Macro Monday Call: NFP no game changer - September hike can happen
- NFP was not a game changer and September is still very much on the cards
- Worth remembering political risk has diminished on both sides of the Atlantic
- Expect gold and silver to hold, but there's the risk of the Fed hike
By Kay Van-Petersen
Welcome to Macro Monday, your cross-asset weekly call on global markets.
Last week we took a look at the USD and US rates being at a potential inflection point of going higher post Jackson Hole and the potential Federal Reserve hike.
This week we take a look at the key US economic figures from last Thursday and Friday concluding that overall they are not a game changer. September could still be very much on the cards.
The nonfarm payrolls and average hourly Erns are a wash – on top of which August is a notorious month for upwards revisions in US NFP and year-to-date we are still averaging a healthy 191,000.
Yes the ISM did miss big time on Thursday at 49.4 versus the 52 estimated, but note when the Federal Reserve hiked in December we had had two consecutive prints of ISM manufacturing being in sub 50 territory [49.4 October, 48.4 November]. Meanwhile the market PMIs on Thursday held up.
Why would September be a smart time for the Fed to hike?
- Political risk has diminished on both sides of the Atlantic
- The Fed can dodge any near-term economic reversals
- Optionality on moving again in December 4. Regain credibility by showing the Fed can actually move quickly and decisively
- Aligns with updated forecasts that are scheduled for the September meeting
- Helps 28% of global GDP (Eurozone and Japan) whose currencies have a hit a wall trying to get weaker
Interesting to note that implied Fed hike probabilities have come off last week. Think 32% and 59% for September and December are still too low, should be closer to 50% and 75% respectively (Highs post Jackson Hole: 42% and 65%).
Thoughts on near-term tactical positioning
Forex: Prefer longs in NZD (charts, price action, technical look very strong – as in get out the way strong), AUD, AUDCHF, GBP (yes economic data much better than expected and people positioned on the short side, risk to the upside) and CAD.
On USD longs, I’d prefer to express that through being short EURUSD (ECB Thusday) Prefer USD longs against EUR, GBP, CHF, JPY (yes I am actually reversing my uber bearishness on USDJPY – with the Bank of Japan and the Fed falling at the same time, risk is now to the upside and it’s a contrarian view). Post G20 today, can expect potential pressure to come back on the yuan.
Equities: Look and feel like they want to rip higher, especially EuroStoxx, FTSE MIB, IBEX and the main US equity indices. Eurozone equities outperformance on the strongest volumes in four weeks has been quite astonishing.
Commodities: Had big pullback in gold as covered last week with very strong reversal from the $1305/oz level, silver did even better. Expect both to be supported, with risk being any signalling by Fed speakers towards a September hike.
Still bearish on base metals with copper and iron ore in particular. As for WTI, I appreciate we seem to be at 50-delta given the $40-$50/barrel range and Friday close at $44.44/b, yet I feel risk is to the upside here. Great level for delta hedging.
Bonds: We’ve been making higher lows in yields as bond prices have sold off over the previous week. Again it’s all about whether or not September is still on. Eurozone government bonds could do well if the European Central Bank extends its QE window which seems to be the consensus expectation.
Volatilities: We are again sub 12.00 on the VIX after a -12% degradation last week, also saw lower volatilities in the bond markets.
COT report highlights
Forex: Continued reduction in USD longs by 16% (from -36% reduction in the previous report) to $6.1 billion. This was very surprising to me given it being post Jackson Hole as well as given the move up in the DXY. Sterling Net-short decreased, whilst we saw big increases in CAD longs & a reversal on the NZD (from Net shorts to Net Longs).
Commodities: Overall exit out of the space by HFs, with the energy space being the sole exception with 1 year highs being seen in natural gas. Accompanied by a 40% increase in net-longs. Sugar continued to make new 1 year highs, as did NY Harbor (ULSD).
Interesting reversal in Feeder cattle where the market went from quickly getting long to flat in a two week period. Lastly, copper shorts starting, as we saw a a 440% increase in net-shorts at around -27,000, well below the 1 year low of -47,000. This resonates quite well with our tactical short views on copper an recent equity copper short trade view on OZ minerals [OZL] and Jiangxi Copper [358 HK].
Economy: PMIs Services themed week. Jolts will be key out of the US. Japan has final GDP. China has trade data and CPI.
Central banks: RBA 1.50% e/p (6), BNM 3.00% e/p (7), BoC 0.50% e/p (7), ECB -0.40% e/p (8), BoK 1.25% e/p (9)
Fed speakers: Williams (7), Lacker/George (7), Rosengren (9), Kaplan (9 & 10)
Other speakers: Kuroda (5)
Other: US and Canada out on Labor Day holidays.
- JK on the charts running through a number of names across the different asset classes, highlighting trouble in copper land, upside in equities, to mention just a few names…
- ET after hitting +7% return on his oil short from last week’s Macro Monday, his ‘Chart of the Week’, has a bullish call on the Hang Seng Index, given a recent break above a strong multi-year resistance level with favourable stochastics in the making. Our general feel for a stronger risk-on in equities resonate quite well with this view.
Here is this morning’s recording of this Week’s Macro Monday Call.
-- 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]