108.09 high from earlier this wk & see if they can punch through the 100-200DMA lvls of 108.40 / 108.30, those looking for bigger lvl should focus on 110 (200WMA is 109.80). For the bears on this cross (like KVP) its obviously about staying south of those resistance lvls & breaking back through 107 & closing below the May lows of 106, before opening up for sub 105, 104 (200MMA) 103 & where the fun really starts, sub 100 – which will be the lvl that BoJ will buy anything that has yen attached to it… & that is a partial joke.
- Note on the holiday front most of Europe is out today & tmr, plus long wkd coming up in the US as they will be out on Mon for memorial day.
- Flash PMIs is the economic theme today, have already had poor numbers out of AU & JP… again should not be surprising & again… this mkt is still skewed towards positive interpretation of everything. And of course being Thu, we got US jobless claims 2.4m e 3.0m p & continuing claims 24.250m e 22.833m p. Those with any CAD asset exposure watch out for ADP jobs data out of Canada & house prices (apparently the Canadian property market is different – at least, until it is not).
- Lastly late night Asia to early Morning Fridays we’ll get further FOMC members speaking including Powell, Vice-Chair Clarida & Williams. Kiwi retails sales will also be out early doors Asia Fri at 06:45 SGT/HKT/CST.
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