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Video / 22 November 2017 at 8:34 GMT

From the Floor: 'More evidence of strong momentum' — #SaxoStrats

   • Flattening US yield curve sends USDJPY lower
   • Equities surge matched by strong macro data
   • WTI-to-Brent crude spread narrowing: Hansen
   • Financial conditions supportive of high-yield bonds
   • Hang Seng likely headed for year-end rally: Garnry

By Michael McKenna

"The US economy is growing at the fastest clip seen in three years," reports Saxo Bank head of equities strategy Peter Garnry, "and we continue to see more evidence of strong momentum".

Garnry refers to the Chicago Federal Reserve Bank's National Activity Index, which tracks 85 key aspects of the US economy. The index currently sits at the highest level seen since May 2014, resting at 0.28% as of the end of October.

The strength seen in the equities sector is far from limited to the US, with garnry pointing to Hong Kong's Hang Seng index as another recent outperformer that he sees as likely to rally into the end of 2017.

In single shares, Garnry points to Signet Jewelers' 30% decline Tuesday as further evidence that brick-and-mortar retail is under severe pressure in the US. According to Saxo's equities head, the stock fell following a third-quarter earnings release that saw revenues decline by 5% versus 2.9% expected (yyear-on-year) with competitor Pandora coming under pressure as well.

"Expect a lot of action in [Copenhagen-listed] Pandora today," he concludes.

Pandora (hourly):

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Source: Saxo Bank

In the forex space, Saxo Bank head of FX strategy John J Hardy says that the flattening of the US yield curve is pushing USDJPY lower as we head into an expected decline in liquidity at the end of this week due to the US Thanksgiving holiday.

In stocks, Garnry remains of the view that the flattening curve is still a potential "flase signal" for stocks, noting that it could be driven by year-end corporate activities related to the US' tax reform bill.

Nevertheless, it remains a key factor in global markets with Saxo Global Sales Trading manager Althea Spinozzi reporting that it is likely to push fixed income investors towards high-yield bonds in order to reach year-end targets.

The flattening of the yield curve is gold-supportive, reports Saxo commodities head Ole Hansen, who nonetheless cautions that "we are going to need to see some kind of spark" for gold prices if the metal is to break out of its current range. In crude oil, Hansen reports that the spread between WTI and Brent crude is narrowing due to Canadian supply cuts and stock draws at Cushing. 

The latest report from the US Energy Information Administration, due at 1530 GMT today, is expected to show a 2.2 million barrel decline in crude, he adds.

Storefront retail is feeling the pinch from online competition as we head 
into the holiday shopping season. Photo: Shutterstock

Michael McKenna is senior editor at Saxo Bank


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