● Bank of Japan announces 'unlimited' open market bond buying plan ● One- to five-year maturities in focus, BoJ seeking to keep yields on target ● Australian jobs reports mixed, AUDUSD gains but fails to hold new highs over 0.75 ● The dollar 'is still the top dog' in global forex markets: John J Hardy ● Fed chair Yellen out speaking before Congress today in Washington ● Mexican rate decision today, market expects 50-basis points hike ● EURUSD could still have further to go, parity may come into view ● Italian referendum now the 'key risk' for equities: Peter Garnry ● Low VIX levels could represent an opportunity before the Italian vote
By Michael McKenna
The world and its markets continue to react to the shock (at least for those who, unlike Saxo Bank chief economist Steen Jakobsen
, could not sense the prevailing winds) of Donald Trump’s election, and among the most profound reactions to the vote has been the protracted selloff in global bonds.
Today, reports Saxo director (Global Sales Trading) Christoffer Moltke-Leth on our Global Morning call, the Bank of Japan came out with perhaps the most definitive counter-move yet by a major central bank – or institution of any type, really.
“The BoJ announced a programme of ‘unlimited’ short-term bond buying in the open market,” says Moltke-leth, adding that one- to three-year maturities will be purchased with a nine basis point ceiling, and five-year maturities will be bought with a four bps ceiling.
What this means is that Tokyo has drawn its line in the sand and will summon whatever ungodly amounts of yen are necessary to prevent runaway yields. The move, predictably, sent USDJPY sharply higher to the 109.50 area, although it is now retracing.
“In FX land,” reports Saxo Bank head of forex strategy, “the US dollar remains top dog”. What this means, he explains, is that whatever minor consolidations we may see appearing intraday, and however stretched certain moves may come to look, there could still be a lot of wind in the greenback’s sails relative to other majors.
Case in point? EURUSD, where Hardy says that the recent sharp selloff likely only represented the erasure of the gains made when traders still expected a Hillary Clinton victory in the presidential race.
“We are looking at a test of the lows here in euro/dollar,” says Hardy, “and traders taking a longer view should [keep parity in mind]”.
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Source: Saxo Bank
On the data front, we have a relatively big day for the US with CPI data out at 1330 GMT and Federal Reserve chair Janet Yellen testifying before Congress. We also have, Hardy notes, a Philadelphia Fed survey coming our way as well as an outing from New York Fed chief William Dudley, who was notably hawkish regarding a December hike back in late October ahead of the election.
Also up today is the Bank of Mexico’s rate decision, where consensus is calling for a 50 bps rate hike although some outliers say 100 is more likely. Either way, says Hardy, “the 20 area is the key pivot point in USDMXN” – a currency pair that has been under close scrutiny during the campaign and election of would-be wall-builder Donald John Trump.
Returning to the many unprecedented reactions that followed Trump’s election, the pronounced equities rally that occurred on the back of expectations for regulatory cuts and infrastructure spending, is now fading in earnest and Saxo Bank head of equities strategy Peter Ganry reiterates his call for a retreat in US financials.
“The XLI industrials ETF is another place to potentially catch this retracement,” adds Garnry.
Of course, the election of Trump is but the localised US incarnation of a broad Western trend away from the technocratic transnationalism of the post-World War Two era and towards what some call a dangerous populism and others call democracy.
Next up on this particular calendar, then, is the Italian referendum on December 4, a vote whose rather dry external meaning of potentially switching up certain constitutional and parliamentary powers obscures the same cultural struggle that manifested in both Trump and Brexit.
“Given the currently low levels of the VIX volatility index,” says Garnry, “this could be a venue for opportunity ahead of the Italian ballot”.
And if you miss that one, rest assured that others will follow. For although history may have appeared to have come to its end with the 1990s-era “Fukuyama” consensus of globalised liberal democracy, it would certainty appear that somebody has hit the “on” bottun again.
Away we go.
"Are you sure we shouldn't just run this thing?" Photo: iStock
Editor’s note: From the Floor takes advantage of TradingFloor.com'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