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Video / 13 February 2017 at 8:47 GMT

From the Floor: Dutch courage missing on the field — #SaxoStrats

#SaxoStrats
  • Netherlands 10-year spread to German counterpart widens to 34 basis points
  • Flight indicative of a Europe 'living on its nerves' ahead of election — Boye
  • Copper blasts out of range to take out November high — Hansen
  • Break-out performance underpinned by Chile, Indonesia supply issues — Hansen
  • Gold steadies the ship after Trump reflation trade correction
  • Silver continues to outperform as fund buying hits four-month high — Hansen
  • Yellen testimony Tuesday could set the agenda for dollar direction — Hardy
  • Chair likely to push message that the Fed will be 'agile' to developments — Hardy
  • AUDUSD rides reflation wave for potential threat to 0.7700/50 — Hardy

    M


By Martin O’Rourke

Dutch courage 


It’s not easy to front up and take a risk when confidence is low and, as political anxiety grips Europe, concerns over next month’s general election in the Netherlands are beginning to eat away at the locals’ courage.

The 10-year bond yield spread to its German counterpart widened to 34 basis points ahead of the March 15 showdown.

While that is still some way short of the 72 bps French/German spread that is likely to see the Front National’s Marine Le Pen take a serious shot at power in France's presidential elections in April/May, it is indicative of the pervasive risk-off sentiment as the far-right populist Geert Wilders gears up his anti-immigration platform. 

The French/German and Netherlands/German 10-year yields spread

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Source: Bloomberg

“The spread at 34 basis points is the widest level in quite some time and it goes to show to what extent the European bond market is living on its nerves at the moment,” says Michael Boye from Saxo Bank’s fixed income desk. “Bunds on the other hand remain very strong and they are outperforming virtually every other sovereign in Europe at the moment.”

Bunds rebounded above 164 and that out performance could be ongoing, says Boye, on the back of a spate of new bonds coming online this week from a number of countries in Europe. 

“The next resistance on the upside for bunds is 164.45,” says Boye. “Italy is coming to the market today and Spain and France are also on the agenda and we’ve also got the Greece story looming in the background with no resolution ahead of the finance ministers meeting next Monday (February 20).”

German bunds bubbling along at the 164 mark as the yield holds steady

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Source: Bloomberg

Copper ride

Copper blasted out of the traps Monday morning for a 1.3% rise following a powerful surge late Friday to break above $2.80 and take out resistance that has been in place since November.

“This has largely been on the back of a strike in Chile entering its fifth day and also another mine in Indonesia that has been putting product into supply rather than exporting,” says Saxo Bank’s head of commodities strategy Ole Hansen. “Now that the storage is full, they’ve stopped producing.”

Copper needs to stay above support at $2.73 for the move to be maintained, but bulls can probably take heart from a surge in iron ore futures in China which broke to a 2.5-year high to take out resistance at RMB700/metric tonne, for a 5.6% rise, according to Saxo Bank’s Hong Wei Lee reporting out of the bank’s Asia hub in Singapore.

Gold, meanwhile, has managed to consolidate after US president Donald Trump reinvigorated the reinflation trade last week and sent the precious metal into a spin. Hansen sees support at $1,220/oz with targets ahead at $1,245/oz and $1,250/oz.

Gold was at $1,231/oz at 0755 GMT

"The focus for gold is still on the dollar and also on the Trump overhaul of the tax system and as he continues to battle wit the judicial system," says Hansen.

Silver, meanwhile, continues to outperform with a spate of fund buying taking the net-long to a four-month high.

Copper breaks out of resistance established since November
iSource: Bloomberg

Dollar move

USDJPY went into something of a relief rally after the Trump/Abe summit Friday passed off without notable incident, but "dollar longs still continue to unwind," notes Saxo Bank's head of forex strategy John J Hardy.

AUDUSD in particular continues to tease towards the 0.7700 area overnight as it reaps the benefit of Trump's vague pledge on a tax-cut plan at some point in the next 2-3 weeks.

"The next big hurdle for AUDUSD is 0.7750 if 0.7700 gives way," says Hardy.

And finally...

US Federal Reserve chair Janet Yellen takes the stage Tuesday for a gruelling two days of testimony before congress.

"I don't think we'll see any strong hints on when the next rate hike will be," says Hardy. "Her focus will be on preventing the yield curve getting too flat, and also demonstrating that the Fed will look to be as agile as possible to developments."

The prospects for a rate hike in March are at 30%. May and June respectively are at 49% and 71%.

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Copper's enjoyed a storming start to the week. Photo: Shutterstock

Martin O'Rourke is managing editor at Saxo Bank

13 February
Cat Cat
Doesn't look like Asia Weekly Call has been uploaded?
13 February
Martin O'Rourke Martin O'Rourke
Hi Cat, no Asia Weekly Call this week. It looks like normal service to be resumed on February 27.
13 February
Market Predator Market Predator
@Cat: there was MacroMonday but NOT with KVP. Another guy (Mr. Andrew or similar name) broadcasted, but quality of audio was very poor and I also doubt session was recorded from beginning, maybe 8 min. after start appeared info window: "session recorded". Technical analysts performed well.
@Martin: I'm looking forward to Feb. 27. Thx!
13 February
Cat Cat
Thanks. Due to time difference with Asia I have to wait to watch the recording. Thanks for letting me know. Happy trading this week!
13 February
Market Predator Market Predator
@Cat: to be honest I live in EU area, life MacroMonaday session means for me to be in front of screen at 01:30 AM. But I really enjoy this session and with regular Daily Morning Call it is key product of TradingFloor so I'm not happy if we have not recording. Hope, next time everything will be OK. Wish you all the best ☺
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