Focus Trades from SaxoStrats team
- With a split US congress we feel things will only get more difficult for Trump on the Domestic Agenda. With the Democrats taking over the house (The Republicans retained the Senate), its likely only a matter of time before we see subpoenas & special committees going after Trump’s interest, tax fillings, business dealings, relationships with Russia, etc. This will likely frustrate Trump & force him back towards focusing solely on Foreign policy where he can have full remit, if he ties the reason to national security. In regard to the Fed, we feel they are still very much on track
- Net-net we don’t think this bodes well for relations with China & we’d soon expect the Yuan to retrace to the upside making another run for 7.0. Added to this, it’s worth noting that PMIs are slowing down globally & even China official PMIs missed quite heavily recently - what’s concerning about this, is this is happening likely on inflated data - i.e. demand for goods & inputs before the tariffs potentially move up to 25% (by year end). So basically, we are seeing poor numbers of what is economic front running - it does not look constructive in the near-term.
- Those with a bearish skew as well as looking to potential catch the reversal in AUD (has had a great run from close to 70c lows), may think about buying put options on AUDJPY - as further deterioration as well as appreciation of the fundamentals, could see this cross reverse heavily.
- Trade your view with Saxo [AUDJPY Spot]
- It would be long expecting an eventual break of the 7.0 handle - key risks here remain the obvious, big positioning in the USD as well as intervention by the PBOC or a massive stimulus boost by China.
- Trade your view with Saxo [USDCNH Spot]
- Saxo Bank head of APAC macro strategy Kay Van-Petersen still likes to advocate DollarYen longs, which could be a nice hedge to the bearish view above. This long USDJPY view is again based on historical seasonality, where for the last 5yrs, DollarYen has been up +4.01% on average for the month of Nov with range of +9.20% & -0.97% - so an asymmetrical skew for the dollar bulls. This view can also be expressed through call options & call spreads. He feels we’ll soon take out the recent 114.55 highs on the yen cross, & if we do clear 115.00 then that would open us up for 120 lvls - worth noting the yen shorts are not at extreme levels, so not a lot of people in on this view, yet. A technical break lower to the 100 week moving average of 111.32 would put this view in question.
- Trade your view with Saxo [USDJPY Spot]
Midterms on Equities
- With midterm election results in, the biggest surprise was that for once the polls were actually right, after getting Brexit and the US presidential elections wrong!
- As expected, Republicans kept the Senate, and Democrats took the House. Despite being expected, the removal of the uncertainty discount and “blue wave” risk, has been a positive for risk assets with US indexes all in the green overnight and Asian indexes breathing a sigh of relief today.
- Be wary of the “gridlock is good” thesis…With the immediate reaction out the way, equity markets will look ahead focusing on fundamentals and the upcoming meeting between Trump and, Chinese President, Xi Jinping at the G20 summit. The midterms do not move the needle significantly on our equity views. As communicated in our Q4 Outlook and recent presentations, we are negative (underweight) US equities due to valuations and positive (overweight) Europe and China.
- Trade your view with Saxo
[ZTE Corp A-/H-shares (000063:xsec/00763:xhkg)
Hangzhou Hikvision Digital (002415:xsec)]
Opportunities in Australia
- Investors today must remain on guard against the market vulnerabilities, but at the same time, these very vulnerabilities provide opportunity.
- The ASX200 now trades on 14X forward earnings which remains below its 10yr average despite expectations for further positive earnings growth. Fundamentally Aussie companies are as sound as they have been for a decade, the recent pullback could provide an opportunity to accumulate high quality stocks. Opportunities also can be found in stocks with exposure to USD earnings given the recent USD strength, USD earners: Reliance Worldwide, Resmed, Boral, Amcor, Aristocrat Leisure, CSL.
- Trade your view with Saxo
Reliance Worldwide (RWC:xasx)
Resmed Inc (RMD:xasx)
Boral Ltd (BLD:xasx)
- Gold has continued to trade well - way better than what our APAC macro strategy Kay Van-Petersen expected, recall he was looking for a break back down to $1200 & continues to feel gold is more a story for 2019 - with the key barrier being the 200 week moving average of $1236. Those looking for a bullish confirmation may consider waiting for a weekly close above that key lvl. Those who are bearish should look for an initial break of $1220, as well as a combination of lower volatility (VIX), strong USD & higher US yields.
- Trade your view with Saxo [XAUUSD Spot]
- Copper continues to hold up way to well, given the current soft patch of growth that we are going through: PMIs slowdown last month, with big misses from China PMIs (mfg. 50.2a 50.6e, non-mfg. 53.9a 54.6e), Euro-zone GDP coming in at half of what was expected 0.20%a vs. 0.40%e, etc. Hence, our APAC macro strategy Kay Van-Petersen continues to feel we are going to go back to test the recent 264 lows set at the beginning of Nov. Put option on Copper futures would be a way of expressing this. Key risks are obviously huge USD liquidation, huge China stimulus to the real economy & a potential US infrastructure bill.
- Trade your view with Saxo [Copper Futures HGZ8]
Weekly Most Traded A-shares*
|Stock Code||Stock Name||Saxo Code||Average Daily Value|
(1 - 7 Nov)
|601318 CH Equity||PING AN INSURA-A||601318:xssc||4,373,127,800|
|600519 CH Equity||KWEICHOW MOUTA-A||600519:xssc||3,984,093,000|
|000063 CH Equity||ZTE CORP-A||000063:xsec||3,353,861,200|
|600030 CH Equity||CITIC SECURITI-A||600030:xssc||2,675,727,800|
|002415 CH Equity||HANGZHOU HIKVI-A||002415:xsec||2,391,627,200|
|000858 CH Equity||WULIANGYE YIBI-A||000858:xsec||2,261,738,600|
|300059 CH Equity||EAST MONEY INF-A||300059:xsec||2,190,370,000|
|000651 CH Equity||GREE ELECTRIC-A||000651:xsec||2,013,649,200|
|600036 CH Equity||CHINA MERCH BK-A||600036:xssc||1,937,354,800|
|603799 CH Equity||ZHEJIANG HUAYO-A||603799:xssc||1,888,614,800|