Article / 03 October 2016 at 5:19 GMT

Macro Monday: Q4 to focus on US politics and Eurozone risk

Global Macro Strategist [Asia based] / Saxo Bank
  • Central themes are US presidential elections and European banking sector concerns 
  • 60% implied probability of US Fed hike in December is optimistic
  • PMI-heavy week; most important are ISM manufacturing and non-farm payrolls
  • Key risks are yield reversal and fallout from European banking 
  • We favour USD shorts and longs in AUD, NZD, INR, RUB, IDR
  • Expect AUD to continue its ascension post-RBA tomorrow
  • Short dollar Mexico theme could play out in a big way towards year end/2017

By Kay Van-Petersen

Welcome to Macro Monday, your cross asset weekly call on global markets.

For a replay of this morning’s call please click here.

For week 40:

For the next few weeks, if not most of Q4, the two central themes will be US presidential elections and the banking sector concerns in Europe. The former at least has a finite time line and will soon come to a close, in about 5-6 weeks. The latter is a lot more dynamic and could continue to play out into 2017, if it's not addressed sooner or later.

 The US vice-presidential debate is coming up on October 4, and the second presidential debate is on October 9. Photo: iStock

I think about 60% implied probability of a US Federal Reserve hike in December is optimistic, way too early to know now and we have a lot of things that need to play out first – and these are the known unknowns. 

This week we have RBA and RBI, where the market is expecting no delta in rate decisions. We will have Mario Draghi and Graeme Wheeler speaking, along with about five Fed speakers over the week.

Being the first week of the month, its PMI heavy across the board: most important will be the US, to see if ISM manufacturing gets back over 50.0, after last month’s big miss and 49.4p print, and of course Friday’s US non-farm payrolls, 174,000 e and 151p (August is known for big upward revisions). 

Key risks as always are yield reversal as well as fall-out – accelerated negative spiral – from European banking sector concerns. Once again Draghi may be called to the podium, where a solution will be needed to blanket all concerns as opposed to a focused fix on one entity.

Thoughts on near-term tactical positioning:

Main tactical thesis unchanged BUT banking sector in the Eurozone and presidential debate to set much of the risk-on/risk-off tone over the next few weeks, making the tactical risk-on positioning that much more challenging to hold. I would use any big rallies in the STXE 600 (EZ financials) to buy some puts for downside protection, as well as to put on tactical euro shorts for risk-off moves. The rest of my positioning views you know.

We favour USD shorts and longs in AUD, NZD, INR, RUB, IDR (think EM yield/ CMD yield). Still think the market is overly pessimistic on kiwi and a little too aggressive on a November 10 rate cut expectation (80% implied probability – way too high). Would expect AUD to continue its ascension, post the RBA wash tomorrow. 

Lastly, the short dollar Mexico theme, similar to what we saw with BRL and Brazil, could play out in a big way towards year end/2017 – this is more of a strategic play that deserves a deep dive and a lot of work. What's the best exposure for getting long Mexican assets once one feels that we’ve reached maximum bearishness of a potential Trump presidency? Is it outright short USDMXN, long MXN govies, short the CDS, long the equities, a combo? Etc ...

On CMDs, we favour the precious metals, silver price action is still better than gold and sentiment in WTI is still constructive. Gold and silver did poorly last week as they seemed to have gone back to moving inversely to a stronger USD, but I don’t expect this to hold. Watch out for the miners (best exposure) as they will be reporting soon.

FI yields starting to come in, good for risk. With that said, I don’t expect 10-year JGBs to go back to making new lows if the communication from the BoJ is anything to go by.

EQ: still think the US is best risk/reward for a long EQ bias.

COT Report highlights:

FX: Continued increase USD positioning, by +31% (+14%p) from 9.7bn to 12.4bn. Sterling shorts put back on post the decrease from previous week, +49%to c. -88K lots. Big reversal in CAD from +16K lots to c. -12K lots, also from long Swiss francs to neutral plus big addition to Aussie longs c. +120% increase to +15K lots (well south of 1yh highs of c. +60K). Small reduction in MXN shorts, still very elevated (Last week’s short USDMXN call was spot on) .

CMD: Increased HF exposure in the commodities space, with grains seeing bearish bets vs. bullish bets across the other spaces

Coffee and nautural gas once again continued to make new record 1-year highs (still love the coffee chart, Q4 could finally see the rocket ship take off). 

Gold saw an increase of one fifth in net-long positioning, while the copper shorts came back on with over a doubling on bearish bets.

Big positioning moves also happening in soybean meal, cocoa and cattle futures.

  • Econ: CH: PMI manf. 50.4a 50.5e & serv. 53.7a, 53.5p US: ISM manufacturing 50.4e 49.4p, non-manufacturing 53.1e 51.4p, Inv., Factory Orders, Non-farm payrolls +174ke +151kp JP: PMI 50.3 
  • EZ: Manufacturing PMI 52.6e Serv. 52.1e German factory orders m/m +30bp e UK: PMI 52.1e Serv. 52.1e CA AU: Build Apr., RS, Trade Balance NZ: GDT Price Index
  • Central Banks: RBA 1.50%e/p (4), RBI 4.00%e/p (4), IMF/World Bank Mtgs 
  • Fed Speakers: Kashkari (5), Lacker (5), Fischer (7), George (7), Brainard (7)
  • Speakers: Wheeler (4), Draghi (9)
  • Other: US VP presidential debate (Oct 4)

Q4 key dates/events
  • Fed, ECB and BoJ dates: Fed Nov 2 and Dec 14, ECB Oct 20 and Dec 8, BoJ Nov 1 and Dec 20
  • US election dates: October 4 (VP debate), October 9 second presidential debate, October 19 final presidential debate, November 8 US elections
  • Italian constitutional referendum finally set for December 4
  • European banking sector
  • JK on the charts running through a number of names across the different asset classes.
  • EL walks us through the technical trade views of the week, looking to sell AUDNZD and buy USDNOK

The technical picture

  • USD: Continues to flirt above its key support channel trend line, with declining momentum. 
  • EUR: Still above its 200 DMA and sandwiched below its declining trend line. 
  • GBP: Bearish development, break below post-Brexit trend line. 
  • AUD: Strong week, needs to break last week’s trend line high 0.7754 key level to break. A break here would indicate a move to 0.7862, then 0.8017. 
  • AUDNZD: Consolidating above the trend line break-out. 
  • USDJPY: Threatening to break the descending triangle formation. RSI and price action diverging still. 
  • Nikkei: Need to clear 200 DMA then the trend line towards 17,000, then has a lot of work to do with the 17,500 level a big one. 
  • Hang Seng: Needs to clear 23600 level to break high, remains in consolidation mode 
  • S&P: Stuck in a consolidating triangle, with topside break out more likely than downside. 
  • ASX: Breaks higher mid last week, with a bullish close on Friday. 
  • WTI: Break above resistance trend line approaching 2016 highs. 
  • Copper: Pull back finds good support. Approaching the retracement level at 222.69 as resistance line. 
  • Gold: Closes on long term trend line, approaching 1310 and 1300 as pivotal support lines. Break below this trend line would be a significant break.

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

-- Edited by Susan McDonald

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


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail