Article / 09 October 2017 at 2:24 GMT

Macro Monday, week 41: Kiss of death for bull markets? — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub

  • Markets resume trading in China today, after the Golden Week break
  • But markets are closed for public holidays in Japan and South Korea
  • Inflation will impact jobs market, growth and commodity prices
  • The risks to peak growth globally have to be considered

By Kay Van-Petersen

Summary of prior week
  • Budget Outline passes House, and needs to pass the Senate next. US ISMs on fire, highest readings in 12 to 13 years.
  • US nonfarm payrolls missed strongly, with a 33,000 drop; compared with the 80,000 gain expected, 169k r (+13k). Participation 63.1% to 62.9%, with 4.2%a u/r vs 4.4%e.
  • Average hourly earnings not only beat strongly beat with a 2.9% actual gain compared with the 2.6% expected, but were also revised up 2.7%e (2.5%p).
  • Equities: Continue higher. Bull market.
  • FI: Grinding higher we touched 2.40% on US 10s.
  • Comodities: Mixed. Copper and Nickel higher, Oil lower..
  • FX: EUR lower, USDJPY and DXP higher.
  • Volatility: Vix very little change, BUT back to back upward weeks in bond vols, with ML’s MOVE index up c. +12% over the last two weeks.

 Pro-Catalan independence demonstrators in Barcelona ... Spanish equities could underperform in comparison to their Italian counterparts for a while longer. Photo: Shutterstock

COT report

  • Not covered this week.
The week ahead
  • Key Focus: Fed Chair Decision? FOMC Minutes, US CPI
  • Central banks: KZ +10.25%p (October 9), FOMC mins (October 12), MX Mins (October 12), RBA Financial Stability Review (October 13)
  • Fed Speakers: Neel Kashkari (October 10), Robert Kaplan (11/13), Charles Evans (11), Charles Evans (October 11/13), Jerome Powell (October 12/14)
  • Other: US and Canada out today, China back in…(October 9), Mario Draghi (October12)
Economic data
  • US: US: CPI Headline 2.3%e 1.9%p Core 1.8%e, JOLTS 6,160 e, PPI, RS, University off Michigan
  • China: Caixin Services 52.7p, New Loans, Money Supply, TB
  • Eurozone: IP, Germany CPI 1.8%e/p
  • Japan: BoP, PPI, Tertiary
  • UK: IP, Manufacturing. Production, TB
  • New Zealand: Spending, Food Prices
Thoughts on positioning
  • Fed chair decision: How high can rates really go given debt? What is the real long term significance of who is chair, given the 14 year tenure of the role?
  • Inflation: Drivers of tight jobs market, closing output gaps, robust growth will also have higher commodity prices overlay.
  • Risks in H2, 2018: stimulus measures from fiscal side, upside risk to tighter monetary policy.
  • Peak Growth: Risks to peak growth globally have to be taken into account.
  • Near-Term Positioning Bias: Near-term USD has more grounds to keep melting up, we’ve not seen boiling point from a squeeze perspective. More importantly its responding to positive data, USDJPY to US rates going up. Risks: Dove Fed, CPI miss.
  • Long term picture: Backdrop of robust global growth, advanced economies rates going up (short duration), Would favour flatteners, Emerging economies rates going down (long duration measured by near-term potential outflows), favor high yielding emerging markets FX and sovereigns, still like very long term longs in GBP versus the likes of CHF (positive carry), short Fed fund futures (four dots, two priced in; and this is previous to any fiscal stimulus going through).
  • Still like gold and silver miners (some near-term headwinds with strong USD), still like commodities to the upside. Equities still look robust, i.e. inflation means earnings growth

  • DXY: Two consecutive closes above 200 week moving average; MACD crossing up. RSI and indicators still bullish.
  • EURUSD: daily chart showing potential head and shoulders. Target 1.1511. 1.17 key support. RSI retracing and AMCD turning bearish.
  • USDJPY: Above 200 day moving average and breaking trend line. S/t moving average crossing long term 100 day and potentially 200 day.
  • US 10 years: 2.4% the key level, currently trading above 200 day moving average.
  • S&P: Overbought but trending higher
  • Gold: Indicators looking to bottom. 100DMA at 1270 is holding 1250/1230 support, 1300 resistance.
  • Silver: Showing better price action than gold. Has it bottomed?
  • Oil: Near term on back foot but inflationary world good for oil.
KVP portfolios
  • Tactical Book: Risk 2% on EURUSD short, primarily on technical and USD melt up. Short from 1.1730, stop 1.1932, target 1.15. 

  • Strategic Book: Risking 1.5% and 2.0% on DXY Longs and Spain Noise, Mean Reversion Spread play. DXY is on general USD grind up and potential USD squeeze (key risks already flagged on TB’s Euro short). On the Long IBEX vs. Short FTSEMIB futures, key risk is timing, perhaps spread gets wider and Spanish equities continue to underperform versus their Italian cousins for a while longer. 


For this week's recording the Macro Monday call click here.

For more on forex, click 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], 1030 [Sydney].


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