China's trade data posted overnight showed scant evidence of the Sino-US trade war with exports steady and imports on the rise. It is likely too early for the US tariffs to skew the data much yet, however, and another drop in Chinese equities shows that the situation is far from resolved.
Article / 23 October 2017 at 2:49 GMT

Macro Monday: It's a bull by any other name — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub
  • Structural risks are to the upside - big reduction in USD shorts
  • Spanish government looks to be liqudating Catalonia leader
  • China GDP coming in pretty strong at close to 7%
  • China’s PPI continues to surprise to the upside

By Kay Van-Petersen

Key takeaways

 We just saw our biggest reduction in USD shorts this year, a Warsh Fed Chair Confirmation could spur a USD squeeze.

  • Structurally risks are to the upside on US monetary policy regardless of the Fed Chair and initial knee-jerk reaction
  •  All about Draghi on Thursday, how much is priced in? Will he disappoint in his pivot towards QT/ less QE? Hard to say yet we see a H&S formation in EURUSD
  • We like USD longs, Euro shorts (1.181 stop, 1.17/1.1670 is key level to break with end of H&S extension being 1.1250), DXY breaking 94 should see 97 extension
  • ASX key levels with 6,000 in sight, breaking that would take us to levels not seen since 2007/2008. Gold tactically short, potential to sub 1250 from these 1275
  • US10 years at circa 2.40% is very key, a break on this could see blood in the US bond market, as well as USDJPY getting to 115/116 levels from these 114 levels

Summary of prior week

  • Spanish government liquidating Catalonia leader
  •  Inflation beat in NZ 1.9%a 1.8%e & whilst the UK saw in-line 3.0% e/p CORE 2.7%e/p
  • NAFTA talks continue, push timeline into 2018.
  • China GDP came in at +6.8%e/p, that’s around 60% of Australia’s total GDP being created every year
  • EQ: US EQ Bull market dude, Nas100 now +26% YTD with S&P with trailing at +15%
  • FI: Coming back for 2.40%, will it break?
  • Commodities: Apart from oil, copper predominantly on back foot
  • Forex: Early days yet solid week on USD, driven JPY weakness -1.50% against EUR -0.31%. Key remains 1.17 on EURUSD
  • Volatility: touch higher, watch MOVE (bond vol), if US10s break 2.40%, this could rip

 Gather ye round: The market is beginning to look like what it is - a bull. Photo: Shutterstock

COT report

  •  FX: First sizable pullback in USD shorts in weeks, -16% Pullback in USD shorts to around  $15bn
  •  EUR and CAD net longs a touch softer at 91K (98k) & 75K (76K)
  • Big pullback of around -70% in GBP Net Longs, still Net long by c. 5K (16K)
  • Commodities: No significant change in Gold and Silver net positioning
  • Energy contracts cont. to be positioned on extremes, key delta is still on NatGas & WTI Crude (CME)
  • Coffee making new 1 year record net short positioning

The week ahead
  • Key Focus: ECB Thu, 3Q US GDP, Flash PMIs, Fed Chair Final Countdown
  • Central Banks:  BoC 1.00%e/p (25) Selic 7.50%e 8.25%p (26) NO 0.50%e/p (26) TU 8.00%e/p (26) ECB -0.40%e/p (26) RU 8.25%e/p (27)
  • Fed Speakers:  None scheduled
  • Other: Poloz/Wilkins (25, 23:15)  ECB Press Conference (26, 20:30) Bundesbank’s Weidmann (27, 19:00)
  • Eco: US: Mnf. 53.5e 53.1p, Serv. 55.2e 55.3p, Durable Goods, New Home Sales, 3Q GDP 2.5%e 3.1%p, UoM CH: Property Prices, IP EZ: Consumer Conf., Money Supply, Mnf. 57.8e 58.1p, Serv. 55.6e 55.8p JP: PMI 52.9p CPI +1.7%e/p UK: GDP +1.5%e/p, House Prices NZ: Trade Data AU: CPI 2.0%e 1.9%p

Thoughts on positioning

Fed Chair, Global Interest Rates and Inflation: We are at 12-13 yearr highs on US ISMs, jobs market is white hot and at levels not seen in close to 20 years.

Global growth is robust to accelerating, all this is pre-fiscal stimulus which has a very high probability of being delivered before 2018 mid-terms.

Risks is to the upside for a tighter US monetary policy (2018 story). Long duration rather than USD.

Don’t feel this market is ready for US10s to spike to say 3.0% by year end , 2.4% very key level to watch.

ECB: So it should be a consensus that Draghi is expected to outline pivot towards QT/ less QE. Question is, how much of this is priced in, does he disappoint or over deliver?

Positioning: Not much changed over last two to three weeks in regards to USD, gold/silver, commodities – need that DXY to get over 94 or breakdown sub 92.70ish. Earnings likely to keep US EQ lifted


DXY: Encouraging week for USD. Supported at 200 WMA. Clear bottoming out signals. Inverse H&S in development. Key level is 94.00 to break the neckline. Target then would be 94.7, then final target 96.8. Pending break of neckline at 94.

EURUSD: Formed its final right shoulder in H&S pattern. Neckline at 1.1670 with 1.1250 the end target on break of this neckline. Negative unless 1.1881 breaks.

USDCHF: Closed above 200 DMA. Reaffirms bullish view. Long at market price, support at 0.9771 target 0.9880 initially then 1.0080 final.

AUDUSD: Consolidating. Still positive on AUD but cautious. Needs 0.7730 to hold. 0.7845 the topside resistance.

US 10 years: failed at 200 DMA, now fourth attempt at the base at 1242-26. Expect it to break this time.

USDJPY: gaps higher on election. Focus on challenging 114.36 double top. 200 WMA support.

Nikkei 225: approaching 2007-2015 trend line. Is in overbought territory but supported by weak JPY story.

ASX: outperforms global indices. Targets 5950, then 6000. Looking at levels not seen since 2008.

XAU: breaking base looking to retest gold to its 200 DMA at 1258.

KVP portfolio

Tactical Book: unchanged

Strategic Book: Profit taking as we close our second core leg of the Short Jan 2019 Fed Fund Futures Trade at 98.28, adding +85bp to the port.

We’d potentially look to put this back on, on any knee jerk risk off at around the 98.40ish levels.


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


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