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Video / 20 March 2017 at 8:17 GMT

From the Floor: 'Will cracks appear in equities?' — #SaxoStrats

#SaxoStrats
   • Hang Seng closes up 0.6%, outperforming regional stocks
   • G20 drops protectionism language, new stance USD-negative
   • 'Hard time seeing significant EURUSD bounce pre-French vote': Hardy'
   • Cable breaks through key pivots on GBP strength
   • Record highs in economic surprise indices could weigh on stocks
   • 'Funds are exiting commodities at a record pace': Hansen
   • Gold supported by geopolitics despite FOMC rate hike
   • Market 'holding its breath for Trump stimulus': Boye

SaxoStrats
By Michael McKenna

Global stocks may be near their all-time highs, but shifting political sands and central bank trends has Saxo Bank head of equities strategy Peter Garnry concerned that ’cracks may be forming’ in the runaway asset class.

This weekend saw the G20 remove the anti-protectionism language from its longstanding pledge, likely at the behest of the US where president Trump won the November election on an anti-free trade mandate. According to Garnry, the move may well be pivotal for equities investors who remain attached to what he terms “the free trade framework”, with sentiment heading into a sort of “post-Federal Open Market Committee hangover”.

With the dollar trending lower (and resting at key support levels) after the FOMC’s “dovish hike” last Wednesday, Saxo Bank head of forex strategy John J Hardy says that with a light data calendar, this week’s House vote on the Obamacare repeal is likely the next major USD risk event with the greenback likely to gain if the controversial bill passes.

In the most-traded USD pair, however, Hardy notes that he “has a hard time seeing a significant EURUSD break” ahead of France’s two-round election where populist Marine Le Pen continues to pick up steam after the Paris airport attack.

One interesting factor for EURUSD is the European Central Bank’s willingness to normalise policy in tandem (with a slight lag) with the US Fed; according to Saxo fixed income trader Michael Boye, new comments from the ECB’s Ignazio Visco indicate that the end of the European quantitative easing experiment “could be closely linked” to an ECB rate hike.

EURUSD

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Source: Saxo Bank 

Despite the looming threats facing world equities, Singapore-based Saxo trader Hong Wei Lee says that Hong Kong’s Hang Seng index continues to outperform its regional rivals, closing up 0.6% in Monday’s session.

“We continue to see a positive technical aspect to this index since our breakout model signalled entry on Friday”, says Lee, adding that the uptrend since February 2016 remains intact with support coming from the 200-day moving average.

Another major factor at play in markets this morning is the ongoing rout in commodities, where Saxo bank head of commodities strategy Ole Hansen notes that selling records were broken in the week ending March 14 as funds exited commodities at a record pace.

“Total bullish bets were down 370,000 lots,” says Hansen, noting that speculators have doubled their gross-short in oil futures as crude began to retrace lower after hitting resistance.

In gold, Hansen remains bullish on a weaker USD and global geopolitical risks despite the FOMC’s rate hike, noting that $8 trillion in government and corporate bonds still trade below zero.

This week sees the Reserve Bank of New Zealand out Wednesday with the week’s sole central bank meeting, while earnings are forthcoming from BMW and FedEx (Tuesday), Tencent (Wednesday), and China Mobile, Accenture, and Sinopec (Thursday).

Concerning Tencent, Peter Garnry says that he sees “extraordinary momentum” in the share on the back of a years-long bullish trend. Meanwhile, Saxo’s equities head cites the long puts position published last week as his “major theme heading into Q2” while noting that he remains positive European stocks in the short-term.

Into today’s trading day, GBP has retraced somewhat from its opening bell highs but remains on a determined uptrend on dollar weakness and hints of policy normalisation from the Bank of England.

Hong Kong
Can Hong Kong's Hang Seng index buck an increasingly shaky 
global equities outlook? Photo: Shutterstock 

Michael McKenna is an editor at Saxo Bank
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