Article / 08 September 2016 at 8:29 GMT

From the Floor: Bonds bubbling ahead of ECB

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  • ECB president Mario Draghi takes centre stage this afternoon
  • Bunds rally sends 10-year yields further into negative territory — Boye 
  • Expectations for policy moves low, but Draghi has capacity to surprise — Boye
  • Limited Brexit impact could steer ECB away from major action — Boye
  • "Pathetic" Apple has done nothing to change short to mid-term outlook — Garnry
  • "Short" Nintendo after SuperMario launch excitement subsides — Garnry
  • Oil boosted on huge API draw, China crude imports boost — Hansen
  • PBoC takes liquidity steps at USDCNY 6.700 levels — Van-Petersen


By  Martin O'Rourke

Draghi's stage

It feels like it's been quite a while since master showman Mario Draghi took centre stage (Janet Yellen could certainly learn a thing or two from the European Central Bank president) but he's certainly going to dominate proceedings Thursday.

German 10-year bunds are already rising ahead of the meeting sending the yield further into negative territory at -0.12% and pushing Spanish yields to all-time highs, perhaps fostering a sense of "optimism" in the market, says Michael Boye from the fixed income desk in Copenhagen.

The problem is that this meeting is likely to turn out to be a bit of a damp squib.

"The Brexit shock has not really materialised in terms of the macro numbers and the Fed's relative hawkishness hasn't caught on while the banks and credit have all held up reasonably well and this has removed any real sense of urgency from the meeting today," says Boye.

"Nobody is expecting interest rate cuts or more corporate bond buying announcements and if that did happen, this would be a major surprise," he says. "But, as always with Draghi at the stand, you can never know exactly what will happen and it is certainly worth keeping a close eye on."

German 10-year bund yields are in negative territory but still some way off the post-Brexit lows


Source: Bloomberg

So what, if anything, can Draghi do?

Saxo Bank's head of forex strategy John J Hardy sees potential for amendments to specific criteria although the political row that might erupt from that makes such a scenario a rather unlikely one.

"It's going to be tough for the ECB to deliver anything today given the market distortions but the one thing they could do that would impress the markets — and i really don't think they will do it — would be if they were to change their capital key which would give them freedom to weight their purchases and drive the periphery spreads down on the argument that this is key for policy transmission across the entire Eurozone," says Hardy. "Of course, that is risking a political confrontation with the core but that is the one area where I can see a surprise."

But, warns Hardy, even if the meeting is a quiet one, that does not rule out volatility across the forex space with EURUSD likely to feel the brunt with two-way risk on the pair evident.

"EURUSD is still facing the last shreds of resistance at 1.1250 for a move to 1.14," says Hardy. "We would need to get below 1.12 to show that this is a move that will push the euro lower."

EURUSD could break either way after the ECB meeting today
 Source: SaxoTraderGO

The other Mario

This one is of the super variety and after the launch of Super Mario on iPhone, Nintendo managed to revive memories of its remarkable PokemonGo success earlier in the summer for a 13% rise in shares.

"Super Mario could have more stickiness on iPhone than Pokemon Go and things are going crazy right now," says Peter Garnry, Saxo Bank's equities chief. "But even if you look at the aggressive growth assumptions put into the valuation, it is still trading at 3x market evaluation on EBITDA levels."

"It is very hard to comprehend and it seems like a lot of retail investors are punting in that stock so you have to be careful with timing," he says. "It is definitely a short candidate once the excitement is over."

If Garnry is raising a James-Bond like sceptical eyebrow towards Nintendo, it is as nothing to his scathing assessment of Apple and its big launch event last night.

"We can't skip Apple but I think it is pathetic that we have to devote so much time to a company that can't come up with anything new radical products so we have to follow them and be excited about things that some one like Samsung has already had for a year," he says. "We took out our long position on Apple a long time ago but went neutral so as not to be on the wrong side of this event but we will look to take out a short position."

"What Apple came out with yesterday will do nothing for the short or medium term," he says. "What Apple seems to have failed to understand is how quickly the software and hardware components are converging and they cannot keep hold of their high-pricing policy."

Line in the sand

It may never have actually come out and said it, but the People's Bank of China clearly seems to have a line in the sand on the USDCNY exchange rate and that line seems to be very firmly established at 6.700.

"Whenever we approach 6.700 on USDCNY, the PBoC steps in to take liquidity out the market," says Saxo Bank's Asia macro strategist Kay Van-Petersen. "The white lines point to funding cost and the key point is the 6.700 line. It is in the line in the sand."

USDCNY and what the PBoC does


 Source: Bloomberg

And finally...

Oil once again is on the rise as its giddy late summer jauntiness continues to have the market perplexed as to its overall direction. The latest spurt seems to have come on the back of positive Chinese trade data after crude oil imports hit a four-month high.

That has also been helped by a 12 million barrels drop in API inventories, "the biggest draw in decades", says Saxo Bank's head of commodities strategy Ole Hansen. "The primary reason for the big drop was the impact of tropical storm Hermine and we might see a sharp reversal next week."

A tropical storm off the American coast might have helped
that enormous draw in API oil stocks. Photo: iStock

Martin O’Rourke is managing editor at

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.


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