Article / 17 March 2015 at 9:26 GMT

From the Floor: Waiting for the Fed

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.

  • Bank of Japan expects zero inflation
  • Australian Reserve Bank might cut rates to fight weak economy, says Moltke-Leth
  • Platinum continues to fall and spread to gold widens
  • Oil prices under pressure from US and Iran
  • US treasury yields down, but still higher than in January
  • Greek bond yields above 20%

By Clemens Bomsdorf

Calm, before the storm

The upcoming Federal Open Market Committee (FOMC) is casting its shadow on all markets, somewhat akin to the calm before the storm.

Ahead of Wednesday’s Fed news, it was quite calm on the FX front in Asia – despite two local central banks making bold announcements.

“I guess it shows, who is in control here. Everyone in Asia is now looking for new clues from the Fed”, says Christoffer Moltke-Leth from Saxo Bank's Singapore desk. As expected, the Bank of Japan voted in favour of holding the annual asset purchases unchanged.

It also said that CPI is likely to drop near zero on low energy prices adapting its rhetoric slightly from the previous "it is likely to fall".

USDJPY failed to take its cue, nevertheless, with no clear direction emerging.

The minutes of the Reserve Bank of Australia (RBA) suggested another rate cut in Australia is on the cards.

 Will Washington’s Fed lighten up the sentiment? Photo:iStock

Chinese government shows muscles

Shares in Asia are mostly up as, while most markets saw very light volumes today ahead of the FOMC meeting, Chinese shares led Asia higher today on very high volumes – 60% above its ten-day average. It is boosted by hopes that the Chinese government will loosen its policy to lift the slowing economy, says Moltke-Leth.

China Railway Group and China Railway Construction Corporation both appreciated more than 5% after reports that the government studies a merger between the two.

Vols in FX markets are still very high, but there is not much happening otherwise, it seems. USDJPY is now trading significantly lower than EURUSD vols.

Saxo Bank's head of macro strategy Mads Koefoed expanded on the trading pair ConocoPhilips vs Royal Dutch Shell. The spread is unchanged at 2.8, meaning a return of 6% is still possible if a complete reversion to the mean will happen.

“We have seen no less than 32 returns to 0 mean in the last 120 trading days roughly,” says Koefoed, adding that there could be an easy grab there since it normally takes only five trading days for the spread to reverse.

Oracle's Q3 figures after market close tonight could be the most interesting earning report with expectations lower than guidance. According to Koefoed, the cloud-based business will be of particular interest, which accounts for 25% of its revenue and its products there are currently doing better than competitors.

The strength of the USD on the other hand could act as a caveat to Oracle’s business.

Platinum is the new gold 

Saxo Bank's head of commodities Ole Hansen points out that oil prices are still falling with WTI yesterday making a new low before some stabilisation set in.

“There is supply news affecting both markets [WTI and Brent] negatively at the moment,” says Hansen, citing storage capacity and Iran’s potential production increase. Focus today could be the expiration of the April WTI options.


In metals, platinum was the driver yesterday. It reached the 2009 low and the discount to gold is approaching 5% — the lowest since 2013.

“It is a small market that tends to overreact,” says Hansen, adding that it could be a candidate that could be picked up either as a trade against gold or an upright close to the 2009 low.

Coffee yesterday saw the biggest jump in 23 weeks, based on a stronger Brazilian real. “Keep an eye on breaking 142.40, which could potentially be a signal towards 155.00,” says Hansen.

Discontent in Greece is increasing, so are yields

Bonds' attention is also starting to shift towards the US ahead of FOMC. Data out yesterday was rather soft and raises questions on how hawkish we can expect the Fed to be, says Michael Boye from Saxo's Fixed Income Desk. The Citigroup Surprise Index hit a three-year low yesterday despite the last two months’ strong job numbers.

US government bonds' yields
 Source: Saxobank

The 10-year US treasury yield dipped four basic points. “But we are still away from the January lows when we did not expect rate hikes this year,” says Boye. While the QE party is still driving equities to new heights, bonds’ reactions was a bit more subdued. Government yields in Italy, Spain and Portugal were wider.

Greece remains the only major issue. There is a growing discontent with the new Greek government and its reforms. Greek three-year yields traded above 20% yesterday.

Clemens Bomsdorf is a consulting editor of 
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