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10 July 2017 at 7:33 GMT
From the Floor: 'Gold is in for a battle' — #SaxoStrats
#SaxoStrats • 'We saw some profit-taking in the USD overnight': Horchani
• Hedge funds slashing long positions in gold, silver
• Rise in bond yields the key market driver: Hardy
• Financials, life insurers to outperform as central banks normalise policy
• Bund yields consolidating after dramatic break of 50 bps level
• Hedge funds slashing long positions in gold, silver
• Rise in bond yields the key market driver: Hardy
• Financials, life insurers to outperform as central banks normalise policy
• Bund yields consolidating after dramatic break of 50 bps level
By Michael McKenna
Rising bond yields and a weak Japanese yen are combining to create a perfect storm for precious metals traders with silver and gold selling off as hedge funds scale back long positions.
"Gold is in for a battle," says Saxo Bank head of commodity strategy Ole Hansen, adding that the March low of $1,195/oz is very much in play at this point as prices continue to slump.
The risk-on mode that is reining in precious metals was boosted into and over the weekend by Friday's strong US jobs report and a relatively encouraging G20 summit in Hamburg. At the G20, where US president Trump was isolated by his stance on climate change and aspects of his trade policy, leaders of the world's largest economies still managed to hammer out an optimistic statement. The ceasefire deal for southern Syria brokered by Trump and Russian president Vladimir Putin was also a highlight.
Today's Asian session saw the USD give up some of its Friday gains as investors took profits, says Saxo trader Tareck Horchani from Singapore. Horchani adds that USDTWD is presently at very strong long-term support levels with a significant rally possible from here, particularly if tech-sector shares fall to the weaker side.
USD index:
Source: Saxo Bank
In stocks, Saxo Bank head of equity strategy Peter Garnry says that he remains overweight European shares despite last week's capital outflows, adding that financials and insurers will likely continue to outperform on the back of supportive central bank trends.
"We see these shares, and life insurers in particular, continuing to rise as central banks push interest rates higher and normalise policy," says Garnry.
This week sees one rate hike likely on tap from the Bank of Canada Wednesday with Federal Reserve chair Janet Yellen in focus Wednesday and Thursday as she delivers her annual testimony to the US Congress.
"It's important to remember that a third 2017 rate hike has not even been fully priced in by markets yet," says Saxo Bank head of forex strategy John J Hardy. Citing the risk factors surrounding Yellen's testimony, meanwhile, Saxo fixed income trader Michael Boye says that balance sheet reduction remains "the joker in the deck" for markets seeking to price the Fed's hawkish turn.
After last week's dramatic rise in bond yields, Boye says that bunds are consolidating as fixed income markets move into their summer period of lower liquidity. In 10-year US Treasuries, he reports that the jobs report barely moved the needle as the strong headline number was offset by lower earnings growth.
Elsewhere, we see oil moving higher on reports that Libya and Nigeria may be preparing to join the Opec/Nopec output cap agreement while state-owned Chinese shipper Cosco has announced its plants to buy Orient Overseas in a $6.3 billion cash deal that would produce the world's third-largest shipping firm.
On the data front, markets are digesting Norway's CPI print which came out ahead of expectations at 0.4% month-over-month versus 2% expected. Greece will post its own CPI information at 0900 GMT.
Precious metals and the yen are on the back foot as investors
shift into risk-on mode. Photo: Shutterstock
Michael McKenna is an editor at Saxo Bank