Article / 03 March 2016 at 9:00 GMT

From the Floor: Finding bottom?

Head of Editorial Content / Saxo Bank
  • Traders crowd into USDKRW: Horchani
  • Risk-on sentiment weighs on volatilities
  • Brazilian stocks up 20% from bottom: Garnry
  • Crude oil sits at eight-week high despite inventories
  • Corporate bonds on the rise, led by miners: Boye
From the Floor
By Michael McKenna

In 1969, then-Canadian prime minister Pierre Trudeau told the National Press Club that living next to the United States was like "sleeping next to an elephant", a sentiment that will doubtlessly prove familiar to anyone whose day begins by checking the markets, and particularly the markets of early 2016.

Today, it would appear, the beast snores peacefully: "markets are in a good mood," reports Saxo trader Tareck Horchani from Singapore, adding that a solid budget out of India, a strong ADP jobs print from the US, and a reasonable ISM non-manufacturing release last week have given markets a shot in the arm ahead of tomorrow's nonfarm payrolls report for February.

"The main thing to look for tomorrow is income inflation," says Horchani; "this is what the Federal Reserve is missing".

While wage gains remain elusive, the fact that we are even talking about what the Fed is missing is a hawkish step forward. "The market is placing the chances of a 2016 rate hike at 66% today, up from 11% in early February" reports Saxo fixed income trader Michael Boye.

At the moment, the wave of risk-on sentiment is depressing volatilities but FX Options trader Jeppe Norup cautions that while vols are in a slump as of late, they are still elevated ahead of the major risk events represented by tomorrow's NFP print, next week's European Central Bank meeting, and the Federal Open Market Committee meeting on March 15-16.

This current froth rests atop a rising tide of macro narratives as oil, metals, and emerging markets climb determinedly out of the hole. In terms of oil, which has proved a particularly significant driver of late, Saxo Bank commodities head Ole Hansen says the key to understanding crude's present strength in light of rising inventories lies in a tweet sent yesterday afternoon:

Bear market

This is significant because while "bad news" continues to come in on the inventories front, markets appear to be dismissing this as seasonal while the non-seasonal and thus more significant factor remains declining US production and strong implies gasoline demand.

"Resistance in Brent crude currently sits around $37.40/barrel, a 38.2% retracement from the selloff seen since October" says Hansen. The next level to keep an eye on, he adds, is $40.55/b.

Brent crude

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Industrial metals, says Hansen, take the "bear exhaustion" narrative further still as they are rising despite no letup in the Chinese slowdown narrative and no seasonal/non-seasonal factor for bulls to hang their hats on.

So is the bottom in? Taking a look at emerging markets, another area hit hard by the protracted decline in commodity prices seen since mid-2014, Saxo Bank head of equities strategy Peter Garnry sees Brazilian stocks up 20% from their bottom in early January. 

"Brazilian shares are trading at a foreward price/earnings ratio of 11.5x" says Garnry – "it's cheap, but not very". While he reiterates his view that Chinese stocks remain better positioned than their Brazilian counterparts, Garnry says that this trend is worth a look.

"With oil stabilising," adds Garnry, "we are looking for long energy sector plays."

Another sector whose long decline appears to have found a foothold is mining, where the recovery in industrial mining is boosting corporate bonds at Glencore and similar firms, reports Michael Boye. "The improved sentiment has found its way to fixed income markets and among corporates, miners are leading the charge".

So the elephant, while still tired, appears to be in good spirits, and what's good for the pachyderm is good for its bedmates. The coming weeks, however, remain chock full of risk events and today's good cheer is unlikely to respond well to big surprises.

But for now we're having fun. Photo: iStock 

Michael McKenna is an editor at

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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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