APAC Global Macro Morning Brief – Happy Macro Wed 30 Oct 2019: The Risk & Opportunity Of The Fed Today...

Macro 1 minute to read

Kay Van-Petersen

Global Macro Strategist

Summary:  Morning APAC Global Macro & Cross-Asset Snapshot


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


To see this wk’s Macro Monday click here

 

Happy Macro Wed 30 Oct 2019

 

APAC Global Macro Morning Brief – The Risk & Opportunity of the Fed Today...


So seems like there is a contingent of the market out there that believes we may not get a Fed cut today – with a 94% implied probability of a cut, that leaves 6% expecting no change

If we did see not rate cuts today, UST are likely moving form these 1.83 lvls to 2.0%, precious metals would be crushed & equities would also likely sell off heavily

In fact the few things that would be up in such a scenario would be volatility (VIX is still at 13.20, remember the VIX Apr calls 65 strike trade from last wk) & the USD, as well as the usual risk off relative value plays (i.e. staples & utilities vs cyclicals, yen, swiss franc)

Whilst everything is possible, KVP does not think this FOMC board has the will to buck the trend so strongly – also recall we have three outliers from the previous meetings, Bullard who advocated -50bp cut, George & Rosengreen who were for no change… since then we have had worse US economic data, with a pair of ISM readings from last month, that missed… and now have two back to back months of ISM mfg. in contraction territory

Still anything is possible – what if they cut by 50bp, if perhaps they read KVP’s piece yesterday on both skin in the game, as well as a half life on 2020 given the US’s 2020 elections. In such a scenario of a -50bp cut, bond & precious metals bulls would have a field day… and US equities would likely make ATHs – AGAIN!

The more likely scenario is still a 25bp cut, with the key point being the communication & indication of where they are sitting into the rest of the year. More than likely they will be on the side-lines & wait + see mode…

Yet KVP still feels at some point over the next 6-8months, Fed are going to cut: like a fat boy carving up a chocolate cake, like Edward scissor hands at a gardening seminar, like Trump as head of the Fed, like an airline operator on the 737 Max, like Zuck in front of Congress, etc… You get the picture…

Again remember, the Fed has a half-life on 2020… don’t think they want to be seen moving rates in the 2nd half of an election year with an administration that has been very vocal about what the Fed should be doing

Its worth re-flagging again that most of the key US economic data this wk falls on Friday, yet we will get 3Q US GDP tonight where 1.6% is expected vs. 2.0% from 2Q

-

And Bojo actually gets a win! Trump is going to start being rationale next. So it looks like Dec 12 is going to be a general election… albeit by the looks of the news flow early Weds Asia morning… seems to be quite a bit of confusion of around what was just passed as folks just cannot keep track...

This time around KVP is surprised that sterling crosses are not much higher, cable was unchanged o/n  at c. 1.2862… would have thought that we should be north of 1.2900 with some signs of progress...

EURGBP was also same lvls at 0.8635… and no change in either this Asia wed Morning

-

Lastly with all the focus on the Fed… it could end up being that the most interesting meeting will be from the BoC. They have continues to be relatively less dovish than the Fed, so it will be interesting to see what Poloz gets up to this Asia evening

Here are the links to the last Sep 18 FOMC statement & Sep 4 BoC Rate Decision, with the former cutting by 25bp & the latter leaving rates unchanged at 1.75%


Profitable positioning everybody, have a great day

Namaste

-KVP


Today:

  • AU: 3Q CPI 1.7%e 1.6%p CORE 1.6%e/p
  • EZ: Regional Flash CPIs & GDP, German Jobs data
  • US: 3Q GDP 1.6%e 2.0%p, Crude Oil Inventories, FOMC statement at 02:00 / press conference at 02:30
  • CA: BoC Statement & Monetary Policy Report

     

Other:

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
Rooms 2001-02, 20/F York House
The Landmark
15 Queen's Road Central
Hong Kong

Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: Rooms 2001-02, 20/F York House, The Landmark, 15 Queen's Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.