Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 05 February 2018 at 2:37 GMT

Macro Monday: Volatility, Nonfarm, Healthcare? Smash!! — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub


  • Did Donald Trump call top of the market? Around $8 trillion in wealth created
  • Still like structural duration shorts in the US and Eurozone
  • Still feel USDJPY has not finished move lower, although may hit ¥110  
  • A 5-10% drop from highs in the SPX, would put us in the 2728/2585 range

By Kay Van-Petersen

Previous week's highlights and takeaways
  • US: Nothing too ground breaking from Donald Trump, $1.5trn headline for infrastructure fund. Bullish on arms, defence and aerospace, bearish on drugs and healthcare. Did he call the top of the market? Around $8 trilloin in wealth created in stocks.
  • Nonfarm data was big number at +200,000 against 180,000. Yet all that we can see is CPI - 2.9% against 2.6%. 
  • Fed: Pretty much copy and paste, as we expected
  • Fixed income: 2.84% is big boy and big girl levels, four-year highs
  • Forex: Mixed picture, yet general USD strength. Big sell-off in Aussie especially against the Kiwi
  • Commodities: Generally offered across the board, including gold and silver. The fact that Sugar, Corn, Wheat & Live Cattle were up – suggests some investigation (fundamentals/dislocations)
  • Equities: Everyone had been focused on this being the longest stretch without a pullback of -5% for the S&P, is the 2730 level possible given recent 2872 high? MM thinks so, given level of US 10 year Treasury notes, profit taking (Jan), mixed tech and energy, plus healthcare shake up: JPM-AMZN-BRK 
  • Biggest one-day S&P pullback in two years…
  • E-WK 4, % YTD [US 10s at 2.6599]
  • S&P+7.5%, NAS+9.8% NKY +4.1% DAX+3.3% EEM+10.5% MIB+9.2% HSI+10.8% AR +16.9%
  • E-WK 5, % YTD [US 10s at 2.8411]
  • S&P+3.2%, NAS+4.9% NKY +1.3% DAX-1.0% EEM+4.1% MIB+6.2% HSI+9.0% AR +8.5%
  • Volatility: Big leap of +56% on VIX to 17.31 (11.08) – looks like our call for picking up protection flagged over the last two to three weeks has played out well .

COT report
  • Forex: The non-commercial dollar short against nine IMM currency futures stood at -$17.2bn, a 21% increase in USD net shorts. At this rate, we’ll soon take out the record short levels in Septmber, where USD shorts were in the low 20s of billions of USD. For now, we are at a 16 week high on USD shorts… 
  • Commodities: The net-short in sugar extended to a record as the market continued to struggle amid rising supplies. Despite continued fund-selling, sugar managed to hold above 13 cents/lb support and a break above 13.75 cents could now force some short-covering .

 A newly announced partnership between Amazon, Berkshire Hathaway and JPMorgan could send ripples across the US healthcare system. Photo: Shutterstock

The week ahead
  • Key focus: Selloff, RBA|RBNZ announcements, eight Fed officials speak, and another possible US shutdown.
  • Central Banks (Singapore time): RBA +1.50%e/p (February 6) RBI 6.00%e/p (February 7) BZ 6.75%e 7.00%p (February 8) RBNZ 1.75%e.p (8) PH 3.00%e.p (February 8) UK 0.50%e.p (8) MX 7.50%e 7.25%p (February 9) RU 7.50%e 7.75%p (February 9) .
  • Fed Speakers (SGT): Bullard (6) Kaplan (7) Dudley (7) Evans (7) Williams (8) Harker (8) Kashkari (8) George (9) .
  • Other (SGT): NZ bank holiday (February 6), Mario Draghi (February 6), Weidmann (February 6), Lowe (February 8), Spencer (February 8).
Economic data
  • US: ISM non-manufacturing 56.5e 55.9p, PMI Serv. 53.3e/p, JOLTS, Inv
  • China: TB, CPI 1.5%e 1.8%p, PPI 4.3%e 4.9%p
  • Eurozone: Service PMI 57.6e/p, RS
  • Japan: Leading indicators
  • UK: Services PMI 54.1e 54.2p, BoE Inflation Report, mfg. +0.3%e +0.4%p, IP
  • NZ: Global dairy auction 4.9%p, Jobs Data
  • Australia: RS, TB, RBA Quarterly Monetary Policy Statement (February 9).

Thoughts on market positioning and sentiment

  • Volatility and further downside: Looks like our original idea of picking up protection when volatility was cheap two to three weeks back would have paid off handsomely both from movement in equity prices and the jump in volatility, both of which would have increased the value of the OTM Puts we flagged
  • RBA 1.50%e/p: CPI missed last week, yet just a touch at 1.9%a 2.0%e 1.8%p, nowhere near as bad as NZ miss two weeks back (1.6%a 1.9%e 1.9%p). Same time latest building approvals miss spooked a few hands out there -20%a vs. -7.6%e. Market only pricing in a 40% chance of a hike by E-2018
  • RBNZ 1.75%e/p: Again similar odds, market only pricing in a 42% chance of a +25 bais point  hike by end of the year, this despite softer CPI in NZ and generally worse economic data than Australia
  • Central Bank Divergence: Again worth noting in a world where rate expectations tick up every day (i.e. MX to hike by +25bp this week), we are seeing people expecting further cuts out of Brazil and Russia
  • US Healthcare (Peter Garnry): Amazon, Berkshire, JPMorgan (+$1.6trn market cap, +1m employees) announce healthcare partnership, with potential consequences of sending ripples that shake up the US healthcare system – that is very much rigged against the consumer (ie from a % of GDP spend on healthcare, US is twice that of the next most inefficient healthcare system). Here are a few links to Peter’s thoughts on this: 
Please see the following for more detail: 

  • USD and USDJPY: Last few weeks we’ve talked about how the last bastion of the USD bulls, the weakest hand left on the table… is USDJPY. Yet on a risk-off move, we actually got DollarYen moving higher not lower. 
  • One week does not make a trend, yet reading here is potentially the risk-off is not brutal enough for traditional flight to safety on yen, with higher US yields being in the driving seat for DollarYen moving up – for now. If we get to a case where we may be seeing -5% to -10% or more in the S&P in a week, then rising yields may get curbed and USD longs in this cross would get squeezed out.
  • Worth noting again that manufacturing activity is at a four year high in Japan potentially cementing the runaway for an eighth consecutive quarter of growth, ie once again reinforcing KVP’s thesis, that in the near-term, the Bank of Japan has very little pressure for more QE. And Japan's QT equals Harakiri (that is, suicide)
  • Positioning: Still like structural duration shorts in the US and Eurozone, still like spread trades: Long UST against short bunds, Long EZ periphs against short EZ Core (think this is potentially great structural positive carry trade). Overall these have done very well, including protection that we have flagged from the first MM out the gates for 2018
  • Still feel DollarYen has not finished its move lower, albeit pop back over ¥110 is constructive for DollarYen longs – still feel we will make a run for 105 at some point & break to new 1 year lows past the ¥107.84 levels since in September 2017. Like 1.0850 AUDNZD longs, yet these levels have to hold… a break below 1.0840 (sub 200 D and previous support levels) could open up for further correction

Technical outlook 

  • SPX: A -5% to -10% from highs, would put us in the 2728/2585 range from these 2762.13. Very likely to break through the first… broke 20 DMA of 2802. 100D & 200D at 2632 and 2532. From a structural vertical support line, bulls are still in the clear unless 2600 gets broken 
  • Healthcare Theme: Few potential spread trades, being short US Healthcare ETF such as IYH against long US Fin ETF (IYF) or Global Health Care ETF (IXJ)
  • US10s: Significance of this 2.85% level over the 10 year cycle, we are above 2.41% median level of the cycle, low is 1.36% (Jul 2016) and high is 4.26% (June 2008)
  • Bunds: At 0.765 still below the median 10 year weekly cycle level of 1.627. Low in the cycle has been around -20bp (Jul 2016) on a weekly close, high being 4.64 (June 2008)

For more on forex, click here.

For this week's recording of 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].
fxtime fxtime
NFP data sadly doesn't truly reflect the economics of employed consumers the 1950's the average USA employee absorbed 7% of gross wages for healthcare and currently it is 20%.....more fully employed payroll capacity will still fall below true spending power. Economic debt cycles are peaking not unsurprisingly USA employees rely on their credit card to pay for their staple food/fuel requirements. Warren Buffet et al have a chance to scale back healthcare costs but there seems too many embedded cross party interferences/loyalties with assorted pharma corps to allow an easy passage and disruptive business development to occur swiftly. SMe and their respective employees need some assistance IMHO from Buffet et al.
Kay Van-Petersen Kay Van-Petersen
fxtime, thx for the thoughts. Could not agree more... to be honest... I would have been more thrilled it it was Amazon, Tesla & other tech companies... rather than some of the old guards who no doubt would have more vested ties with current structures...


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