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From the Floor: 'Could be make or break for the markets' — #SaxoStrats

  • Tonight's speech won't make or break Trump, but it could the markets — Hansen
  • Odds of March rate hike now 50% following Fed president Rob Kaplan's remarks
  • Need a repeat of Kaplan's aggression from Yellen for March hike — Boye
  • 10-year Treasury yield's in Trump's hands tonight — Boye
  • Fear trade in European bonds losing momentum, Bund rally retracting — Boye
  • Copper and oil both stuck in bull-bear standoffs — Hansen
  • Gold found resistance at $1,262 and support at $1,248
  • Protectionist policies from Brazil and India pushing coffee and sugar prices down
  • Traders are exiting March sugar contracts, adding price pressure — Wu
  • Japan's Topix rebounded overnight but industrial numbers down — Wu
saxo strats
By Jack Davies

All eyes are going to be squarely focused on US president Donald Trump’s upcoming speech today, although for everyone east of the Greenwich meridian it won’t come to pass until the small hours of Wednesday. Everyone is watching because, as Saxo Bank’s head of commodities Ole Hansen points out, it is bound to have profound effects on the markets.

“Markets are saying this could be make or break; not for Trump, but for the markets,” says Hansen. “There have been a lot of promises given to the market and we need to see some details now on his infrastructure, tax and funding plans – and if not then the dollar could be hit. Pressure yields on financial stocks will also be in focus, too.”

Odds of a March rate hike from the Federal Reserve climbed past 50% overnight, which Hansen attributes to Fed president Rob Kaplan’s “better sooner than later” remarks.

However, Saxo Bank’s head of fixed income strategy Michael Boye says that while Kaplan’s comments moved markets and Treasury yields overnight, they will need to be followed by an equally aggressive stance from Fed chair Janet Yellen in her speech on Friday if a March hike is to materialise.

“But certainly May is looking more and more likely,” says Boye. “One opportunity could be that we get a very, very strong pre-warning of the May hike at the March meeting.”

Amid all the uncertainty, safe-haven gold has forged ahead and found resistance overnight at $1,262/oz, notes Hansen.

“The 200-day moving average will be a bit of a hurdle for the market to break through. It’s also a level where we could see some additional activity from funds, which have been quite slow in getting involved in this rally,” says Hansen, adding that Kaplan’s comments had triggered some profit taking but that the precious metal found support above $1,248/oz.

“Tonight’s speech could be, to a certain extent, a bit of a make or break for gold — but we have seen general support for the soundings coming out of the White House for the last few months,” he adds.

Fixed-income head Boye says 10-year Treasury yields are also at risk from Trump’s speech.

“10-years have been trading within a very tight range between 2.3% and 2.5% since December of last year. We got rejected at the yellow level once again, so we’re trading up a bit at 2.35%,” says Boye. “From here on though, it’s probably pretty much in the hands of president Trump ahead of tonight’s speech. A disappointment from Trump and we could see another attempt to break the barrier, otherwise a re-ignition of the reflation trade and we could target a move to 2.5% to the 10-year.”

10-year Treasury yields are stuck in a tight range, but Trump's speech could move the needle.
Source: Bloomberg 

Elsewhere, oil and copper both remain stuck in their bull-bear fights, reports commodities head Hansen.

“With oil, volatility is collapsing and is down to a two-year low. The bull-bear standoff is continuing, we finished yesterday close to unchanged, today we’re trading once again close to unchanged,” says Hansen. “It is this conundrum that we continue to see an aggressive amount of buying coming into the market. Last week was no exception – if we look at combined position of Brent, investors and funds are now holding more than a billion barrels of longs, whereas the short positions are only around 100 million. The long-short ration there is getting very elevated.”

WTI crude remains stuck in a rut.
Source: Bloomberg 

“I retain a short-term bias, but we need some kind of a reaction from the markets. We’ve been trying now for the past couple of days to break to the upside and we’re not really getting anywhere. So at this stage, we’re looking for a reaction back down to the $52.70/barrel level,” says Hansen. “Weekly inventories on Wednesday will be next up and will be watched very closely after some of the recent data in which we’ve seen imports jump and production move back above nine billion barrels.”

Copper’s bull-bear fight continues also, says Hansen: “Supply disruption is being met by short-term correction and long depredation from funds.”

“There is a risk in the market that the resolution of the Escondita strike or the Grasberg standoff with the government in Indonesia could trigger a deeper correction and that’s holding the market away from getting involved at this stage,” he adds.

Ryan Wu reports from Saxo’s Singapore desk that sugar futures have dipped a further 3.3% to their lowest level in 2017.

“Traders are exiting March sugar contracts, which is adding more price pressure,” says Wu.

Hansen adds that just as sugar prices are being pushed down by the Indian government’s determination to protect domestic suppliers from foreign imports, so too is coffee being suppressed under similar measures from the Brazilian government.

In Japan, Wu notes that while the Topix rebounded overnight, industrial production also fell for the first time in six months.

 Could this be the face that sinks a thousand stocks? Photo:

Jack Davies is a consultant editor at Trading Floor.

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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