Article / 10 April 2015 at 8:24 GMT

From the Floor: 'All-in' on Europe as DAX leads surge

Editor / Saxo Bank
Editor’s note: From the floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.

  • DAX is trading higher this morning, says Garnry
  • Nikkei 225 reaches 20,000 for first time since April 2000, says Moltke-Leth
  • Chinese equities have gone from cheap to offering fair value, says Garnry
  • Government bond market is red hot, says Boye
  • AUDUSD needs to join the USD rally party, says Hardy

By Oliver Morrison

Europe rebounds

"It's all-in on Europe at the moment," declares Saxo Bank's head of equities strategy Peter Garnry.

"It's QE fuelled and it's creating a rebound across derivatives and cash instruments," he says. "We see a strong rebound in European equities and the DAX is trading higher this morning, and a rebound in volume and operating margins is expected."

The stand out performer out of all of this is Germany's Deutsche Börse, which is being added to Saxo's equity portfolio today. 

Looking at its share price, it's seen a phenomenal performance, says Garnry. 

"It has a very attractive valuation strong return on investor capital and strong momentum, and the whole story in Europe is supporting this case."

Another day, another record
Michael Boye, from the Copenhagen Fixed Income desk, is also excited about Europe. Specifically, the "red hot" government bond market. The 10-year German yield has reached a new record-low below 14 basis points. Switzerland has issued 10-year bonds at a negative yield, and US Treasuries are rising above the pre-payrolls level. 

Treasury yields, however, remain at more normal levels, he says. 

China in your hand

Outside Europe, Peter Garnry points to Chinese equities, which he says have gone from undervalued to fair value. Chinese equities are up 24% year-to-date and up 96% since June last year. Yes, there is technology bubble, but this is not a threat to the general economy or the market owing to its small size. Capital reforms, meanwhile, are very positive in the long term. 

Speaking live from Saxo's Singapore desk, Christoffe Moltke-Leth adds China and Hong Kong equities are a "bit more calm" after the last two days of extreme volatility following a series of government policies that should help boost market liquidity. 

"But the Shanghai composite broke 4,000 for the first time in seven years," he says. "It is dangerous to short Chinese equities at the moment but stocks are getting to overbought level with the RSI index at exceeded 80.5 today." 

He adds that market speculation is growing that the Shenzhen-Hong Kong Stock Connect, which should expand foreign investors’ access to small cap equities, is to be accelerated for a possible announcement in late May. 

This follows an announcement by the Shenzhen Stock Exchange to increase the number of companies in the Shenzhen Component Index to 500 from 40 from May 20. 

Japan was another winner yesterday, with the Nikkei 225 Stock Average touching 20,000 for the first time in 15 years, though it did gave up gains in the afternoon session, says Moltke-Leth. 

King dollar clinging to its crown

In the FX world, the dollar is still strong, says Saxo Bank's head of forex strategy John J Hardy, but only because other currencies are flagging. “Yesterday the USD was stronger, but that was mostly about EUR and GBP trading weaker,” he says. 

The yen and a some of the smaller currencies are matching the strength of the dollar. Cable, meanwhile, is back to its range lows this morning after spiking after upbeat UK mortgage approvals data.

Data points to look to today include UK manufacturing production data, says Hardy. January's figure was weak, so could it be the start of a trend of weak data that will prove negative for the pound? 

Canada's employment report, also out today, is a notoriously jumpy figure. "We are long Canada dollar from yesterday so hoping nothing wills surprise that trade the wrong way," says Hardy. 

Hardy mentions the US' semi-annual Treasury Report on currencies, which singles out Germany for not stimulating internal demand enough, and is quite critical of Japan for its over reliance of monetary policy. "This could give the Bank of Japan pause when considering a third round of easing."

AUDUSD also needs to get a shift on, says Hardy. 

"We've been in the same range in AUSUSD for two months now and it's time to get something going here. I'd like to see a close below 0.7650, or even 0.7600 to set up new lows."

AUDUSD needs to join the USD rally party
Source: Saxo Bank 

EURUSD vols shoot

Finally, Jeppe Norup from Saxo's FX Options desk points out that yesterday we saw EURUSD vols trading higher yesterday after the move lower in spot. 

"One-month EURUSD is now at 11.3, after trading at 10.65 yesterday." 

AUDUSD vols continued to sell off especially after the Reserve Bank of Australia kept the rate unchanged earlier in the week. "AUDUSD is down to 10.9 from 13.5 earlier this week," says Norup. 


Could divine intervention ensure momentum in Chinese equities continues
to blast higher or are stocks overbought? Photo: istock

Oliver Morrison is an editor at

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