Macro Monday WK 37: The not so Super Mario Draghi?

Macro

Strats-Kay-88x88

Kay Van-Petersen

Global Macro Strategist

Summary: WK 37 starts out with the Asia Monday Morning have a continued risk-on skew, this is all likely due to markets trying to front run the easing decisions that are to come out of the ECB on Sep 12 & the Fed on Sep 18.
Disappointments here could potentially lead to profit taking & even a reversal in the current bullish sentiment

Macro Monday WK 37: The not so Super Mario Draghi?

Mon 9 Sep 2019

A replay of the call is available HERE

Folks really all about ECB this wk & Fed next wk, equities seem to be front running the potential easing that is coming through. Real test will be Fed Sep 18, yet also a chance that Draghi cannot do enough this Thu Sep 12 to keep the bulls running.

Wishing everyone a healthy, phenomenal, smooth, profitable & lucky wk up ahead.

Namaste

-KVP

Summary of Prior Week:

Geo Politics: China took out the doubts of a potential Sep meeting, by saying they are good to meet in Oct with the US. Likely looking to keep things quiet as they head into their Oct 1^st, 70yr National Day Anniversary

HK withdraw the extradition bill, sparking a c. +4% rally on the day. Still not sure if this is structurally a game changer – as underlying current is longer term social imbalances

Econ data: Despite US ISM mfg. recording a sub 50 print 49.1a 51.2e, ISM non-mfg came in at 56.4a 54.0e

BoC: Remains an outlier vs. what we are seeing in the rest of the world. Point that their borrowing costs remain lower than US, yet inflation is higher, they are operating at close to capacity & data has continued to surprise positively

FI: Much wider for the wk driven by USTs, Bunds & JGBs…

FX: DXY lower by c. 50bp, likely due to bullish equity sentiment & bond yields moving higher

CMD: Lower on softs, gold & silver, yet Energy, Iron Ore & copper got lifted

EQ: Risk-on cont. for 2^nd wk strongly across the board, Nas-100 is close to +25% YTD, CSI-300 +31%, CAC +19%, ASX +18%

Vol: Lowered by Equity rally to 15.00 on the VIX c. -16% for the wk. Also lower across bond vol metrics

COT Report: [@Ole_S_Hansen]

Big spike up by over a fourth in USD net longs to $13.1bn from $10.6bn
Once again same trend getting into month 2, of consistently smaller net long exposure in the commodity complex

Week Ahead

Key Focus:

ECB | CBT | US & CH Inflation | GeoPolitics

Central Banks (SGT):

#WK 37 – MA 3.00% p (12) TU 19.75%p (12) ECB -040p (12)

#WK 38 – BZ 6.00% p (19) FED 2.00%p 2.25%p (19) SNB –0.75%p (19) NO 1.25%p (19) BoE 0.75%p (19) BoJ 0.75%p (19) SA 6.50%p (19) ID 6.50%p (19

Fed Speakers (SGT):

Blackout

Other (SGT):

China Fri Hols (13) Potential US / CH Ripples – Yes China has indicated ready to meet in Oct, yet does Trump stay quiet for 3wks?

Econ Data:

US: JOTLS, PPI, CPI 1.8%e/p CORE 2.3%e 2.2%p, RS
CH: New Loans, TB, CPI 2.6%e 2.8%p, PPI -0.9%e -0.3%p
EZ: Regional IP & CPI data, EZ IP, TB
JP: GDP, CA, Machinery Orders -9.0%e +13.9%p, PPI, Tertiary Indus. Activity
UK: GDP MoM +0.10%e 0.00%p, mfg. prod, AHE, CB leading index
NZ: Mfg. Sales, Visitor Arrivals, Biz Mfg. Index 48.2p
AU: Home Loans, NAB Biz Conf. MI Inflation Expectations
CA: Housing Starts, Building Permits, Cap. Util 82.0%e 80.9%p, House Prices

Greater China Focus (GST: slides 10 to 11) – Focus on PBOC actions; RRR cuts & more liquidity

Interestingly now cutting RRR is net positive for USDCNH (yuan strength), we saw a move from c. 7.14 on Fri to 7.10
RRR cut by 50bp effect Sep 16 for all banks, as well as up to 100bp for certain commercial banks
Latest move will release 900bn of RMB (c. USD 130bn) of liquidity into the market, versus say previous cuts in Jan & May of RMB 800bn & RMB 280 bn

Chartography & Price Action

Comments in the charts, we go from looking at where Jan 2020 Fed Fund Futures are pricing (c. 3x 25bp cut by year end), to the big move last wk in US 10yr yields (from c. 1.42/43% to 1.56%), pullback in gold & silver, bounces in AUD & NZD plus equities

Quarterly Outlook 2024 Q2

2024: The wasted year

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

350x200 charu (1)

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

Equities: The AI and obesity rally is defying gravity

Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

Fixed income: Keep calm, seize the moment

With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

Commodities: Is the correction over?

Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

Macro: It’s all about elections and keeping status quo
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
FX: The rate cut race shifts into high gear
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Equities: The AI and obesity rally is defying gravity
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
Fixed income: Keep calm, seize the moment
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities: Is the correction over?
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

You can access both of our platforms from a single Saxo account.

Preview platform Open Account

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. This content is not intended to and does not change or expand on the execution-only service. 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/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)