- Risky assets up, government debt tanking: Moltke-Leth
- S&P upgrades South Korea to AA-, but notes geopolitical risks
- Cotton seeing continual recent buying: Hansen
- Core bonds moving lower after blowout Friday NFP
- CLICK HERE FOR A REPLAY OF OUR MORNING CALL
By Michael McKenna
Reporting from Saxo Bank's Singapore trading floor, Global Sales head Christoffer Moltke-Leth tells us that the Asian session saw a determinedly risk-on move in the wake of Friday's positive nonfarm payrolls surprise from the US.
Sentiment on the rise
"Risky assets are bouncing nicely and government debt is tanking," says Moltke-Leth, adding that the NFP blowout saw US rate hike expectations rise from 18% to 16% for September and 32% to 47% for December.
From the headlines, today's Asian session saw Standard & Poor's out with a credit outlook for South Korea. The agency boosted South Korea's rating to AA-, the third-highest possible reading, while acknowledging the geopolitical risks concerning North Korea that are counterbalancing the country's strong economic gains.
Also, noted Moltke-Leth, the result of the Thai referndum on a new draft consititon saw a clear majority come out in support of the military-written document, which would allow for democratic elections to take place next year.
In Japan, the Nikkei gained 2.44% today as the yen saw intraday lows of 102.25 versus the USD. According to Moltke-Leth, a new survey shows that 80% of Japanese economists polled expect an interest rate cut – from the already negative current level of 0.1% – at the next Bank of Japan meeting.
The BoJ appears set to go to the mat in order to take the Japanese currency lower:
Create your own charts with SaxoTraderGO click here to learn more
Source: Saxo Bank
Unlike many of this year's risk rallies, today's uptick in sentiment comes as crude oil prices negotiate the lower end of their recent range. According to Saxo Bank head of commodities strategy Ole Hansen, however, we could begin to see support developing in the "low 40s", particularly given that we are beginning to see verbal intervention from major producers such as Russia.
WTI short nearing record
"At the moment, the combined short position (NYM plus ICE) in WTI crude is nearing its January highs," says Hansen, adding that the net long position is seeing no major directional move.
Elsewhere in commodities, Hansen reports that cotton has seen continual buying in recent weeks while the agricultural sector, led by grains, has been in free-fall.
"There has been an overall six straight weeks of commodity bet reductions, and the net-short in grains has risen to 115,000 lots from a long of 535,000 as of June 14," says Hansen.
Another major short position that is developing, says Hansen, is the record sterling short that has developed following the initial, post-Brexit... well, not rally, but refusal to fall further.
GBP, core bond negativity
The GBP selling, adds Hansen, was matched by short-covering in the euro as well as some post-BoJ, post-governmental intervention yen buying,
Finally, Saxo Bank head of fixed income strategy Simon Fasdal weighs in with his view on bond markets following the European open. According to Fasdal, the NFP surprise has seen core bonds looser while their corporate and emerging market counterparts continue to rally.
Equity bulls are out in force once again. Photo: iStock
Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios