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Video / 09 May 2017 at 7:27 GMT

From the Floor: Volatility veers lower on Macron win — #SaxoStrats

   • VIX volatility index closes at lowest level since 1993
   • Former Bundesbank head says ECB taper likely in September
   • Commerzbank posts substantial beat, shares up 3% pre-market
   • EU government bond yields make gains on Macron win
   • Rising bond yields push Japanese yen, Swiss franc lower
   • Oil focus turns to EIA report, verbal intervention 'not working': Hansen
   • HG copper finding support ahead of December low at 2.4480
   • Cocoa prices surge 11% in three days on short covering

By Michael McKenna

Risk appetite is on the rise as Emmanuel Macron’s French election victory pushed the populist threat to the sidelines. Heading into Tuesday’s European session, we see euro traders still selling the news, but JPY and CHF are headed lower as well on rising yields and a general trend of flight from safe havens.

“1.0850 is probably the key line in the sand to the downside on EURUSD,” says Saxo Bank head of forex strategy John J Hardy, “but USDCHF could be the more interesting pair as depending on the latest Swiss National Bank sight deposit data, we could head from the current level near parity to the cycle highs”.

On the central bank front, this week sees the Reserve Bank of New Zealand and the Bank of England out, but Hardy expects neither to wax hawkish with the BoE likely to retreat to a more cautious mode ahead of the June 8 election.

“The BoE has been hawkish of late, but that came on the back of extreme sterling weakness and rapidly improving inflation data. Now that we have a general election in view, I think [this trend is unlikely to continue],” Saxo’s FX head says.

The risk-ready atmosphere is being felt on the CBOE VIX volatility index, which closed Monday at 9.77, its lowest level since 1993. According to Saxo Bank head of equity strategy Peter Garnry, “complacency has hit a 24-year low as investors see very little risk on the horizon.”
This is unlikely to hold up, says Garnry, as “we still have central banks providing a very smooth ride for equity market investors”. 

For the moment, however, Garnry reports that stocks sentiment looks likely to remain bullish.

Beyond sentiment, global bourses are enjoying a particularly strong earnings season with Danish jewelry maker Pandora and German banking giant Commerzbank coming in ahead of expectations.

At Commerzbank, we saw first-quarter operating income come in at €314 million versus €207 million expected with the bank confirming its 2017 forecast.

Commerzbank shares were up 3% in today’s pre-market session.

At Pandora, Garnry says that Q1 EBITDA came in at 1.88 billion DKK versus 1.79bn expected while revenues hit 5.16bn DKK versus 5.09bn expected.

Garnry posted a bullish Pandora Trade View on April 20 in which he said that the firm’s shares could gain ground on Asia-Pacific expansion; Garnry’s target remains 850 DKK with Pandora shares currently trading at 737 DKK.

Pandora shares are retracing their post-earnings spike:

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Source: Saxo Bank 

With crude oil struggling below resistance at $47/barrel in WTI and $50/b in Brent, Saxo head of commodities strategy Ole Hansen says that “verbal intervention hasn’t been sufficient… we need hard data.”

The next major oil release is the US Energy Information Administration’s inventories report at 1430 GMT today. According to Hansen, investors expect another drawdown as Opec leaders speak of extending production cuts to 2018.

Elsewhere in commodities, copper is finding support ahead of its December low at 2.4480 with Saxo’s breakout model short copper below that level. Hansen also points to the short-covering surge seen in cocoa where prices have gained 11% in three days on quality concerns facing the current West African crop.

Saxo’s breakout model has exited its short position at 1877/metric ton (from 2006) and entered a new long at 1953/metric ton Monday.

Finally, Saxo fixed income trader Michael Boye reports that bond yields remain headed determinedly higher post- the European bell as traders shrug off the Brexit/Trump/populism narrative and enjoy the spectacle of the established order re-taking power at Europe’s heart.

As Saxo Bank head of macro analysis Chritopher Dembik has pointed out, though, Macron still faces some very real challenges in June’s legislative elections, where the shape and extent of his government will be determined.

As far as markets (and the VIX) are concerned, however, that is a problem for another day.

Enjoy the view. Photo: Shutterstock 

Michael McKenna is an editor at Saxo Bank
AlexF AlexF
Hi Peter/Saxo can we have some comment on Pandora. We are down 6.5% after being up 4%
Peter Garnry Peter Garnry
The devil is in the details. Headline was good why the initial positive reaction. The wordings on FY outlook and sub-growth rates across North America and charms & bracelet segments are the negative drivers of the sell-off. The 681 level was the support and we are now just north of 700...
Peter Garnry Peter Garnry
The Q1 result does not change our trade idea which by the way still has a stop at 660
fxtime fxtime
Fin Times reports that the SP500 has displayed less volatility using VIX as a measure 3% of the time since 1928 ! The first instance was the calm before the Wall Street crash fwiw then we see the cuban missile crisis, bretton woods collapse, black monday and the 2008 bank crisis. Such low volatility perhaps implies the unwillingness of market participents to fully employ resources due nil market turbulence to accrue revenue quickly or that we are fully funds utilised (unlikely in this low interest rate environment) and there is little cash remaining to seek ROCE.
AlexF AlexF
Thank you Peter very volatile, management conservative or real trend. We are now back under 700. Holding it as well.
kakaarup kakaarup
Stop hereby triggered. Current low 656 :(
fredajerusha fredajerusha
This comment has been redacted


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