Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 09 June 2016 at 8:02 GMT

From the Floor: Silver playing catch-up to soaring commodities

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From the Floor
By Michael McKenna

Today's Asian session saw equities fade as the JPY and more notably, the NZD gained ground. The kiwi's 1.8% rise came after the Reserve Bank of New Zealand decided to keep interest rates unchanged at its meeting overnight.

The RBNZ statement was not without its dovish side, particularly insofar as the bank stated that NZD remains "too high" and further easing may be necessary. Forex traders, however, ignored the jawboning to focus on the rates decision, sending NZD sharply higher against a basket of major currencies, notably the USD and AUD.

NZDUSD has jumped sharply higher:
Source: Saxo Bank  

While the decision out of Wellington points only obliquely in the direction of USD weakness, today's European and US sessions look likely to see a continuation of the soft dollar trend with all that implies. The greenback's relative lack of force, of course, is presently assisting the broad-based commodities rally, where precious metals are leading the surge.

"Both XAUUSD and XAGUSD have broken important levels to the upside," notes Saxo Bank FX Options trader Dan Larsen, with Saxo Bank head of commodities strategy Ole Hansen adding that ETP holdings in silver rose to within 0.6% of their October 2014 record.

"Silver is resuming its rally after a correction," says Hansen, "and now it finds itself playing catch-up to the greater commodities rally." According to Larsen, the silver spike could ultimately wind up placing price levels like $18.00-50/oz into view as investors pursue safe-haven strategies in the shadow of both the June 23 Brexit vote in the longer term and today's soft Chinese CPI print (2% versus 2.2% expected, year-over-year) in the more immediate one.

The commodities trend is apparently outweighing high US gasoline inventories and rising crude production in terms of oil, where Hansen reports that WTI crude sees trendline resistance at $52/barrel and Brent at $53/b.

In stocks, Saxo Bank head of equity strategy Peter Garnry notes that rising oil prices are boosting the still-depressed energy sector, adding that Tuesday's SaxoStrats trade in Subsea 7 is already up by 4.5%.

Beyond the headline-enriched energy space, Garnry points to Standard Chartered as a potential equities play, reporting that the UK-based banking firm could well be "the most undervalued major bank in the developed markets space". 

Standard Chartered
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Source: Saxo Bank 

Although Garnry recognises the risk posed by China, he feels that Standard Chartered is "massively mispriced" and could see an upside move. "The recent surge in commodities has not yet been reflected in the bank's share price," he concludes.

Although commodities continue to rally, Ole Hansen is of the view that the vast majority of them are now overbought with the exception of metals. Coffee futures, for instance, have seen a dramatic spike on Brazilian frost fears with the KCN6 future seeing its largest upward move in 14 months.

Beyond the exciting/concerning (depending on your positioning) moves seen in commodities, the Brexit vote continues to loom as a potential black swan, with Dan Larsen noting that the uncertainty is benefitting the JPY, AUD and CAD.

As the alchemists used to say, "as above, so below", and for investors this means that we, like the Federal Reserve high above us, remain data-dependent to the core as the global slowdown and its associated suite of risk events and probabilities weighs on markets.

Watch the central banks, keep one or even both eyes on China, and track risk sentiment closely as these are the factors moving markets as we head into the summer.

These as well as the Europe-weary voters of 'perfidious Albion', of course. Photo: iStock 

Michael McKenna is an editor at

Editor’s note: From the Floor takes advantage of'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.


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