Macro Dragon: Phase One Signing… (Special Sat Edition)
Global Macro Strategist
Summary: Macro Dragon = Daily Cross-Asset Global Views
KVP runs us through some contingency planing around a highly probabilistic break of the phase one deal - likely before the end of 1H20. End of the day, Trump will do what it takes to win voters in his bid for re-election & looking tough on China, will get him clicks & votes.
Macro Dragon: Thoughts on Phase One Signing... (Special Sat Edition)Before we get into it, for those that are back – or on the way back in – from what was hopefully a restful year-end holiday break, Happy New Years!
Let me sincerely (hand on liver) wish you, your families & teams the best of 2020. May your health, vigor & experiences be excellent & full of fun + laughter. May you continue to grow & develop yourself. May you be awash in gratitude & contribution plus fall [tail] backward into more money than Bezos.
We’ll be shaking things up from KVP’s side, so expect a lot more trade views going forward, as well as 20 long-term trades views for 2020 – which KVP will do a special piece & mini-series on.
Ok let’s get after it…
Phase One Signing...
Jan 15th seems to be the D-date for the signing for the signing of the phase one deal – I believe China’s officials will be flying in a few days earlier to make sure all the t's & dots are aligned.
No hard view here from KVP, it remains a window dressing exercise as far as he is concerned.
Long in spirit, short in details – it should all go through, for now.
KVP still thinks the biggest tactical 1Q20/2Q20 risk is eventual breakdown of US-China deal – the probability here is high & he would urge all serious traders to spend some time on scenario planning on a phase-one deal breakoff.
It would be tactical in nature & usual suspects in execution – this is going to be “easy” money if you are on point when the news breaks:
- Back the 7-ton truck into picking up US bond futures & generally DM Duration
- Short USDJPY, USDCHF, EURJPY, EURCHF, AUDJPY, AUDCHF, NZDJPY, NZDCHF
(also steepners should work, plus love those as strategic trades – watch out for KVP’s 20-4-2020… )
- Obviously long USDCNH… so folks could also consider calls & call-spreads here as an edge.. we’d be back in 7.05 – 7.15 zone… from these 6.93 lvls. Overall USD likely to be bid vs. EM FX
- Long ze precious metals like gold & silver, vs. short the likes of copper. Energy likely to be weak as well on potential deal break
- Short Equities, especially the cyclical heavy & export exposed to China i.e. Kospi, Nikkei, ASX
- From an equities relative value sector perspective it would be the same out-performance of defensive vs. cyclicals... i.e. long utilities, healthcare vs. say financials & industrials
If we go the entire 2020 without a Phase One deal break – that would actually qualify for an outrageous prediction in KVP’s book.
Still think a combative Trump vs. China, adds to his Re-Election capital & chances…
So watch out for that potential strategy as we get closer to 3 Nov 20
What We Are Reading From SaxoStrats:
- Jakobsen & SaxoStrats team with our sensational 2020: Outrageous Predictions
- Hardy latest FX Update: USDJPY to test above 110 if US yields continue to climb & USD bullish reversals abound