Article / 26 June 2017 at 2:56 GMT

Macro Monday: Wrapping up the first half of 2017 — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub
  • The prospect of credit growth slowing dramatically or even reversing is in focus
  • China is seen as a culprit of any credit growth slowdown
  • There are doubts about whether the Fed will proceed with its interest rate moves

By Kay Van-Petersen

A replay of the global macro weekly call for week 26 is available here.

Summary of prior week
  • Commodities to be offered with crude oil down 4% for the week.
  • Reserve Bank of New Zealand: there was lack of follow through from governor Graeme Wheeler despite being 5% higher than previous meeting.
  • There is divergence within the Bank of England, between governor Mark Carney, who is dovish, and the BoE chief economist Andy Haldane, who is a hawk
  • Last week Fed speakers were mixed.
  • The new King and Crown price in Saudi Arabia should see crude oil policy optimized.

 While China is seen as a culprit for slowing credit growth, authorities in Beijing (above) have the ability to turn on the fiscal spending taps as well, as they have in the past. Photo: Shutterstock

COT report from June 20

    • Continue selloff in the USD but we also saw a strong pullback in the euro, the Swiss franc, and the Australian dollar.
    • Interesting to see a 35% reduction in shorts in GBP.
    • Divergence in Nymex and ICE crude with a 31% decrease in NYMEX Crude and 27% increase in ICE crude.
    • Big selloff in previous metals as well with gold and silver positioning reduced by 30% plus.
    The week ahead and current thoughts
    • Key focus: End of Q2/H1, Final PMIs and GDP, Global Credit.
    • Central banks: No major central banks decisions scheduled.
    • Fed Speakers this week: John Williams (June 26, 27 and 28), Patrick Harker (27), Janet Yellen (June 27), Neel Kashkari (June 27), James Bullard (June 29).
    • Other: European Central Bank Forum June 26-28 (BoE governor Mark Carney, Bank of Japan governor Haruhiko Kuroda, Bank of Canada governor Stephen Poloz)

    Thoughts on Market Positioning/Sentiment & Global Macro In General:

    • Summer really starting to kick in, activity & general market interest seems to be falling – this could stretch into August, especially given that September really seems to be the next key meeting for the Federal Reserve.
    • Will the Fed follow through on balance sheet reduction/or hike and/or delays in implementing their once more in 2017 / three times in 2018 – by the September 20 meeting; we should have had three more CPI data points, where will US 10s 2.14% and 30s 2.72% be then? 

    Noticing a few things lately

    • A lot of research out there on credit growth slowing dramatically or in some cases reversing, with China being seen as a big culprit of this. Read through this is of course implications on slowing global growth in the second half of the year and into 2018.
    • Of course no one talks or seems to focus on China’s ability to turn on the taps at will, just as they did in early 2016.
    • Also just seems, like we are seeing another big wave of people calling for US recession, global slowdown, “the top”.
    • People still very complacent about the Fed following through on the interest rate hikes that it has outlined. And the Donald Trump/Republican Party’s ability to get any big ticket items done is in focus: Healthcare, tax reform, deregulation, infra, etc. The bar and expectations are very low.

    • US: Durable goods, Final Q2 GDP +1.2%e, PCE, Personal spending/Income, University of Michigan.
    • China: PMI 51.0e 51.2p Services 54.5p .
    • Eurozone: Flash CPIs.
    • Germany: IFO, loans.
    • Japan: RS, CPI.
    • UK: Final Q2 GDP 2.0%p .
    • AU: New homes, Private credit
    • New Zealand: TB, Building Data
    • Will this lead to a slower inflation prints globally going into the second half of 2017 and into 2018?
    • Three more CPI and PFC data releases before the September 20 meeting, where the Fed is likely to act.

    Global Macro Book: KVP
    • AUDNZD long got stopped out at 1.0390 as Reserve Bank of New Zealand governor Graeme Wheeler failed to ‘release the dove’.
    • The global strategic book is unchanged.



    Technical picture: Edmund Liu

    • Dollar index: Hovering around the support zone at 96.44 but also resisted at the trend line resistance a well. A break on the trendline should test 97.85, which is the Fibonacci 5 retracement.
    • EURUSD: Double bottom formation but last week was resisted at the Fibonacci 5 retracement.

    EURUSD chartnnn

    • GBPUSD: A break on the bullish wedge formation should see GBPUSD move higher. 1.2818 as first resistance.
    • GBPCAD: Last week rebounded on the Fibonacci 5 retracement at 1.678 which also supported by the 200 day moving average. Buy on dips towards the 200 day moving average.
    • Hang Seng: Has currently met resistance at the Fibonacci 7 retracement.
    • Nikkei: Diverging RSI could mean possible top. Currently resisted at its 2016 high.
    • S&P 500: Diverging as well, similar to Nikkei.
    • ASX: Saw buying activity last week  and initial resistance @ 5,792.31.
    • USDCAD: covered last week by Edmund Liu as he initiated a long call. However is currently resisted by the 200 days moving average.
    • GBPCAD : Last week rebounded on the Fibonacci 5 retracement at 1.678.
    • WTI : Possible triple bottom formation with RSI showing oversold and could see rebound with RSI historically a decent indicator to track price divergence.
    • XAUUSD : Buying recommence close to the 200 days moving average. Need a break above $1,268 for XAUUSD to move higher.
    Please see our Q2 Outlook 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]. 
    spangles spangles
    Just to let you know that I do read you. It's prince!
    spangles spangles
    Where is your editor?
    spangles spangles
    Can't see why there is a decrease in GBP shorts. We will have a bunch of anarchists running the country inside of six months. They model on the Venezuela concept. UK bust within two years. Thankfully I moved out some time ago.
    Kay Van-Petersen Kay Van-Petersen
    Hey Spangles, thx for the feedback & support. Much obliged. Our editors sit in Denmark & Australia - they do a phenomenal job of making everyone look like a rock star!

    On the shorts, I hear you & again early days. And of course the COT report is only one source of positioning data. Ideally you want to aggregate from a few different sources, to try to get as 'clean' data as possible. Still it can be key for watching the direction/trend of the positioning. So for instance, go back to our Macro Monday calls in Jan & Feb, & it was very clear that we had seen the top in MXN shorts... we had like a 3-5wk period where the positioning just did not change. Which made us that much more comfortable, that the highs on USDMXN were in & it was time to open up the mother of all shorts (with still a respectable wide stop loss :).

    Lets see how the sterling data plays out over the next few wks. Again our Cable longs are very much non-conventional, non-consensus & some would argue, flat out kuku!


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