Macro Monday: North Korea and Irma aftermath — #SaxoStrats
- Fischer the hawk resigns - key to adjusting hawkish views
- BoC surprise hike to 1.00% - will door be open for more?
- Harvey and Irma - the biggest cost from natural disasters in years
By Kay Van-Petersen
TGIM and Happy Macro Monday. Welcome to week 37: North Korea Scenarios and Irma aftermath...
So for those that joined the call or heard the replay, you know we are doing a bit of a different set up today and next week. Nice to shake it up now and then.
This week’s MM does not have any charts, as we wanted to spend time on the pivotal week that we just finished – serious implications on monetary policy / market expectations – as well as scenarios and positioning around North Korea… which actually ended up having a quiet weekend with a party launch rather than a missile launch.
- Pivotal week on the global macro and geopolitical front – with potential key structural implications over next six to eighteen months
- ECB: Draghi fairly relaxed on EUR strength which only opens up EURUSD for 1.23/1.25
- US Debt ceiling pushed back 3months, as Trump brokers a deal with the democrats
- Bank of Canada: The sum of all central banks. BoC surprise hike to 1.00% and very upbeat statement potentially leaving the doors open for more
- Irma makes landfall: Significant damages expected.
- Mixed week overall for more assets, EQ mainly down, FI tighter, CMD mixed & vol back up for the wk, with VIX back to 12.12 +14.45
- USD: The market increased net short on the USD to USD 15.3bn, a +6% increase
- EUR: Net longs in Euro continues to lift by +11% again to new rec. highs
- Commodities: HF increased bullish bets across 24 US traded CMD futures by 10%
- Grain traders continued to sell both corn and wheat ahead of the Sep WASDE report due this coming Tues
- Silver catching up to gold in positioning.
- Cotton jumped 72% on Irma/Harvey.
- Key Focus: Hurricane Irma Aftermath, CPI, BoE
- Central Banks: SNB -0.75%e/p (14) BoE 0.25%e/p (14) TU 8.00%e/p (14) CL 8.00%e/p (15) TU 8.50%e 9.00%p (15)
- Fed Speakers: None
- Other: Bundesbank’s Weidman (14)
- Economy: US: JOLTS, PPI, CPI 1.8%e 1.7%p CORE 1.6%e 1.7%p, Empire Mnf., RS, Cap. Util. CH: New Loans, Money Supply, IP, FAI, RS EZ: IP, TB & CPI from GER 1.8%e & FR 0.9%e JP: Tertiary, Machine orders, PPI UK: CPI +2.8%e +2.6%p CORE 2.5%e 2.4%p, Jobs Data AU: Jobs data NZ: Biz Mnf Index
Thoughts and positioning
- Federal Reserve construction: Fischer the hawk resigns. Key to adjusting hawkish views. Who will replace Yellen? She won’t stay.
- Euro Airspace Cleared: perplexing ECB to begin QE tapering given benign inflation. How does EURO complicate this?
- Positioning: Structurally, the favourite play we have is on the silver and gold miners or ETF such as SIL and GDX
- Hurricane Irma: With headline estimates of over $200bn of damages from Irma alone, on top of $150-180bn on Hurricane Harvey, we could be getting the biggest cost from natural disasters in recent modern history.
North Korea Scenarios: Cheat Sheet Attached.
3 main scenarios:
1: Nuclear conflict: Tail risk.
2: Peaceful Resolution: Tail risk
3: Muddle through status quo: Base case.
Technical Picture: None this week, back next week.
Macro Monday Portfolios, Strategic Book & Tactical Book: KVP
Stops on long USD plays: USDCHF and USDSGD.
Three close outs reflecting change in ECB view: EURRUB, EURJPY and DAX longs, as concern on EUR being cleared for further altitude
Short bunds first target met and removed.