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Macro Monday week 22: 17 days to the Fed Hike — #SaxoStrats

Kay Van-Petersen
In this webcast, Saxo's global macro strategist Kay Van-Petersen examines the big issues for the week.

Summary of last week:
  • - Econ Data: String of misses on flash PMIs across Europe, US bucks trend with flash manufacturing in-line at 56.6 a/e 56.5p. Whilst flash services beat strongly at 55.7a 54.9e 54.6p. Still overall global trend of PMIs decelerating continues, whilst US continues to outperform 
  • FOMC Mins: Dovish interpretation 
  • US/NK: Summit called off – for now!  
  • Trump: Talking auto import tariffs
  • EM Stress Cont.: Emergency rate hikes by Turkey’s central bank 
  • FI: Driven tighter in the US post the FOMC mins.  
  • FX: Whilst a weaker USD may have been expected, events in Europe and Korean peninsula diluted the pullback in the USD. Euro continues to make lower lows and DXY gained despite a big pullback in US yields 
  • CMD: Gold briefly got back over the pivotal $1300 before breaking down again 
  • EQ: Only the US equity markets were up as a region of the world, Europe was down as was most of Asia. Jakarta clear outlier at +3.3%  
  • Vol: Down a touch for the week, despite the +5.5% jump on Fri for a close at 13.22. YTD avg. VIX is now 16.83 for 2017

COT report: 

  • Currencies: USD shorts cut again but market remains net short USD with EUR being the primary culprit.  
  • Commodities: Overall bullish bets on commodities increased. Largely from agriculture short covering. Bullish bets in Brent and WTI increased.  
 Week Ahead: 

  • Key Focus: G7 + Final PMIs + US NFP / ISM / average. Hourly earnings 
  • Central Banks : BoC 1.25%e/p (30)   
  • Fed Speakers : Bullard (29/31) Fed Board meeting on Volcker tule changes (31) Bostic (1) Brainard (1) 
  • Other : US and UK out today (28), RBNZ’s Orr (30) SNB’s Jordan (30) BoJ’s Kuroda (30)
  • Econ Data: US: ADP, 2nd 1QGDP 2.3%e/p, Personal Spending/Income, ISM Mfg. 58.1e 57.3p, PMI MFg. 56.6p, Beige book CH: Mfg. PMI 51.4e/p Serv. PMI 54.8e/p Caixin Mfg. 51.2e 51.1p EZ: Private Loans, CPI Flash 1.2% CORE 0.7%, MFG Pmi 55.5p JP: RS, IP, Housing Starts, Cap Spending. Mfg. PMI 52.5p UK: Mfg. PMI 53.5e 53.9p, Money Supply NZ: RBNZ Fin. Stability Report, Biz Conf. AU: Priv. Cap. Exp, Building Approvals 
Thoughts on market positioning/sentiment: 

  • - Jun 12 – US / NK Summit in Singapore is cancelled? Again, this is the mother of all legacy trades for a POTUS… all the parties involved (US/NK/CH/SK) have committed and come too far for there not to be a deal at some point. Even if a later date is chosen… door has still been left open for Junr 12… Fed Board Meeting on Volcker rule changes… 
  • Jun 13 – Next Fed hike. After posting multi-year record highs on US yields… FOMC minutes set those yields lower, as the market interpreted them as dovish. I still remain at 4x for 2018…  
  • Key risk to this call goes back to global economic data… i.e. is this just mean reversion is a structural long-term upward trend, or is global data really turning. Need another 1-2 quarters to figure this out…  
  • EM Pressure - Turkey: Following the huge surprise intervention by the central bank of Turkey, whereby they raised rates by +300bp to 16.50%, it looked like Erdogan was starting to see the light of central bank independence and the fact that higher interest rates do curb inflation. Then a day after the intervention, as eloquently captured by John Hardy, our Global FX Strategist. 
"USDTRY: Fresh Pain. A day after the central bank hiked rates 300 basis points to prevent a TRY meltdown, the tone deaf Erdogan and his AKP are announcing their platform for the upcoming election, including the “main principle” will be single digit inflation and a promise to bring relief from high interest rates. You couldn’t make it up if you tried...’ 
  • Bottom line? It still looks like too early and hard to see where the respite could come given Turkish elections on Jun 24th – could there be a Malaysia upset in the making? IF so, then at some point being long TRY could be a phenomenal trade…    
Technical Outlook

  • Gold: 1300 key breakdown level. False MACD signal. 1275 the key support, then 1250. 1235 is the 200 weekly 
  • EURUSD: Continues to break down. COT longs still the positioning. Further downside expected. 1.15 the key downside support level. 
  • Brent Crude: Big reversal on Friday, MACD pointing to further downside.  
  • AUD and NZD: Trend remains lower however the NZD appears more constructive at present. 
  • TRY: exploding higher to unprecedented levels. Other high yielding EM currencies trading relatively well, ZAR. 
  • CAD and MXN: CAD holding up relatively well given the selloff in oil.   
  • XAUEUR: Appears to be breaking out, a break of 1125 opens up 1175. 

Macro Monday Portfolio:
  • 1. Gold short order filled @ $1300 for $5m targetting $1235 / $1250 levels, plus countdown to Fed Jun 13 hike  
  • 2. Added Long Gold short Euro as partial USD long hedge and Euro bearish bias   
  • Last week we talked about reloading AUD shorts at 76c and up… and we hit 76c… looking for adding onto more at 76.50 and potentially 77c…  

You can read more by Van-Petersen here.


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