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Video / 29 June 2017 at 7:32 GMT

From the Floor: Markets reject Draghi walkback attempt — #SaxoStrats

   • US secretary of commerce trade deficit report due
   • BoE head Carney says interest rate hike could be needed
   • Market sanguine on central bank purchase tapering
   • Oil boosted by 100,000 b/d US production decline
   • Stocks up 11% ytd, best start since 1998

By Michael McKenna

On Wednesday, European Central Bank chief Mario Draghi attempted to rein in the bull run (particularly in euro) that followed his positive remarks on inflation expectations one day prior. 

After a brief period of apparent indecision, however, investors returned to the hawk/bull narrative, with Saxo Bank head of forex strategy John J Hardy proposing that the dominant narrative remains that central banks will likely take an exceedingly cautious approach to reining in the dominant easing focus.

"The ECB tried to walk back the market's reaction [to Tuesday's remarks] yesterday, but this was followed by more hawkish talk from the Bank of Canada and Bank of England".

Concerning the latter, Hardy reports that governor Mark Carney's statement that interest rate hikes may prove necessary saw the odds of a hike at the bank's August meeting shoot up to 22% from "essentially nil".

The euro rally continues apace:

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Source: Saxo Bank 

In stocks, Saxo Bank head of equities strategy Peter Garnry notes that global equities are up 11% year-to-date, their best start to a year since 1998.

On US financials, which are in focus given the Federal Reserve's commitment to policy normalisation, Garnry notes that the Fed has accepted all US banks' capital plans with regard to stress tests, allowing big banks to announce larger-than-expected buyback programmes with JPMorgan having committed to buy back $19.4bn worth of shares.

In single shares, Garnry reports that clothing retailer H&M announced stronger than expected Q2 earnings, noting online sales growth standing at a minimum of 25% year-over-year.

Crude oil is resurgent after yesterday's EIA report showed a 100,000 barrel/day decline in US production, says Saxo commodities head Ole Hansen.

Hansen noted, however, that 45,000 b/d of the decline can be accounted for by field maintenance in Alaska.

The oil rally has pushed EURNOK to new highs with Hardy pointing to the exceedingly strong correlation between the NOK and oil prices.

Meanwhile, gold prices remained resilient despite the risk-on sentiment with copper rallying on a combination of a weak USD, lower inventories, and the equities surge.

Today's data calendar sees the US secretary of commerce report on the trade deficit due, although no release time has been given, and Germany's flash CPI reading comes out at 1200 GMT. 

The latter print, of course, is crucial given that Draghi's bullishness on inflation is a key catalyst behind the current rally in risk sentiment.

Bull run
Ready for more? Photo: Shutterstock

Michael McKenna is an editor at Saxo Bank
SierraPt. SierraPt.
In the video Ole several times mentioned breakout model which is near crossing certain thresholds for corn etc. - is there a place to follow the model trades or see what these thresholds are? Thanks!


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