Macro Dragon: Flash PMIs, Fed Mins, EZ Hols, AU/CH, NOK, JPY...

Macro Dragon: Flash PMIs, Fed Mins, EZ Hols, AU/CH, NOK, JPY...

Macro 4 minutes to read

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.

(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)

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.

Start-End = Gratitude+Integrity+Vision. Create Luck. Process > Outcome. Sizing > Idea.

Namaste,

KVP

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