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Video / 16 May 2017 at 8:06 GMT

From the Floor: 'Europe is red hot' — #SaxoStrats

#SaxoStrats
   •  USD on back foot as 'Russia/Trump narrative' surges back to life
   • 'ETF flows show massive interest in European stocks' — Garnry
   • Oil supported, but rising production, Chinese demand could limit upside
   • Cotton getting squeezed as export demand hits a six-year high
   • Core yields moving higher as risk sentiment broadly improves
   • French CPI, UK CPI, EU GDP, ZEW data in the headlines today
   • 'The Dax could be pushing towards 13,000, massive RSI divergence' — Larsson

SaxoStrats
By Michael McKenna

”Looking at ETF flows,” says Saxo Bank head of equity strategy Peter Garnry, we see ”massive interest in European stocks”. Garnry adds that he concurs with this sentiment and remains overweight and bullish on European equities.

From a charts perspective, Saxo technical analyst Kim Cramer Larsson says that he sees the German Dax index beating a path towards the 13,000 level, noting massive RSI divergence on what he terms a short-term massive trendline.

In single shares, HSBC is on the rise after the bank and its bondholders reached a settlement over alleged Libor manipulation; HSBC shares are looking to new cycle highs above 690 pence, says Garnry, in a move that is “testament to [the firm’s] strong balance sheet”.

On Monday, the Wall Street Journal reported that Ford plans to cut around 10% of its global workforce as the company’s top line stagnates; the cuts come as part of Ford’s $3 billion cost cutting plans for this fiscal year.

Trump Agonistes

In the forex markets, we see the USD on the back foot as US President Donald Trump’s alleged sharing of classified data with the Russian foreign minister in a recent meeting pushed the “Trump/Russia collusion” narrative into the headlines following the briefest of respites after the president’s April airstrike on a Syrian base.

According to Saxo Bank head of forex strategy John J Hardy, the latest flurry of reporting shows that “the establishment and the media are out to take Trump down” with investors concerned about US stability in light of the president’s apparent inability to operate in what he famously called the DC “swamp” on the campaign trail.

In EURUSD terms, adds Hardy, the benchmark pair is pushing past the 1.1000 handle with the next key levels lying at 1.1120 and then on to 1.1500. According to Saxo’s forex head, however, the fundamentals do not favour such a determined break higher in euro/dollar.

EURUSD through 1.1000
EURUSD

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Source: Saxo Bank 

Today sees a slew of European data on the calendar, including a French CPI release, a European Union GDP flash estimate, and the latest ZEW survey data from Germany. Across the channel, we also have UK inflation data up although the Bank of England is likely in a holding pattern ahead of the June election.

Oil nearing the limit?

Two Saxo strategists issued notes of mild caution concerning the ongoing oil rally this morning, with Saxo Bank head of commodity strategy Ole Hansen stating that while crude remains supported, rising production in Libya, Nigeria, and the US, along with Chinese demand fears, could limit upside from here.

For his part, Peter Garnry reports that he remains negative energy shares despite the Opec production cut extension.

One major beneficiary of the upturn seen in oil futures has been the Canadian dollar, where USDCAD plunged from just shy of the 1.38 level on news of the extension. 

From a purely technical perspective, Kim Cramer Larsson reports that the correction currently in place could take the pair to 1.3575 before we see a bounce, adding that a break of the current RSI trend could signal the turnaround point.

Cotton rips higher

Despite potential headwinds, the oil rally is supporting core European yields and risk sentiment into today’s session, says Saxo fixed income trader Michael Boye, while Hansen points to a developing short squeeze in cotton as one trade to watch today.

“Cotton is getting squeezed… this is the wild west,” says Saxo’s commodities head.

“We are seeing a six-year high in export demand triggering a surge in the July future as merchandisers hold a big unhedged short of deliverable bales into the contract”.

Cotton
Squeezing higher... Photo: Shutterstock 

Michael McKenna is an editor at TradingFloor.com
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