Playlist: Japan 225

Show less
Video / 26 February 2018 at 8:21 GMT

From the Floor: Is the 'Goldilocks trade' returning? — #SaxoStrats

   • Risk sentiment returns, USD rally starts to fade
   • Friday Fed report received as dovish on lack of labour shortage concern
   • JPY strong on flows, rally aided by falling bond yields
   • Asian stocks extend Friday rally, Nikkei up by 1.4%
   • Political uncertainty in Italy could see bond yields spike

By Michael McKenna

The combination of stable Federal Reserve expectations, sliding US bond yields, and resurgent risk appetite is providing fundamental support for the 'Goldilocks trade' disrupted by the early February volatility shock, says Saxo head of FX strategy John J Hardy.

"We see the dollar rally fading on the return of risk sentiment, and Friday's Fed report was received by markets as dovish due to an apparent lack of concern regarding labour shortages," adds Saxo's FX head.

The broadly bullish environment saw Asian shares follow Friday's markets higher overnight, reports Saxo bank head of equity strategy Peter Garnry, with the Nikkei 225 rising by 1.4% and the Hang Seng index up by 1%.

"We also saw a rally in Chinese shares with the automotive sector leading the pack, but we remain structurally negative automakers given the late-stage economic cycle," says Garnry.

One continued outperformer into today's European bell is the Japanese yen, which is supported by flows, the fall in core bond yields, as well as what Hardy terms a general reassessment of the currency's value.

"We could even see USDJPY at 100 [if present trends continue]," Hardy says.

Source: Saxo Bank

One of this week's major events in light of the above is newly minted Fed chair Jerome Powell's Congressional address, with Saxo fixed income specialist Althea Spinozzi noting that a hawkish outing could have interesting knock-on effects in US yields.

"Last week we saw the 10-year yield rise to 2.95% Wednesday before closing Friday at 2.87%," says Spinozzi, although Garnry cautions that markets may have reassessed the risk posed to equities by rising yields as kicking in at 3.5% rather than the much-discussed 3% level.

Finally, Spinozzi reports that the March 4 Italian election could easily wind up producing an inconclusive result given fractious coalitions and general volatility; if this proves the case, says Spinozzi, Italian yields could see a 20-30 basis point jump.

Today sees European Central Bank president Mario Draghi speaking at 14:00 GMT and new Fed board member Quarles out at 20:15 GMT.

Michael McKenna is head of editorial content at Saxo Bank
Relevant articles for you


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail