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 / 26 March 2018 at 3:13 GMT

Macro Monday, Week 13 — When I'm bullish, I am long #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub
  • Many observers expected FOMC chair Jerome Powell to be much more hawkish
  • Donald Trump's plan to slap hefty tariffs on China has had a global impact
  • Is this a negotiating ploy from Trump, or a bid to appeal to his supporters at home?
  • The next two weeks will be uncertain, with Trump giving exemptions to many nations
  • There are still hopes for reconciliation between Beijing and Washington on trade

By Kay Van-Petersen

Summary of the prior week
  • Donald Trump trumps the Federal Open Market Committee: Market quickly moves from a FOMC that seemed to dovish given levels in the market, to the risk-off fear on Trump's $60bn worth of Chinese imports that will be hit with tariffs.
  • Bank of England: potentially signaling that May is a go on a hike, as not push back on market.
  • Russia and Brazil: Each cut by 25 basis points as expected; they are the outliers in a world where central bankers are getting more hawkish.
  • Fixed income: Yields tighter for the week given risk off, gilts outlier.
  • Forex: DXY weaker as the euro and yen gained on risk-off sentiment.
  • Commodities: Oil has a great week on risk-off, as tailwinds behind a potentially tougher stance on Iran by the US trumps the risk-off headwinds. Gold has a big pop at +2.9% for the week, still outperforming silver which followed at +1.9%
  • Equities: Blood on the streets, more alarmingly the tech sector looking very wobbly indeed. Watch Amazon -4.8%, Netflix -5.5%. Still Drop box IPO debut saw it close +36%
  • Vol: +57% on the week with the VIX leaping to c. 25 levels. Average 2017 VIX was 11.11. VIX weekly closes in 2018: January: 9.22, 10.16, 11.27, 11.08; February: 17.31, 29.06, 19.46, 16.49; March: 19.59, 14.64, 15.80, 24.87


The COT report

  • Forex: USD short speculation jumps 50%, largely driven by JPY short covering. EUR profit taking sees positioning decrease.
  • Commodities: Net Long increase in WTI and Brent. Copper longs cut 28%. Silver short rose.


Trade war or talk ... Comments from Treasury Secretary Steven Mnuchin have led to hopes that Trump's threat of slapping hefty tariffs on China may be just a negotiating ploy. Photo: Shutterstock

The week ahead

  • Key focus: Trade war worries, further China response, and US PCE.
  • Central banks (Singapore dates and times): BoT 1.50%e/p (March 28), BoT 6.50%e 6.75% p (March 28)
  • Fed Speakers (Singapore dates and times): William Dudley (March 27), Loretta J. Mester (March 27), Fed Vice Chairman supervision chief Randal Quarles (March 27), Atlanta Fed president Raphael Bosti (March 27 to 29) and Philadelphia Fed president Patrick Harker (March 30).
  • Key theme to watch out for: is the Federal Reserve getting the market ready for three more hikes in 2018?
  • Other (SGT): Daylight Savings tiime shifts in Europe over the weekend, Bundesbank president Jens Weidman (1730 Singapore time, on March 26) RBNZ’s Adrian Orr takes over as governor (March 27) .
  • Good Friday is a holiday in many markets (March 30).
Economic data
  • US: FQ4 GDP 2.7%e 2.5%p, Personal Cons. 3.8%e/p, PCE Core 1.6%e 1.5%p, Personal spending and income, Chicago PMI, University of Michigan survey results.
  • China: PMI manufacturing 50.3p Services 54.4p (Saturday March 31)
  • Eurozone: M3 Supply, private loans, confidence surveys .
  • Japan: RS, Tokyo CPI.
  • UK: CPI 2.8%e 3.0%p, Jobs data, RS .
  • New Zealand: TB, ANZ Business confidence.
  • Australia: Private Sector Credit, New home sales

Thoughts on market positioning

  • FOMC overview: Initially market reaction suggested that people (including myself) were expecting a much more hawkish debut from chair Jerome Powell, this was primarily driven by what was a very constructive and positive congressional testimony. However after the decision, we saw yields tightened, the USD was sold and gold leapt higher.
  • An additional hike to take us to three times for 2019 – as we flagged before, this was very much anticipated.
  • Unchanged for 2018 – this was the key risk and while we did not get it at this meeting, a read of the minutes and projections, suggest this to be a key question for 2018, will September add room to take us to a fourth meeting for the year (i.e. the remaining currently scheduled live meetings are on June 13, September 26, December 19, US time)
  • Upgrades on growth to 2.7% and 2.4% for 2018 & 2019. No change in inflation expectations for 2018 still expecting 1.8% on both headline and core, for 2019 expecting potentially +2.1%.
  • For now, the market seems to think the Powell Fed equals the Janet Yellen Fed; but KVP begs to differ; however will need a few more live meetings to see whether or not he is right.
  • Campaign of tariffs /trade Wars: As we have flagged for a few weeks now on Macro Monday there was always the potential chance for further risk-off and a refocus on trade wars. This kicked off this week given Trump’s pivot toward China this time around, with a proposed $60bn in tariffs that will be worked out over the next two weeks.
  • Again we will see how much of this is negotiation ploy and political capital building at home versus really wanting to bring back jobs to the US – this is very much unclear, Trump may not even know himself, and he loves to have people guessing (i.e. threatening to not sign the spending build hours before the deadline for the government shutdown for instance).
  • Expect the next 2 weeks to be quite choppy whilst we get an overview of which pathway things seem to be taking, i.e. towards negotiations & reconciliations on US/China (i.e. a la Trump giving exemptions left-right and centre on original steel & aluminum tariffs) or a campaign of escalations, where China hits back much harder over the next few weeks.
  • What can Trump do for his image before Mid-terms? Both would be legacy type trades…
  • Movement against gun violence in the US: the student protest continues to gain momentum and it is becoming a very powerful factor in society and culture.
  • Multitrillion dollar Infrastructure bill: For decades we’ve know that US infrastructure is long overdue for an overhaul.
Chartography: Technical Outlook (James Kim)
  • S&P500: Expect prices to retrace higher after index capitulation and touching the 200 DMA. 2668 the level that is should retrace to where shorts can be put back on. Expect short term retracement, not a low, target low should be at 2520.
  • Dow Jones: Broke its uptrend, expect it to bounce this week; 24380 the area to fade.
  • Nikkei: Big selloff, breaking 2016-2017 uptrend. Currently on the key support levels from 2016/2017, so expect a bounce again.
  • Dax: testing 2018 lows, outlook looks very negative but diverging RSI indicates may bounce near term but selling pressure to come back after short term bounce.
  • HSI: Breaks below 2016-2017 break but needs a second close below to confirm.
  • S&P/ASX200: Prices have dropped to February 2018 lows; the 200 DMA is seen as resistance.
  • DXY: Bullish set up last week negated and closes on its lows, to test 2018 lows; 88.82 the key support.
  • Euro: Converging within triangle. Short view still the bias, unless 1.2445 breaks; 2017 uptrend the key support
  • USDCHF: Rising wedge consolidation break below shows further weakness ahead. Sell on rallies at 0.95, with target at 0.9350
  • EURJPY: Some divergence on the RSIS but remain short. Risks of a bounce this week heightened.
  • AUDJPY: New 2018 lows with prices approaching end target at ¥79.70. Look to add to shorts at ¥81.80
  • AUDUSD: closed on weekly lows, resistance at the three-month trendline. Chart shows an inverted hammer candle stick on Friday, should be a bullish signal; 0.7772 is the short entry target. The 2016-2017 trendline support comes in just above 0.76 handle
  • USDJPY: new 2018 low and breaks ¥105 handle. No change in the negative view, market at lows of 2016 before that ¥102.16.
  • XAU: Positive again this week as descending triangle breaks to topside. Expect to take out 1365 for the 2018 highs. Then expect explosive move above 1370.

AUDUSD chart


Macro Monday Portfolio (Tactical and Strategic book)
  • Took profit on some XAU before Federal Open Market Committee and GBPUSD hits target at 1.42. Second target 1.45.
  • Stopped out of AUDNZD tactical leg.
  • Changed USDJPY profit targets to ¥103 from ¥102.
  • Added start of core shorts in January 2019 and January 2020 Fed Fund Futures
  • Added start of core AUDUSD shorts and NOKSEK longs.
Please click to enlarge tables and charts.

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A replay of the call is available here.

– Edited by Robert Ryan

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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