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From the Floor: Tricky week ahead for Opec – #SaxoStrats

There is some risk for stagflation in Japan - Hardy
US earnings season has been extremely disappointing so far - Garnry
Don't think Novo Nordisk is cheap after the recent sharp drop in share price - Garnry
The week ahead for oil and Opec is tricky and the latter knows the risk of failure - Hansen
Good data can have a big impact on fixed income - Boye
By Clare MacCarthy and John Acher
It’s a huge week ahead for economic data, but with four central meetings also on the agenda, the hard figures might be overshadowed by central bank chatter, reports Christoffer Moltke-Leth in the Monday edition of Saxo’s global morning call.

First up will be the Reserve Bank of Australia and the Bank of Japan tomorrow, followed by the Federal Reserve on November 2 and the Bank of England on November 3. 

“The weak inflation data and the very weak labour market report that we saw over the last few weeks are obviously helping the RBA keep a mild easing bias,” says Moltke-Leth, adding that the bank will still likely stand pat tomorrow. 

For the BoJ, unexpectedly weak inflation data from Japan this morning confirms, Moltke-Leth says, that “Japan is not recovering well”, and this and the bank’s recent switch to yield-curve control mean there’ll hardly be any action from them tomorrow.

Meanwhile, what Saxo Bank's FX strategy chief John J Hardy calls “the rapidly shortening wait” for the US election continues to focus minds. The latest twist in the battle for the presidency – a extra FBI probe into Clinton’s email security habits – has narrowed her 12-point lead over Donald Trump to a mere 46/45%, according to one opinion poll. In turn, this has sparked some mild risk-off sentiment and triggered flows into the USD and safe havens.

And what do all these risk events mean for trading levels? “Technically it’s going to be very difficult with so much focus on these key event risks to have many takeaways, but it looks like 1.10 is the key line in the sand of resistance for EURUSD. I would suggest that we’re still in a downtrend and looking to probe lower at least towards 1.0750 if the US election doesn’t provide a hiccup or a shock Trump victory,” Hardy predicts.

Source: SaxoTraderGO

In commodities, a large question mark still hangs over the crude oil market, and the outlook for Opec’s efforts to broker wide-scale production cuts. “It’s been a bumpy ride over the past week and a half, and this weekend did not provide any support,” says Ole Hansen, Saxo’s head of commodities strategy. 

Opec’s technical meeting in Vienna came and went, he say: “Once again they failed to reach agreement on who should cut production let alone by how much.” Ominously, the consequence of failure to agree could be huge including a very significant selloff in the market, Hansen says.

Against that backdrop, Hansen expects some verbal intervention this week, but, as the chart below shows, WTI is currently testing $48.35/barrel (the first retracement level of the rally since September). “If the longs start to throw in the towel, we would be looking at $46, which would be the trendline from the lows back in January/February,” he concludes.

WTI testing $48.35/barrel
Source: Bloomberg

Core bonds rebounded on Friday from their recent selloff, as investors steered into safe havens.

”In the fixed-income markets, we finally caught a bid on Friday following a very dramatic selloff all through the week in bunds and Eurozone government bonds,” Saxo Bank bond trader Michael Boye says.

The 10-year bund was traded down a new low price of 161.5, equal to a yield of 0.22%. The bund traded back to the 162 level, where it also opened on Monday. ”So, yields still quite a bit higher here, reflecting more economic confidence lately, so it’s a reminder that once there’s the slightest evidence of the economy picking up pace, things can move very fast in the yield market,” Boye says.

The Italian government 10-year spread to Germany continues to widen. ”But there is still room to move here so I am still pretty confident on the short BTP call that I have talked about earlier ahead of the constitutional referendum in December,” Boye says. BTPs, Buoni del Tesoro Poliannuali, are Italian medium-long treasury bonds.

Clare MacCarthy and John Acher are editors at
Market Predator Market Predator
Next time, please increase volume level, thx!


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