Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 12 March 2018 at 15:06 GMT

House View: Goldilocks' return

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Markets are trying to put back on the Goldilocks trade; how long can it last? 

  • US jobs report supposedly "just right": strong US economy, but earnings growth revision/drop eases inflation fears.
  • Risk appetite: encouraged by relative dovishness at DCB, BoJ, as well as weaker US earnings but the Federal Open Market Committee could surprise at its March 21 outing.
  • USD: focus this week on 10-year and 30-year US Treasury auctions on Monday and Tuesday.
  • USD: Focus on Treasury auctions and US CPI on Tuesday, focus on Fed "terminal rate" of 3.00% and big 3.00% level in US 10-year benchmark.
  • NOK: in focus as Thursday Norges Bank meeting has market looking for hawkish guidance. 9.52-50 in EURNOK a big pivot zone.
  • JPY: weakness not a surprise given dramatic bounce in risk appetite, but market may be quick to fade the move.
  • CAD: gets a bounce as Trump's tariffs watered down and Canada excepted, but less than expected (CA housing worries weighing?).
  • AUD: AUDUSD has steered away from 0.7750 area downside pivot after last week's test. Limbo unless 0.8000+ attempted or back <0.7750.
  • GBP: despite fresh Brexit woes, EURGBP rally fades perhaps suggesting EUR risks from positioning? 
  • EM: seeing strong divergence in Asian EM perhaps on current account considerations; CNY eerily quiet/rangebound 

Tech levels on watch for developments

  • EURSEK: SEK will be highly sensitive to CPI release watching 10.05-00 area on any upside surprise .
  • USDJPY: risks of consolidation have picked up as downtrend momentum softened; 107.50-108.50 is upside pivot zone .
  • EURUSD: 1.2200-1.2150 zone in EURUSD remains the big downside pivot zone risking a 1.2000 test, possibly 1.1940 on break 

Trade themes

  • Prefer CADJPY shorts to USDJPY shorts if risk bounce fades. Eyeing return to <82 if 84 area holds.
  • EURUSD two-way risks as EUR doesn't rally post-ECB; more bearish for extension lower if 1.2200 falls again. 
  • AUDUSD: the bounce hasn't fully convinced yet, risks to downside if risk appetite recovery fades, 0.7750 retested.
Equities are rallying as Goldilocks returns


  • Remain neutral on US equities as we prefer other markets; US technology remains a special case where we are positive. 
  • Remain positive on EM equities as long as the 200-day MA is not broken in the MSCI EM Index. 
  • Remain negative on UK equities as Brexit negotiations are a drag on investor sentiment. 
  • Remain neutral on European equities as foreign investors are clearly holding back despite attractive valuation. 
  • Remain positive on Hong Kong equities as long as the Hang Seng stays above the 200-day MA. 
  • Remain neutral on Japanese equities with no clear positive catalysts in the near-term. 


  • In the recent decline the technology sector has stood out as the most defensive sector showing a clear preference from investors. 
  • Preferred industries: semiconductor, software, retailing, technology hardware, consumer services. 
  • Least preferred industries: media, telecom, energy, utilities, real estate. 
  • Global energy stocks are the worst performers the past month due to lower oil price as fundamental data continue to support short sellers. 


  • Implied volatility is being sucked out of equity markets again with the VIX dipping below its long-term average. 
  • The Eurocoin indicator tracking euro area GDP in real-time showed that the three-month activity ending in February is the best since 2000 .
  • Nonfarm Payrolls showed strong gains in Feb at 313,000 while wages grew less than expected reigniting the Goldilocks trade.
  • US tariffs are already fading in the newsflow but this theme will come and go over the coming years .
  • The US term premium remains compressed and OIS-LIBOR spread is at highest levels since 2011.
CPI numbers may pus US Treasury yields higher, Asian credits to benefit from US/North Korea peace


  • US 10-year Treasury yields stable at 2.9%, investors are waiting for CPI numbers this week and if more good news arrive, Treasury yields may go up .
  • Elections resulted in a hung parliament in Italy. The market didn't panic, however uncertainty remains as a government needs to be formed. Volatility may spike in the periphery as news comes out from Italy. 

High Yield

  • This year in the US, junk bond sales fell 23% compared to last year, showing that the market is increasingly becoming cautious. The majority of junk bonds in the primary have been issued by energy companies. 
  • CCC credits continue to outperform compared to better rated names. Default rates remain at their lowest historically however, CCC bonds are the riskier within the HY space as they have steady rates of defaults. 
  • Moody's Liquidity Stress indicator remains stable around 2.7% showing that the junk bond space is not yet under stress 

Investment Grade

  • US Investment Grade bond OAS is at the same level seen at the beginning of the year showing that while Treasury yields were rising, investors took the opportunity to buy IG credits, supporting tight valuations. 

Emerging Markets

  • US/North Korea peace may have a positive effect on regional bonds as risks of a North Korean war fade .
  • China may allow commercial banks to issue perpetual bond s.
  • CEE bonds have reached their tightest level, and they offer little spread over sovereigns of more developed European countries.
Monthly oil market reports, Tariff "war", FOMC and grain correction risks


  • WTI crude oil has settled into a narrow $60-64/barrel range. 
  • Biggest downside risk remains surging US production and fund long liquidation. 
  • Crude supported by geo-risks, Opex-plus compliance and solid demand outlook. 
  • Limited fund appetite to sell as long prices stay above $61/b (Brent) and $57.50/b (WTI). 
  • Focus: Monthly oil markets reports from Opec (14th) and IEA (15th). 
  • Bias: Neutral with no clear lack of direction currently. 


  • Gold is stuck in a $1,300-1,340/oz range and is back on the defensive ahead of the March 21 FOMC meeting 
  • Goldilocks growth/inflation outlook is being offset by continued need for diversification to counter multiple risks .
  • Gold lost momentum ahead of the previous five US rate hikes only to rally strongly afterwards .
  • Bias: Maintaining a bullish outlook above $1,285/oz .
  • Copper: Range-bound between $3 and $3.3/lb with focus on global trade tensions and China slowdown .
  • Bias: Neutral after seeing funds cut bullish bets to a 16-month low .


  • Agriculture sector showing signs of a comeback following six years of underperformance .
  • La Niña weather phenomenon, a weaker dollar and inflation focus attracting renewed demand.
  • Bias on key crops: Bullish but in need of a correction following a near 900,000 lot buying spree in last six weeks. 


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