Article / 20 January 2016 at 5:53 GMT

The Matrix: A strategist’s thoughts on China, AUD and US earnings

Global Macro Strategist / Saxo Bank Group - Singapore Hub
  • At some point soon we are due a hard squeeze on oil
  • Some interesting correlations between the AUD and Shanghai Composite
  • Bank of Canada rate cut - I think they will cut by 25 basis points

By Kay Van-Petersen

Week 3: Happy Hump Day

Overnight price action and some roving thoughts

  • Decent bounce by European equities, closed off their highs but with Eurostoxx and Dax both up a decent 1.5%
  • Whilst the US could not do as well, SPX cash closed flat. We did manage to take half of the profit on the e-mini’s SaxoStrats trade sent out yesterday, when we hit 1,900
  • Today/rest of the week is key for US to find some legs. And as is generally the case, we need US equities to give the rest of the equity markets some temporary respite – because Asia definitely isn't pulling its weight
Meanwhile S&P e-minis on the back foot this morning, as Asia sentiment is far from constructive 
Source: Bloomberg

Meanwhile pressure on the currencies continue, even the tenured HK peg is under stress as the long-term chart below shows

Source: Bloomberg

I am still amazed USDSAR is pegged where it is. This to me is one of the biggest “This is not hard” moves that will come this year.
Source: Bloomberg

If you can find someone to quote you some calls options, happy days!

 Again, think at some point soon we are due a hard squeeze on oil (probably if SPX squeezes). Solely from the big shorts positioning – could be interesting to jump on the bounce, potentially look to reload shorts higher up and dip into USDCAD longs (Some around low 1.40s)
Source: Bloomberg
Worth noting recent closer correlation between AUD and Shanghai Composite. At some point this year, we could have a China bounce (fiscal stimulus driven or rumours of one), AUD could be tactical long at that point or at the very least lighten up on the shorts

 Source: Bloomberg


It's time for Asia to pull its weight again. Photo: iStock 

Today it's all about....

  • Bank of Canada meeting. Bloomie is showing consensus expecting no change at 50 basis points, I think they will cut by 25 bps. You all should know my thoughts on Poloz and KVP being super bearish Canada macro since 2Q15
  • We have US inflation data (UK and Eurozone data yesterday were better than expected, bringing back the EUR. Sterling fell though given Bank of England governor Mark Carney saying no cigar on rate hikes, i.e. “Not yet time”.
  • We also have US oil  inventory figures due, 3m barrels being expectation. It's interesting that there is so much focus on supply from Iran, I mean you’d think people would have seen this coming.

Take on US earnings so far from equity strategist, Peter Garnry (sent out January 19)

“Q4 earnings are in full swing and here are my thoughts…

  • Downside risk from goodwill and asset write-downs especially in energy, mining and financials (banks)
  • Weak start to US earnings with only 45% beating revenue estimates (more on that over the coming days)
  • Strong USD is still headwind on earnings per share y/y but effect will slowly diminish throughout 2016
  • Biggest investor concern is earnings per share recession which we will provide some clarity on over the coming weeks – we have to look at those shares excluding energy.
  • We are changing the earnings chart book from a global to region specific (US and Europe to begin with)
  • Focus on US in the next week and then we will push European earnings data
Given the recent selling in global equities I will update and release the Top 40 Global Alpha Picks tomorrow.”

-- Edited by Adam Courtenay

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.


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