Macro Monday: FOMC minutes, US Erns and conviction trades #SaxoStrats
- FOMC is all about whether it swings the market towards four hikes
- High conviction trades: Short AUDUSD and Long NOKSEK
- Got a big miss in NFP (103,000 actual, against 185 expected)
Worth noting in early Asian trade we are seeing a lot of rumours and denials around strikes in Syria & potential US being involved.
Hard to place how much is fake against real news. I have seen nothing yet from a super credible watch, but bears keeping in mind…
US S&P futures a touch softer than earlier… but still +34 at 2614.50. If I was Bullish Bob, I would have stops at around 2550 whilst if I was Bearish Billy I’d have stops at 2700.
Summary of prior week
- Trade war fears: Noise continues and adds to the choppiness of the markets. The week was dominated by Trump’s line (early Friday in Asia) of potential additional $100bn of tariffs on China. Also Amazon was under fire.
- US NFP and economy: Got a big miss in NFP (103,000 actual, against 185 expected) despite a higher revision 326,000 (313,000). Average hourly erns came in-line at 2.7% a step up from last 2.6%
- PMIs/ISMs : Generally speaking we are seeing misses, as these leading indicators come in softer potentially signaling some continued mean reversion on economic momentum
- FI: 10s at 2.77 a touch higher for the wk, bunds back to levels from two weeks ago
- FX: Interesting week for the USD, gains v EUR & JPY for over 100 basis points yet DXY closes a touch lower as the dollar lost v the GBP, NZD & AUD.
- CMD: Energy takes a hit, gold & silver grind up. Wheat has a great week at around +5%
- EQ: European stocks outperform for the week, with the Dax taking the top spot at +2.5%. SPX cash down -1.4% for the wk, yet closes above key 2600 & 200DMA of c. 2595.
- Vol: around +8% on the week, VIX at 21.50 level. Average 2017 VIX was 11.11.
- FX: USD short speculation remains largely unchanged. GBP and JPY longs are at 52 week highs and continue to build. AUD positioning turns short.
- Commodities: Speculative commodity longs cut for third week in a row. Extended longs continued to be seen in crude oil, gas oil and cocoa while on the sell side silver, palladium, sugar, coffee and livestock all stood out
- Key Focus: Trade Wars Noise + FOMC/ECB Minutes + US & China Inflation + US Earnings Season Kicks Off
- Central Banks (SGT): FOMC Minutes (12) ECB Minutes (12) UA 17.0%e/p (12) BoK 1.5%e/p (12) MX 7.50%e/p (13)
- Fed speakers (SGT): Kaplan in Beijing (10/14) Kashkari (13) Rosengren (13) Bullard (13)
- Other (SGT): Lowe (11) Kuroda (12) new PBOC gov. Yi Gang (12) Olsen (13) Weidman (13) Carney (12/13) Monthly Oil Reports (OPEC & IEA), BoC Quarterly, NAFTA deal?
- Economic data: US: PPI, Inv., CPI Core 2.0%e 1.8%p, Headline 2.3%e 2.2%p, JOLTS, UoM CH: Money Supply, PPI 3.2%e 3.7%p CPI 2.6%e 2.9%p, TB EZ: IP JP: BoP, Core Machine Orders, PPI UK: House Prices, TB, IP, Mfg. Prod NZ: House Sales, Card Spending AU: Home Loans, Consumer Inflation
Thoughts on market positioning/sentiment
- FOMC minutes: this is really all about whether it swings the market towards four hikes this year (June, September, December) or stays at three hikes for the year (two more in June and December).
- Could potentially push yields back over 2.85% on the US 10s and give us a squeeze on the USD (last wk really down to EUR & JPY weakness).
- Still has attention competition of risk-off from last week & general noise around potential Trade Wars between the US and China (check out soybeans, potential long?)
- Tactical View - Unchanged: use any rallies to put hedges back on, through downside expression from puts and put spreads on equity and high yield indices to particular baskets such as technology and the FANGs, or US healthcare with the upcoming midterms (surprised we’ve not seen more noise here – not after we said this on last MM, we got POTUS on Amazon!)
- I would trade these hedges quite aggressively, as I feel we could be in for some choppy markets rather than a one-off -20% to -30% unwind in equities – that comes later, but is obviously a key risk with trade war fears.
- Think we need US earnings season to really give the equity market a chance for a sustained bounce for a few weeks, rather than the daily risk-on then risk-off
- High Conviction Trades: Short AUDUSD and Long NOKSEK. See call for full details.
- S&P: defending 200 DMA still looking for 2 closes below before turning negative.
- Dow: Further from its 200 DMA. Sell retest of downtrend from highs.
- DAX: trades above its march double bottom, looks most positive of the equity indices.
- ETF XLF (financial sector): Prices moving to test trendline support as they head lower. Bias is to buy into that support line.
- DXY: Weekly resistance which it struggles to clear. Higher lows through April, failure to break this level.
- EURUSD: close to giving up its 2017/18 trendline. Once close below this trendline, false break signal potential.
- AUDUSD: Downtrend established, on ST chart, long term trend line test for the 4th time which will open up much bigger downside.
- USDJPY: recovered to Feb low levels. Looking for a retracement to 106.11 before going long.
- XAU: Yield to date consolidation continues and therefore should trade the range 1310 vs 1355. Look for a break either side to determine direction.
Tripled exposure on shorts of AUDUSD and longs in NOKSEK.
Macro books strategic and tactical (click to enlarge)
A replay of the call is available here
– Edited by Adam Courtenay
Kay Van Petersen is Global Macro Strategist at Saxo Bank. You can follow him on Twitter: @SaxoStrats or @KVP_Macro. Please join us live for next Monday's Macro Call at 0830 [Singapore/Hong Kong], 0930 [Tokyo], 1130 [Sydney].