Macro Monday: Boring Jackson's Hole, so wait for September
- Expect little from the Fed this week, but in September things will hot up
- Fed hike probabilities for September and December still low at 22% and 50%
- Only extreme is GBP, where net-shorts are now at new record short levels
- Market has a small short in NZD - this will change in a few weeks
By Kay Van-Petersen
Welcome to Macro Monday, your cross asset weekly call on global markets
For week 34 we take a look at:
- Flash PMIs and Jackson Hole themed week ahead, plus key week for USD basket and USDJPY, price action has been atrocious of late in both amd I continue to be perplexed that the Yen is still above 100 (100.74 last).
- Net-net I think Jackson Hole is a wash and Federal Reserve chairwoman Janet Yellen will maintain her optionality (call her 50-delta). Note I get the sense the market may be expecting more from her, so USD may continue to be bid (+30 basis points on DXY this APAC Monday morning) or at the very least neutral.
- Would expect a lot more hawkish posturing from Fed post September 2, US NFP for August. We’ve already seen some Fed speakers start, even Fisher over the weekend – but the drums will come out after September 2 (Assuming an in-line print at worst). Fed implied rate hike probabilities for September and December are too low at 22% and 50%.
- Thoughts on near-term tactical positioning: Unchanged, tactical USD weakness bias continues. Prefer NZD, AUD and EUR longs Still expecting US equities to rip higher – granted it has been two weeks now!
- Decent move lower in US, German and Japanese government bonds and last week we saw US 10-year Treasuries back to around 1.60% levels.
- Questions to ask: Potential tactical longs in wheat (finally positive price action, market still short)? Potential shorts in sugar (consolidating on both daily and weekly chart, market very long)? Looking for shorts on the US yield curve, what about 2-years (charts looks poor)?
COT Report highlights
- FX’s only extreme positioning continues to be GBP, where net-shorts increased to new record short levels. Perplexing to me, is that the market still has a small short in NZD - this I believe will change over the next few weeks/months as the thirst for yield mitigates any effects from future potential RBNZ cuts. Saw increases in AUD longs and decreases in EUR and MXN shorts.
- On the commodities side, a first in many weeks as no new record highs or lows set. A tale of two flows, increase in energy bets, continued withdrawal from agriculture (ex grains) space. A bit of softening in the gold positioning, plus a fifth of an increase in WTI net-longs (despite record gross short positions).
- Speakers: Jackson Hole (from Thursday 25), Janet Yellen tentative (Friday 26) and Kuroda (Tue 23).
- JK on the charts running through a number of names across the different asset classes.
- ET on the chart of the week, advocating short position in oil! Given huge run up +15.5% in last two weeks and approaching key resistance level of $50 – we’ve been bullish for 2 weeks, yet that’s a hell of a straight line run in a market that is anything but straight.
-- Edited by Adam Courtenay
Kay Van-Petersen is Global Macro Strategist at Saxo Bank. You can follow him on twitter on @SaxoStrats, @KVP_Macro. Please join us here live again next Mon at: 0830 [SG/HK], 0930 [TOK], 1030 [SYD]