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 February 2018 at 2:19 GMT

Macro Monday: Is the equities selloff over? — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub
  • Key focus for the week ahead is UK CPI, Chinese New Year and the US CPI figure
  • RBA constructive on global growth and domestic issues overall
  • AUDJPY is set up well for gains this week

By Kay Van-Petersen

Summary of the prior week

  • Service PMIs: Beats in Eurozone, missed in the UK (53.0 vs 54.1), US ISM-non manufacturing. highest since 2005
  • Fed speak: Interesting comments on telegraphed correction, healthy, etc. Overall don’t seem to be too worried – yet.
  • RBA|RBNZ: RBA constructive on global growth and domestic issues overall, expect tick-up in growth and CPI. As always cautious on consumer housing debt, neutral for now on rates. RBNZ as usual, neutral overall. Did get good jobs data and milk auction out of New Zealand
  • Fixed interest: New highs seen as we clocked 2.88% on US 10-years, that is only 12 basis points away from the key 3.00%. Low of the week was 2.65% when we were selling off hard on Tuesday, before we closed the week at 2.85%
  • FX: DXY at +1.4% on the week, captures it all. Some of the biggest losers vs the USD were CMD-related FX like NOK, RUB and BRL. Crosses like GBP also saw quite a reversal at  minus 2.1%/week
  • Commodities: Risk-off did not bode well for commodities, we discussed those looking for downside to play energy space, which was spot on. Brutal week for the energy bulls as we pulled back c. -10% in oil and gas
  • Equities: Despite a rally in the second session on Friday by US equities, global equities were firmly in the red – with almost every major equity index down for the year. A few exceptions being Jakarta, Brazil and Italy
  • Volatilities: Big moves in equity volatility with the VIX range for the week being 50.30 to 16.80, before closing at 29.06 +68% for the wk

COT Report

  • FX: Overall no big drastic changes, reduction in non-commercial dollar shorts
  • Commodities: Overall hedge fund exposure to commodity space unchanged, energy space positioning holding like a rock. Big liquidation on silver longs


Year of the dog ... Chinese New Year starts this Friday. Photo: Shutterstock

The week ahead

  • Key focus: UK CPI,  Chinese New Year, US CPI
  • Central banks: (SGT): BoT +1.50%e/p (14) BI 4.25%p (15) SL 7.25%p (16)
  • Fed speakers: (SGT): Mester on monetary policy and economic outlook (13)
  • Other: (SGT): Norway’s Olsen (01:00, 16), RBA’s Lowe (06:30, 16)
  • Chinese New Year holiday: Chinese New Year hols (15-21) HK (16-19) TW ( 15-20) SG|MA|ID (16) US (19, i.e. long US weekend coming up)
  • Economy: US: CPI 1.9%e 2.1%p CORE 1.7%e 1.8%p, RS, Inv, PPI, CU, IP, Housing Data, Consumer Confidence CH: New Loans, FDI EZ: IP, 4Q GDP 2.7%p, TB JP: Leading indicators UK: CPI 3.0%p CORE 2.5%p, RS, House prices NZ: Inflation Expectations Q/Q, NZ mfg. index AU: Jobs data, Consumer Confidence

Thoughts on market positioning and sentiment

  • RBA/RBNZ: Reserve Bank of Australia constructive on global growth and domestic issues overall, expect tick up in growth and CPI. As always cautious on consumer housing debt, neutral for now on rates. RBNZ as usual, neutral overall. Did get good jobs data and milk auction out of NZ. This was Spencer’s last RBNZ meeting, the new governor will begin 27 March and is called Adrian Orr. It’s worth noting RBNZ scope will increase to include employment maximisation
  • Overall continue to favour a more hawkish central and relatively better performing economy from Australia vs. New Zealand. This underlines view on buying the AUDNZD cross
  • Bank of England: Combo of USD broad-based strength, UK PMI misses and general commodities selloff (UK’s FTSE-100 very commodities heavy) took sterling to 1.3827, down 2% on the week. This is despite the general theme coming out of the BoE being unmistakably hawkish
  • Price action and positioning: The market eventually gets what it focuses on. People were talking about the longest period of going without a minus 5% correction and we have gotten that and more. The S&P has done over -10% from peak to trough and given Friday’s close of 2619.55 we are down 8.8% from the 26 January 2872.87 highs. This ticks the box for a technical correction.
  • Horizons here are key: 1. Structurally we are in blow-off top (6-18m?) of what is going to be the longest business cycle before a global recession (diff. tranches here) 2. Tactically dependent on yields and technicals

Technical outlook (James Kim)

  • S&P: Huge technical damage done. 200 DMA holds losses and market bounces off this support. Expect last week’s low to hold in near term. If this breaks, expect serious selling, expecting a large bear market selloff.
  • Nikkei: Briefly below the 200 DMA, but closes above.
  • HSI: weakest index in the equity space with worst technical damage done.
  • Dax: at double bottom level at 12000. Expect a retracement to the 200 DMA but fade this rally.
  • ASX 200: Prices supported trendline from 2016. Trendline needs to hold.
  • XAU: Gold fails to act as a safe haven. XAU lower on the week, expect gold to bounce from here, with stops below 1300, target 1375.
  • US 10s: Break and close below the lows of last year. Key test of 200 MMA.
  • USDJPY: Lower on haven buying of JPY. 2012 trendline holds and this is key support. Friday's price action suggests potential for a USDJPY bounce in the week ahead. Target 110.20.
  • DXY: 200 MMA holds and this is key to USD direction.
  • EUR: Shift to neutral on EURUSD, support seen at 1.22 trendline support. This presents longer term buying opportunity.
  • AUDUSD: Finds support at 200 DMA. Price action on Friday suggests long positions warranted.
  • AUDJPY: Set up well for gains this week. Rebound on Friday marks completion of selling pressure. Gains expected to 200 DMA at 86.50.

KVP's portfolio

Tactical Book

  • Long AUDNZD
  • Short gold/silver
  • Long UST, short bunds


Strategic Book

  • Short gold/silver
  • Long USD/bunds
  • Short USDJPY
  • Long US Financials, short US healthcare via ETFs

For more on forex, click here.

For this week's recording of the Macro Monday call click here.

– Edited by Gayle Bryant

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].
Morris Morris
Is there a time span for Tactical and Strategic Books?
roywebb roywebb
Very good webinar and a great way to kick off the weak. Thanks to KVP and his team! maps


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