Article / 05 June 2016 at 22:56 GMT

The Macro Take: RBA and RBNZ in play, but US bonds to steal the show

Global Macro Strategist / Saxo Bank Group - Singapore Hub
  • The market will continue to digest the huge US non-farm payrolls miss
  • Nonfarm payrolls came in at 38,000 a vs. 160,000, with implications into the USD, Fed 
  • Yellen’s roundtable today on economic outlook, monetary policy to be closely watched
  • Busy week for central bank with decisions from RBA, RBI, RBNZ - that’s just a taste… 
  • US bonds, the consensus long trade it seems, what (if anything) are real rates telling us?
  • Nobody seems to believe in US inflation

By Kay Van-Petersen


Good morning to everyone & welcome to week 23, it is Monday June 6.

Do note that there will be no Global Macro Take over the next two weeks – Have to see a fiancée about a wedding. We are both very excited. The journey is always that more memorable, enjoyable and fun when you can share it with someone special.

Wishing everyone an exceptional week ahead and safe as well as profitable summer ahead. 

 One good thing about the poor NFP print is that it probably forces central bankers who were on the sidelines expecting a Fed hike back onto the field to play some hard yards. Photo: iStock.

  1. Week 23
  2. Touching on US bonds, the consensus long trade
  3. Reflections of a Global Macro Neophyte  

Up ahead is week 23

This week will starts with a bank holiday today in New Zealand. It’s also worth noting that Hong Kong will be out on holiday Thursday (June 9), whilst China will be out on both Thursday (June 9) and Friday (June 10) this week.

Speaker wise

We have Federal Open Market Chair Janet Yellen speaking today at a roundtable discussion entitled Economic Outlook and Monetary Policy, at 1630 GMT (or 0030 on Tuesday in Singapore, Hong Kong and Shanghai time). Much earlier before that today, we will have Federal Reserve Bank of Boston president Eric Rosengren on a panel discussion on QE, in Helsinki (That’s in Europe for the geographically innocent). 

Outside the US, we must really be getting into summer, because these central bank governors are not coming out to speak unless it’s a rate decision meeting.

Central bank wise

All hands on deck, as we hear from the Australians (RBA) and Indians (Reserve Bank of India) on Tuesday June 7. Two days later on Thursay June 9 we hear from the Brazilians & Kiwis (Reserve Bank of New Zealand) as well as the South Koreans (Bank of Korea)

Economic data wise

Much lighter week ahead, in the US: JOLTS, consumer sentiment, nonfarm productivity as well as wholesale inventories will be key. In the Eurozone, it’s really all about the revised GDP & retail figures. Switzerland will have trade data scheduled for Wednesday, CPI/PPI for Thursday and new loans data at some point towards the end of the week. JP will see final GDP, PPI and tertiary data being crucial.

For more on the calendar week ahead, please see

What KVP is watching this week

Central banks

Speakers/Other: Monday, June 6 – Sunday, June 12

Fed Speak: Janet Yellen (June 6)

Other Speakers: None scheduled that I could find  

Meetings/minutes this week:  Monday, June 6 – Sunday, June 12
RBA cash rate decision 1.75%e 1.75%p (June 7), RBI 4.00%p (June 7), Brazil 14.25%p (June 9), RBNZ 2.00%e 2.25%p (June 9), BoK 1.5%p (June 9), RU 10.50%e 11.00%p (June 10)

Meetings/minutes next week: Monday, June 13 – Sunday, June 19
Federal Reserve 0.25%e 0.25%p (June 15), Bank of Japan -0.10%p (June 16), Swiss National Bank -0.75%p (16), Bank of England +0.50%p (16), Bank Indonesia 6.75%p (16), Chile 3.50%p (16

Nonfarm payrolls miss

The nonfarm payrolls release (160,000 expected, 38,000 actual) sent the DXY to 94.03 -1.6%, US 10 year to 1.1367, Gold to $1244/oz +2.6%...

I’ve been talking about the Fed hikes over the next three meetings and the US dollar strength that could be expected, with two conditions: Economic data holds and markets don’t tank. So that NFP print puts the first into question, it’s just one data point andy es there were revisions on the previous number to 123,000 (160,000). So we need to see how the labour market plays out over the next one to two months. Note 5-12-17 month averages are 150,000, and 200,000,   


The first should hold, the second should cut. RBNZ definitely on more dovish structural trend than RBA… RBNZ rate cut probability of 32% seems low & I’d expect it to move up as we approach Thursday.

Kiwi shorts north of 0.69 could make sense, but we probably have to see how the US dollar opens up on the week. And AUDNZD may be worth a poke post RBA, assuming  it holds on rates and is not too dovish in language terms. In this kind of market, I’d not be too aggressive on my targets, if you can take out 50-150 pips before the RBNZ meeting, happy days.

One ‘good’ thing about the poor NFP print is that it probably forces central bankers who were on the sidelines expecting a Fed hike to now do their own heavy lifting.

Something that has been nagging at me for weeks now: US 10 yearrs vs. potential Fed hikes
There seems to be a clear bias in long bond positioning from HFs, as can be seen by the chart below.

COT report from (Tue May 24), shows biggest long positioning in years
Charts: Bloomberg. Create your own charts with SaxoTrader; click here to learn more.

And so far that long US 10yrs treasures trade seems to be dead right.

A big of a soft more research style piece today – no further new thoughts on positioning, as this market needs to settle, lots of moving pieces.  

So US bonds and 10s in particular – simply because I watch 10s across most major economies.

So if the Fed is really going to raise rates, why are 10s ‘sleeping’ in these 1.70% levels, when we were about 2.22% right after the Fed hike in December? Or are they not ‘sleeping’ but pricing in events from across the globe, such as those poor NFP that we saw on Friday?

Granted the graveyards of short US bond traders is probably 1000 times bigger than the graveyard of those that have been short Aussie banks for years. Yet still, just because something has always worked in the past, does not mean it should keep working today or tomorrow. 

So why are we lower by over 50 basis points (since the December hike) despite hawkish minutes

As of June 2, 2016. US 10yrs were c.50bps lower that immediately after the Dec 15 Fed hike

A lot of people out there are saying the Fed hikes are priced in. Except, no one really takes the time to really explain how they get to “priced in”, or any the same train of thought, where are bonds too expensive or too cheap, i.e. is it 1.50% or 2.00%, etc.

Now granted, we also have to somehow account for the delta in inflation in the US over the period as well as what inflation has been doing in other parts of the world.

So wanting to get a bit more of a barometer than a “feel” we are going to look at the difference in real rates between the US, EU and Japan.

Why the US, the EU and Japan?

Simples!.  According to the IMF, global GDP as of 2015 was $73 trillion, of which the US is $18 trillion trillion, European Union is $16 trillion and Japan is $4 trillion. So respectively that’s about 53% of Global GDP (25% + 22% + 6%). China at $ 11trn is 15%, but it is ignored given that its still has relatively closed capital markets.

So I thought let's examine what real rates have been doing in the US, EU and Japan over the last 5years and see if there are any relationships that stand out, that can help us pinpoint our location on the map & perhaps even help us see where we are going.

One Year Chart of the difference between US & German real rates vs. US10yr & inverse EURUSD
A bit of a mixed picture, bear in mine we sold off in August/September and again in January/February. Overall seems to be when the real interest rate (RIR) advantage that the US has over Germany goes down, so do US 10 years. On the inverted EURUSD (green line) chart, it seems that when the RIR advantage that the US has over Gerrmany goes down, the EUR strengthens which makes more sense to me.

And what about a longer term chart?

Five Year Chart of the difference between US & German real rates vs. US10yr & inverse EURUSD
Now intuitively this chart makes a lot more sense to me, the greater the RIR advantage that country A over country B, the more bid should be country A’s currency and bond market over country B should be, everything else being equal. I.e. You want real returns on you capital. 

One year chart of the difference between US and Japan real int. rates vs. US10yr and USDJPY
Seems to have a pretty good relationship with dollar yen and US 10yrs.

Five Year Chart of the difference between US & Japan real int. rates vs. US10yr & USDJPY
Again generally same picture on five year, but seems better relationship vs. dollaryen than versus US10yrs.

So no real hard summary here, still need to marinate on a few things.

What is clear so far though are that RIR advantage that the US has been having over the EU and Japan has been falling, as have US yields (overall), as has the USD (overall year to date). This is due to rising US inflation which the market seems to be divided on (see chart below), I think there is a key risk for US inflation to surprise to the upside potentially creating a more hawkish fed & a shakeour in the US bond market. Lets see how it plays out, what US 10yrs seem to be saying is that it does not believe inflation is coming to the US.

Five Year Chart of the US RIR vs. CPI YoY
Reflections of a global macro neophyte

Lastly, many thanks once again to those that sent through feedback that was requested a few weeks back. Much obliged and will be incorporating quite a bit of changes on things over the next few months. 

Do not note there will be no Global Macro Take over the next two weeks – Have to see the fiancée about a wedding, someone needs to make an honest woman out of her! We are both very excited, happy & grateful. 

The journey is always that more memorable, enjoyable & fun when you can share it with someone special, as well as find a way of giving back.

Wishing everyone an exceptional week plus a safe as well as profitable summer ahead.  -KVP

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– Edited by Robert Ryan

Kay Van-Petersen (KVP) is Asia Macro Strategist at Saxo Bank, the home of social trading. In addition to, please follow him on twitter @KVP_Macro and at SaxoStrats

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Estuardorlemus Estuardorlemus
Congrats for the wedding , have a nice week KVP
Kay Van-Petersen Kay Van-Petersen
Forgot to say thx Estuardorlemus, very kind of you. And wishing u & the fam. an excellent summer.


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