Article / 27 March 2017 at 4:59 GMT

Macro Monday: Is this the end of the Trump trade? — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub
Singapore
  • The Trump trade is now in doubt after healthcare bill replacement was called off
  • Article 50 should be triggered by Wednesday but it'll be a long and painful process
  • CAD positioning turned from net long to short on oil liquidation

By Kay Van-Petersen

A replay of the global macro weekly call for week 13 is available here.

Please see our Q1 Outlook here.

Summary of the past week

  • The Trump trade in doubt as the healthcare bill to replace Obamacare was called off after an initial postponement from Thursday to Friday before calling it off on Friday. The real hurdle should have been the bill presenting to the senate but the GOP had already failed to garner enough votes in the initial stage.
  • Further normalisation talks with the Bundesbank’s Jens Weidmann.
  • French voting expectations remains unchanged. Emmanuel Macron came out top in the presidential debate between all five candidates.
  • Reserve Bank of New Zealand unchanged and remains neutral. KVP bias long AUDNZD on diverging policy stance.

COT report: March 21 (Post FOMC)

  • USD 11% increase in positioning
  • Euro shorts reduced by 20%
  • AUD longs increased +16% despite Federal Reserve rate hike.
  • NZD positioning at one-year low after Federal Open Market Committee meeting
  • Little changes to GBP and JPY positioning post FOMC
  • CAD positioning saw a sharp reversal. Turned from net long to short on oil liquidation
  • Fourth consecutive week of outflow from WTI
  • In the commodities COT report, sugar and soybean oil poisonings at one-year low while natural gas and palladium at one-year high

The week ahead

  • Key focus: US healthcare bill fail = reflationary thesis fail? Triggering of Article 50 by month end.
  • Central banks: BoT 1.5% e/p (29) SARB + 7.00% e/p (3) MX +6.5 + 6.25%p (23)
  • Fed Speakers: Evans (27/28) Kaplan (27/28/30) George (28) Yellen (28) Powell (28) Kashkari (31)
  • Other: Take note of daylight savings shift for Europe. Russia central bank governor Nabiillina (28) Poloz (28)
  • Economy data: CH: Manf. PMI 51.6e/p, Services PMI 54.2p US: Final Q4 GDP +2.0%e +1.9%p, Personal Spending/Income, UoM survey JP: Mins (21), TB, Flash PMIs EZ: Private Loans, German RS, RZ Flash CPI UK : House Data, Final Q4 GDP +2.0% ep/p, Money Supply AU : Private Credit NZ: light

Positioning and thinking

  • What are the chances that Trump & Co could (will) not get the healthcare bill passed; what chances they have for other bills. Doubts on the Trump reflationary trade.
  • KVP sees the need to correct as market went up too much but isn’t sure if the market can correct more than 5-10% as 1) too much money on the side lines, 2) people who failed to get into the market previously will take their chances.
  • Would use IYF, the US financials ETF to play the on higher interest rate theme.
  • Caveat: You cannot argue with that hard data and inflation has been picking up. Nothing to do with Trump and politics.
  • Strong economic bounce back in Europe and China.
  • Article 50: Should be triggered by Wednesday formally but long and painful process/negotiation.
  • Positioning wise: KVP positive on the euro and precious metals post the Fed hike. Gold hit $1250 and silver on the way to $18.00.
  • Q2 2017 teaser : KVP thinks EURUSD will go from these 1.08 levels to 1.10 – 1.12 range by End June 17.  Assumes Fed keeps hiking and no surprise on the French election with a Macron win.

Technical picture from Edmund Liu

  • DXY: H&S pattern being challenged. First weekly close below 100 for a long time. A second weekly close may open up a bear case.
  • EURUSD: Pair was resisted by 1.0830 but was breached this morning. Stochastics however does suggest that buy side momentum is overextended. A close above 1.0830 today to open up the EURUSD bull case this week.
  • AUDUSD: Resisted the 77 handle last week. Currently at the 23.6 retracement of the up move this year. Next support would be at 0.7525.
  • Coffee: Recommended a buy trade last week. Turns out short lived as rally was swiftly sold off towards the end of the week.
  • Oil: Consolidating in a triangle at $48. Break below 47.5 to open up the bear case for crude.
  • Gold: Stochastics suggest that rally in March is overextended. Gold also broke the 2016 trend line resistance. A close above the SMA 200 at 1258.5 would trigger a bullish signal.
  • CAC: Consolidating within the rising wedge. Break above 5050 to determine bullish while a failure to find support at 5000 could open the bear scenario.
  • Dax: Three-month old rising wedge pattern broke down last week but back to rest the initial breakout level. Above 12,200 would indicate further upside while break below 12,100 would suggest further downside.
  • S&P: Similar to the Dax and CAC. Forming a symmetrical triangle, which suggests a continuation of the uptrend once we break the upper resistance.

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 UK Prime Minister Theresa May will be triggering Article 50 this Wednesday. Photo: Shutterstock

KVP Global Macro Books 2017: Update and comments  
 
  • Strategic Book: One new position, risking 0.50% for a short USDBRL clip, at 3.1080, stop 3.2300. Targeting 3.0100 and 2.9100

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Tactical Book: Four new tactical positions, risking combined 1.50%. Long EURUSD, Short Dax, long silver and long WTI (NYMEX). Quite a few clients may already have these on, as KVP has been talking about them since post the Fed hike on March 15.


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 – Edited by Gayle Bryant

Here is this morning's recording of this week's Macro Monday call.

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], 1030 [Sydney].  

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