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The week ahead in macro — #SaxoStrats
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From the Floor: Europe's time should be Q1 — #SaxoStrats

  • Trend in revenue growth points to Q1 return to positive growth in EU — Garnry
  • Big change in rhetoric from FOMC, now saying inflation measures low
  • Despite breakout strikes, USDJPY unlikely to descend much further — Larsen
  • Asian stocks lower in anticipation of trading resuming in China 
  • Hong Kong property index down, indicating slower growth in China
  • Outlook improving for Deutsche Bank following malpractice case settlements
  • Overall sentiment very positive for Danske Bank, which posted record profits
  • Facebook shares going up as platform approaches 2 billion active users 
  • Oil trading higher on predicted firmness of Opec production cuts — Fasdal

saxo stratsBy Jack Davies

Europe is on the rebound, according to Saxo Bank’s head of equity strategy Peter Garnry, with the likelihood that this will feed into the first quarter of 2017 results.

“If you look at the trend across all the banks in Europe, provisions are coming down, unemployment is coming down, we’ve got 2.5% growth in Europe,” says Garnry, pointing to a positive trend in both the S&P500 and the STOXX 600.

“We’re seeing a very sharp rebound over the last couple of quarters in revenue growth. I think in the US when the earnings season is done we’ll be in positive territory and Europe very close; I think Q1 will be the confirmation that we’re finally in positive territory once again,” he adds.

Stoxx 600 looks supportive for a Q1 rebound in Europe

Source: Saxo Bank, Bloomberg

His prediction is supported, too, by this week’s earning’s releases, he notes, which will continue to trickle out into next week.

Dan Larsen on Saxo’s forex options desk says that on the other side of the Atlantic, the Federal Open Markets Commission’s meeting Wednesday brought no big surprises, leaving rates unchanged,. However, he did observe what he believes is a subtle but significant rhetorical shift on the part of the FOMC regarding inflation measures.

“In the last meeting they were saying that inflation measures ‘have moved up considerably’; that was changed this meeting to ‘market-based measures of inflation compensation remain low’” says Larsen. “We all know how much rhetoric means to banks, they don’t want to surprise or disappoint anyone.”

Yesterday’s announcement, he adds, lowered the probability of a March 2017 rate hike from 35 to 30%: “It leads me to think, are they still thinking of having three hikes in 2017?”

Noting that USDJPY had seen breakout strikes as low as 111.50, Larsen does not believe it will drop much lower. However, he adds: “What’s important to watch is US rates, we believe that will be the driver” if it is to drop any lower.

USDJPY was at 112.79 at 0755 GMT.

Equities strategist Garnry notes that US president Donald Trump is being particularly dogged in the pursuit of his weak-dollar policy, which Garnry describes as “a very cheap way to get higher GDP growth.”

The Asian markets were quiet overnight and Asian stocks were lower ahead of resumption of trading in China following the lunar new year, reports Shiyun Su from Saxo’s Singapore desk.
Meanwhile, the Australian dollar is the strongest it’s been in three months, Su says, buoyed up by high Chinese demand for iron ore and coal.

Deutsche Bank announced €1.9 billion losses, missing its predicted Q4 profits. However, Garnry says the outlook is improving for the troubled institution, which has recently been slapped with hefty fines by regulators over allegations of mortgage miss-selling and money laundering.


“What they communicate now is encouraging: that the outlook is improving, they expect credit provisions to be down this year and I think there is an upside surprise to the credit provisions in 2017,” says Garnry.

In contrast, Danske Bank is flourishing, posting record profits on its bottom line with the overall sentiment very positive, says Garnry.

A US jury Wednesday slapped Facebook with a bill for $500 million in damages for intellectual property theft, but the company is posting record profits and its share price continues to rise.
“The number of active users is getting closer to that two billion mark,” notes Garnry.


A thumbs up overall, although that $500 million fine might
have brought out the frowny emoticons. Photo: Shutterstock

Jack Davies is a consultant editor at Saxo Bank

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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