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From the Floor: Volatility hits record lows — #SaxoStrats

#SaxoStrats
   • 'Very little to chew on' from the RBA, Aussie rally fails to hold: Hardy
   • Saxo quant model favours cyclical stocks in Japan: Garnry
   • Saudi anti-corruption purge lending massive tailwind to oil
   • Gold rising towards resistance at $1,282/oz in early European trade
   • Crude rally sees limited upside in oil-centric currencies

From the Floor
By Michael McKenna

Complacency has hit historic highs with the VIX volatility index closing at an all-time record low of 9.14 on Monday. According to Saxo Bank head of equities strategy Peter Garnry, investors wary of continued record highs in global stocks might do well to consider "taking a few chips off the table" on the probability that this record-breaking run has departed from fundamentals. 

"We see the S&P 500 in a rising wedge formation," says Saxo Bank technical analyst Kim Cramer Larsson, "with a test of the lower trendline at 2,457 being a factor to watch [if you are looking for the index to turn lower]".

In Japan, Garnry adds that the Nikkei is now at its highest levels since 1992 with Saxo's quant model favouring Japanese cyclicals.

"The record low in volatility is also being mirrored in the FX space," says Saxo head of forex strategy John J Hardy, who notes that while volatility indices may provide a view on runaway sentiment, they give little clue as to when complacency may turn lower.

In terms of specific currency movements, Hardy reports that he maintains his short view on the AUD following Monday's Reserve Bank of Australia outing. "The RBA was positive on business investment and cautious on consumption," says hardy, "but overall there was very little chew on".

Volatility

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Source: Bloomberg, Saxo Bank 

In the commodities space, Saxo Bank's Ole Hansen reports that the Saudi anti-corruption purge continues to give oil bulls "the perfect tailwind" as crude now sits 13% up from where it was on october 16 when Iraqi forces retook the disputed Kurdish city of Kirkuk.

Today sees Opec releasing its medium- to long-term outlook at 1330 GMT, with the US Energy Information Administration out with its short-term view ahead of the API inventories release at 2030 GMT.

Although gold prices remained muted Monday, Hansen says that they appear to be preparing for a run at the $1,282/oz resistance level in what he terms a "delayed reaction" to the Saudi shake-up.

A break of $1,282/oz could clear the path for a rally to $1,306/oz, Hansen adds.

For more on FX volatility, the Australian dollar, the Dax index, copper, and more, watch today's Morning Call via the video link above.

Blowing bubbles
 Remind you of anything? Photo: Shutterstock

Michael McKenna is senior editor at Saxo Bank

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