Emerging markets are taking the brunt of the heat today as the Turkish political situation deteriorates, new doubts emerge about the US-North Korea summit and Italy's populist coalition sparks EU existential worries.
Article / 30 August 2016 at 8:00 GMT

From the Floor: Head in the clouds

Your Next Trade
  • VIX drops 5% overnight, still at low end of range: Van-Petersen
  • Monday saw a reversal in Treasuries, equities after Friday selloff
  • Swiss franc's safe haven status in doubt, USDCHF coiled: Hardy
  • Shell says oil glut will not be cleared until H2'17: Hansen
From the Floor
By Michael McKenna

Last week ended with markets taking Federal Reserve chair Janet Yellen's speech at Jackson Hole as a hawkish turn, with price action boosting the USD at the expense of Treasury bonds and equities. This morning, the selloff in the latter two assets has reversed, but the greenback remains aloft on its cloud of policy normalisation hopes.

Fed vice-chair Stanley Fischer, who was notably hawkish in the run-up to Jackson Hole, will be out speaking live on Bloomberg at 1030 GMT today, which may or may not give the now-somewhat-disconnected dollar rally some further steam.

In the meantime, European markets appear set to open in the green after a strong Asian session and some positive import price data out of Germany. "We saw a re-emergence of risk-on sentiment in Asia today," says Saxo Bank global macro strategist Kay Van-Petersen, adding that a big upside surprise in Australian building approvals – 3.1% versus minus 8.3% expected –was one of the major macro releases boosting this trend.

As was the case Monday and late Friday, the greenback's gains were the yen and euro's losses overnight, but Van-Petersen reports than the dollar surge is also weighing on the CNY.

"The Fed rate hike talk is bringing China's onshore currency back into focus," says the Saxo strategist, "particularly following its 30 basis point ascent versus the dollar ahead of Jackson Hole."

Another currency being pushed lower by the USD's advance is the Swiss franc, with Saxo Bank head of forex strategy John J Hardy reporting that USDCHF looks "spring-loaded" at the moment.

"The noise surrounding the probability of a Fed rate hike could place the CHF's safe-haven status in jeopardy," says Hardy.


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Source: Saxo Bank 

Saxo bank's head of FX strategy also remains short the AUDUSD as per the SaxoStrats trade idea published yesterday. According to Hardy, the September 6 Reserve Bank of Australia meeting remains a risk factor for this trade, but as Van-Petersen noted on today's morning call, "markets are not expecting much" from the RBA this time around.

With both the USD rally and the risk-on trend firmly in place for the moment, markets are experiencing one of those strange correlation breakdowns that have characterised zero-bound, central bank-led markets this year. In terms of European stocks, however, Saxo Bank head of equity strategy Peter Garnry expects the sentiment trend to boost shares in today's morning session.

"Dax futures could go as high as 10,650, testing the August 24 highs," says Garnry, citing today's German trade balance data and the July personal income release from the US as positive for stocks. In terms of the strong dollar trend, Saxo's equities head says that the bullish dollar trend will reverse the emerging market gains seen of late.

Finally, Garnry reports that he will not be making any big moves with regard to Apple despite the potential fine – worth "billions of euros" according to the Financial Times – faced by the US firm after its Irish operations were found to fall afoul of European Union tax law.

"It's not a meaningful story," says Garnry; "in terms of Apple's enterprise value, the fine represents 0.5% to 1%".

In the commodities space, gold has proven surprisingly resilient to the post-Jackson Hole dollar rally – perhaps because precious metals investors remain a bit spooked by the current state of world markets. 

(According to longtime precious metals dealer Mike Maloney, in fact, "[central bankers] are just absolutely dangerous. They are going to drag the entire world economy down"...)

Whatever the cause, Saxo Bank head of commodities strategy Ole Hansen says that gold is still finding support just north of $1,300/oz ahead of Friday's nonfarm payrolls release.

(If this week's NFP release is particularly strong, of course, the bullish USD could go supernova, with John Hardy pointing to a sub-1.10 EURUSD rate as a real possibility.)

In crude markets, WTI is trading in a broad range between $46.50 and $48.50/barrel ahead of tomorrow's inventory report from the US. A new report from Shell says that the global oversupply will not be cleared until the second half of 2017, but as we saw in the latter part of August, oil bulls are far from despondent as the optimistic haze created by Opec production freeze talks has not yet entirely dissipated.

"We current have an 800 million barrel gross long in combined crude oil (Brent and WTI), and a record 84,000 lots were bought above the $46.50/b line last week," says Hansen.

Saxo's head of commodities says oil looks exposed at current levels, adding that a break below $46.50 could result in long liquidation – for more on this, view Hansen's SaxoStrats trade published yesterday.

In the clouds
Don't think about what's holding you up here – you probably 
don't fully understand it. Photo: iStock 

Michael McKenna is an editor at

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