Article / 19 September 2016 at 4:47 GMT

Macro Monday: It's all about the BoJ

Global Macro Strategist [Asia based] / Saxo Bank
  • There are a number of central bank meetings and speakers this week
  • While the Fed usually takes centre stage, what the BoJ does will be key
  • On near-term positioning, we favour USD shorts and longs in AUD, NZD, EUR, GBP 
  • With commodities, we like precious metals; silver price action is better than gold

By Kay Van-Petersen

Welcome to Macro Monday, your cross-asset weekly call on global markets. For a replay of the call please click here.

For week 38 we take a look at the following:

  • The high impact week ahead, full of central bank meetings and speakers
  • While the Federal Reserve always takes centre stage, it’s really all about the Bank of Japan – as what it does or does not do could have a further impact on how G3 yields have been acting of late – higher lows in yields (lower lows in bond prices)
  • We take a look at scenarios including a surprise Fed hike or Reserve Bank of New Zealand cut. As well as what could potentially come out of the BoJ
  • I am still losing sleep over what could be driving G3 yields out and whether it’s a hiccup or structural inflection point. On the one hand, yes it looks like QE/monetary policy is past fatigue in the courts of the European Central Bank and BoJ. At the same time, a Trump win would most likely push out US yields – as the fear of fiscal spending, i.e. more debt being an issue for the market. At the same time, the graveyards of those that have tried to call the bottom of the biggest bond market in the history of the markets stretches from horizon to horizon. For now, I still think the long-term yield compression trade is unchanged – let's see how we are looking on the other side of the Fed and BoJ.

 In the spotlight .. the Fed generally takes centre stage but the Bank of Japan
will be joining it this week. Photo: iStock

Thoughts on near-term tactical positioning

  • Lots of event risk, with that said we favour USD shorts and longs in AUD, NZD, EUR, GBP – may not want to hold these over BoJ/Fed decisions. 
  • On commodities, we favour the precious metals, silver price action better than gold and think WTI is interesting towards the lower end of the trading range and with Opec next wk. 
  • Fixed interest is a little tougher, but I still think US10s are wide here. 
  • Equities: loving US price action, I’d be Eminis heavy – the positive price action from the Nasdaq100 – market leader – of +3% last week on key volume is very bullish (biggest weekly volume since Mid Mar). 
  • VIX lower, unless we get a surprise Fed hike, then it's strap up on your seatbelts and get into the tank. 

COT report highlights

  • FX: Reversal of last week’s large increase in USD longs, as we had a minus 16 reduction this week in USD positioning – historically though this is neither here nor there. No record positioning, yet sterling and Mexican peso shorts still very elevated. Reductions seen in the commodity currencies, CAD, AUD, NZD. People still neutral on the Swiss franc. And we had a tad of an increase in yen longs.
  • Commodities: +15% increase in hedge fund money in the space, primarily driven by increased longs in energy. We saw our first sizeable reduction in precious metals, particularly platinum which saw a 1/5 reduction in longs.
  • Coffee and natural gas continue to make new one-year highs in positions – weekly coffee chart is looking tantalising, is that a cup and handle? 
  • Corn and wheat saw first meaningful reduction that I’ve seen in a while. Are the shorts finally done feasting? Wheat once again is trying to consolidate around the 400.
  • Economy: Not too heavy, some flash PMIs in the US, JP and EZ
  • Central banks: RBA minutes (20), BoJ minus 0.10%p (21), Fed up 0.50% e/p (21), RBNZ up 2.00% e/p (22), ID 5.00%e 5.25%p (22), PH up 2.50% e/p (22), TU up 7.50% e/p (22), NO up 0.50% e/p (22), SA 7.0% e/p (22)
  • Federal Reserve speakers: Philly Fed Conference (23: Harker, Mester, Lockhart), Kaplan (23)
  • Speakers: Poloz (20), Draghi (22), RBA’s Lowe (22), Bundesbank’s Weidmann (23), BoE’s Carney (23), Riksbank’s Ingves (23)
  • Other: Japan holidays (19/22), UN Assembly in New York starts off with a focus on refugees and migrants

Technical picture

James Kim on the charts running through a number of names across the different asset classes. This week is especially interesting as a lot of names are sitting above/below key 200D MA as well as other support/resistance levels.

  • USD: DXY, strong close at its 200 DMA after building a solid base at lower channel trend line. 96.78 next target higher
  • EUR: trading at strong support levels at 200 DMA at 1.1145. Break below opens up 1.1086 then 1.1020
  • GBP: Broke through its recent uptrend, needs to hold post Brexit trend lines at 1.2970, look to sell rallies at 1.3202
  • AUD: low holds above support level and see opportunity from the long side between 0.7410 down to 0.7380, stop below 0.7370
  • AUDNZD: Descending wedge development underway, RSI showing bottoming formation, potential long opportunities up to limit 1.0356. Target 1.0555.
  • USDJPY: Still within its longer term channel and needs to break this for a change in direction
  • Nikkei: Trend line support broken and sets up deeper retracement risks, with support at 16080, then 15,800
  • Hang Seng: Gives up ground and we expect to go into consolidation mode
  • S&P: Still sits on key support as it did last week. See continued upside risks up to 2170 where we enter a sell zone. A break of last week’s lows sets up a much deeper correction
  • ASX: Found some support last week, 5360 to 5380 will become attractive levels for selling
  • Crude: Sits on trend line support a break of which would then test 41.53 support
  • Copper: Rips higher through 200 DMA and we see it running into key resistance here and potentially retrace down towards the 200 DMA
  • Gold: Looking to test lower trend line from Dec 2015 to 1300. Needs to hold here otherwise opens up move to 200 weekly MA at 1280.

Here is this morning’s recording of this week’s Macro Monday Call.

– Edited by Gayle Bryant

Kay Van Petersen is Global Macro Strategist at Saxo Bank. You can follow him on Twitter: @SaxoStrats, @KVP_Macro. Please join us live again next Monday at: 0830 [SG/HK], 0930 [TOK], 1030 [SYD].


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