Macro Monday: Gold, silver, shale, cryptos in spotlight — #SaxoStrats
- US political risk and US nonfarm payrolls will be in focus this week
- The US does not need tax stimulus; it's not real reform
- The US tax cuts cater to the rich, who rely on passive investments
- There was a big rebound in natural gas after getting a beating the previous week
- We believe that the US shale space is misunderstood
By Kay Van-Petersen
Summary of prior week
- Senate passed the tax cut bill in 51-49 vote, which was definitely a surprise to KVP.
- North Korean missile launch outlining this is still an issue. Looks like China has been/is tightening the screws.
- Also former NSA advisor Flynn from team Trump plead guilty to lying whilst testifying to the FBI and is helping on the Mueller investigation, that is, political risk raised for US president.
- BoK rose rates by +25 basis pointso 1.50%; who will be next?
- US PCE in-line with forecasts, Eurozone CPI misses, for both core and headline inflation.
- CA crushed it on Friday: 79.5ka 10.2ke, 5.9%a 6.2%e
- Fixed income: Got back over 2.40% on US10s yet could not close above that on the week, yet 2.3615 and Aussie 10s were still higher for the week, unlike bunds.
- Forex: Technical bounce in USD, EUR still at about 1.19 levels, yet JPY back over ¥112. Sterling continued to strengthen, cable is up 3% over last four weeks, majority of that last
wk to close at about 1.35
- Commodities: Big bounce back in natural gas after getting a beating the previous week (about -8%), closing +5% at 3.06.
- The Opec news was deemed constructive and supported of oil. There was a bit of divergence in the rest of the space, gold, silver & copper offered, while iron ore, corn and cotton were bid.
- Equities: S&P, Dow & R2K continue to rise about 2.9% to 1.2% on the week, despite a 60 basis point fall on the Nasdaq and even bigger pullbacks in Europe and Asia
- Vol: +18% reversal of previous week, closing at 11.43. Also seeing vol on the bond side picking up, as MOVE clocks up 9% for the week.
- FX: USD shorts continue to increase; GBP back to net-long; small reduction of JPY shorts and MXN increases.
- Commodities: HF increased commodity exposures; Energy space increases near net highs, Natural gas however sees big reduction. Coffee shorts covering.
- Key Focus: Law makers (Final Tax Plan Alignment), US Political Risk, Service PMIs/ISM, US nonfarm payrolls
- Central banks: RBA 1.50%e/p (December 5), RBI 6.00%e/p (December 6) BoC 1.00%e/p (December 6) MX 7.00%e 7.50%p (December 7)
- Fed Speakers: None (Should be blackout)
- Other: RBNZ’s Spencer (December 5), Mario Draghi (December 8)
- US: Factory Orders, TB, Serv. PMI 55.4e 54.7p ISM serv. 59.2e 60.1p, ADP, NFP 200ke 261kp U/R 4.1%e/p
- China: TB, Caixin services 51.5e 51.2p, CPI +1.8%e 1.9%p, PPI 5.8%e 6.9%p
- Eurozone: Servics PMI 56.2e/p, Final GDP 2.5% e/p JP: Final GDP
- UK: Consumer PMI 51.2e 50.8p serv. PMI 55.2e 55.6p, manufacturing. prd, TB, IP
- New Zealand: Global dairy auction, mfg. sales
- Australia: CU, RS, GDP, TB CA: TB, Ivey PMI, Housing Starts
- Fed December 13: 95.9 (92.3%) Improved probability of December hike. Currently the January 2019 Fed Fund Futures at 98.16 (98.205), are barely pricing in two hikes, that is, the December 13 hike ad about 34bp (30bp) for the entire 2018. We’ve been advocating these high conviction shorts as the +$100mln trade for a few months now on MM & it’s been a rock n’ roll trade. We continue to make new lows on this, despite not breaking to higher highs on the 10s & 30s...
- Gold and silver 1.5 weeks into Fed Hikes: Over the last four hikes, gold has gone down 50% of the time for a avg. -3.7% while 50% of the time it was pretty much unchanged at +0.2%. Silver has gone down 75% of the time for an average pullback of -4.7% & into the last hike it closed up by +1.8%. So historically at least, both shorts are asymmetrical skews on average.
- Cryptos: Colossal event-driven structural shift over next six to 18 months, with KVP expecting +5x to +10x in Bitcoin (range of USD 50,000 to 100,000)
Cryptos conference takeaways (please click to enlarge)
- December 18 is the date from the CME, 35% initial margins, cash settled on the BRR (CME CF Bitcoin Reference Rate). The exchanges that currently make up the reference rate are Bitstamp, GDAX, itBit & Kraken. Link to CME press release
- US tax stimulus: Remember the US and world does not need a US tax stimulus – this is not really reform – especially one that caters to the rich who rely on passive investments and leaves RE developers untouched. As we’ve been saying for a few quarters now on MM, this will only increase the pressure on the Fed to raise rates further in 2018 & risks taking a robust economy & super tight job market into overdrive. Not to mention it adds c. $+1.5trn to the deficit over next 10 years (rating agencies on the sidelines no doubt)
- Protection: For those looking into year-end / year-start protection KVP would be considering 3-6m Puts & Put spreads in USDJPY, USDCHF, Nikkei, HYG and EEM make sense. Symmetrically on the call side: calls & call spreads on gold & silver could be interesting candidates as well, as would be the VIX and VXX
- Is the US shale space misunderstood.? Take aways from the VanEck lunch with New Field [NFX], Parsely Energy [PE] & Pioneer Natural Resources [PXD]
US shale (please click to enlarge)
- Conclusion: Yes its misunderstood. Very cheap and fast production, huge number of players that will consolidate. Massive underperformance versus S&P. Regulatory burden removed under Obama administration. This looks like an interesting place to spend time investigating more.
Block Show, Blockchain & Crypto Conference
- Initial coin offering (ICOs) From fever to cold: Space is changing quickly; even H1, 2017 is not like H2, 2017; larger ICO raises that have performed poorly; Having a real product is key.
- Asia Pacific Is Where It’s At: majority of the growth and innovations in the crypto space will occur given US Securities and Exchange Commission clamping down.
- Still ICO Successes, Mind-Blowing: A recent one, just three months old, is China based QTUM, which initially raised $15mln and today has a market cap of $950mln, that’s about a 63 times return in just three months.
- Assets and tokenization: The future is here, share certificates are hundreds of years old. Anything of value, from property, to art, to luxury goods, to cars will become tokenized – eg you will be transferring the beach house to your grandchild, with a beach house token.
Saxo Outrageous Predictions 2018
If you have any Outrageous Predictions, please send your thoughts to Macro@Saxobank.com. Please keep it concise; Kay is happy to mention your first name or keep it anonymous. Last year KVP’s predictions was for Bitcoin to triple in 2017.
- DXY: Fails to hold the 200 day moving average on the weekly. Declining trend line DXY will be resistant for dollar index to trade higher but is also currently trading at its 2015 & 2016 base.
- EURUSD: EUR fails to push higher last week but currently still trades at its trend line support from since early November.
- USDCAD: Weekly gains were eliminated on Friday after a double top formation. Range trading.
- AUDUSD: AUDUSD rally past the down trend line last week but sees resistance at 0.7640. On a longer time frame, support will come at 0.750
- USDJPY: First resistances come at ¥113.238 following an impressive rally, after flirting with ¥111.
- S&P 500: Found buyers just above the 2,600 with a nice hammer formation.
- S&P/ASX200: ASX200 continues to flirt but fails the 6000 handle which remains as test again in week ahead
- Crude: Oil recovered as it trades at the 200 weekly moving average
- Gold: Support at its 200 DMA + the trend line support since December last year.
Tactical Book: unchanged
Strategic Book: unchanged
For this week's recording the Macro Monday call click here.
– Edited by Robert Ryan
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].