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Video / Yesterday at 7:42 GMT

From the Floor: Trump's defeat creates 'new narrative' — #SaxoStrats

#SaxoStrats
  • Trump's failure to get healthcare bill passage creates "new narrative" — Garnry
  • Market scepticism that president can push through other reforms grows
  • Financials performance Monday the key to understanding market impact — Garnry
  • S&P 500 test of 2,300 and then 2,250 could be imminent
  • Dollar weakens against major peers as safe havens gold and yen sparkle
  • Gold moving in on 200-day moving average at $1,261/oz — Hansen
  • Net long position on precious metal shows there is room for upside — Hansen
  • Bungled Opec meeting in Kuwait has bulls eyeing the exit door — Hansen
  • US Treasuries 10-year yields down to 2.35% with 2.3% in view — Fasdal


M
By Martin O'Rourke


The art of the fail


US president Donald Trump failed Friday to bend Congress to his will having pledged that he would bring an end to Obamacare and that has shaken confidence in the dealmaker’s ability to deliver on the string of pledges that made up his campaign platform.

"We've got the catalyst that we've been looking for and Trump's defeat is creating a new narrative," says Saxo Bank's head of equities strategy Peter Garnry. "This could change the whole stance towards the Trump administration and the key to watch out for on Monday is the financials."

"The key to understanding how much the market has bought into the great reflation trade is through financials," says Garnry. "If we get a strong selloff, we have a new narrative."

Garnry is keeping a close eye on the S&P 500 which closed at 2,343.58 Friday. "If we get through 2,300 then we are definitely looking at 2,250."

The S&P 500's bull run underpinned by the reflation trade could be at en endm


Source: SaxoTraderGO

Equities of course is not the only expression of market scepticism as to Trump's ability to deliver his much-trumpeted $1 trillion stimulus package. The dollar has been a noticeable decliner overnight falling against most of its major peers and suffering a 1% fall against yen.

USDJPY is down approximately 2.2% since March 1.

"The whole market is casting doubts over whether Trump can implement his policy," says Shiyun Su, reporting from Saxo Bank's Asia hub in Singapore. "We're looking at the 110.0 level."

Yen's gain was Nikkei's loss as the exports-driven listing took fright at the strengthening of the local currency for a 1.6% slide on-day. Su also points out that volatilities have hit a two-month high as risk-off fever grips the markets.

USDJPY closing in on  the 110.0 handle
h
Source: SaxoTraderGO

Sparkling gold

Risk-off naturally helped spur gold to bigger gains propelling the precious metal once again to within a whisker of the 200-day moving average at $1,261/oz.

"When you have stronger yen, you get stronger gold," says Ole Hansen, Saxo Bank's head of commodities strategy at Saxo Bank. "We could be ready for a test of the February highs in the low $1,260s/oz with the 200-DMA the immediate target."

"A close above the 200-DMA level is also likely to trigger additional buying because the long position is relatively low," says Hansen. "Trump's defeat has really raised so many questions about whether he can actually see through his stimulus pledge."

The latter might have an impact on iron ore prices and on copper, the latter of which has been helped by the reflation trade, Hansen warns.

The net long position shows there is room for more gold buying
j


Source: Bloomberg, Saxo Bank

US 10-year Treasuries yields also slipped to 2.35% and 2.3% looks likely in the short term, says Saxo Bank's fixed income chief Simon Fasdal. German 10-year bunds also opened stronger Monday morning to go past 161 although any move upwards might be capped by a less dovish European Central Bank going forward, says Fasdal.

"The ECB is under pressure to build a less dovish strategy," he says.


 Bungling Opec

The press officers at Opec meanwhile might be looking for gainful employ elsewhere this week after the cartel made a mess of its communiques after the weekend jamboree in Kuwait and left the oil market in a state of utter confusion.

"Opec initially drafted a statement that included a note on an extension of the current oil production cut deal beyond six months but then amended that to a review of the current deal and extension at a later date," says Hansen. "It's created a lot of doubt in the market as to its ability to get an extension and there is a risk that these mixed signals from Opec carry risk to the downside."

"Brent could be facing a move through $50/barrel with support at $49.22/b."

Brent crude was at $50.43/b at 0655 GMT.

And finally....

There are a spate of juicy financials earnings in China on tap this week which might alleviate some of the gloom, but with the Hang Seng suffering a 0.5% fall overnight on the back of concerns about housing curbs on the mainland, we shouldn't bet on it.

Nevertheless, there continues to be a world out there beyond the Trump universe. Best we keep an eye on it!


j

'None shall pass!'. President Trump discovers
something about the realities of power. Photo: Shutterstock


Martin O'Rourke is managing editor at Saxo Bank

21h
Peter Garnry Peter Garnry
It seems like the market is writing a new narrative here post Trump’s defeat. Negative sentiment in key risky asset classes with S&P 500 (cash) down 0.8% If we see an acceleration to the downside in oil and negative print in Dallas Fed Manf. Activity at 1400 GMT then the selloff could extent to 2,300…

Note also that we are below 50-SMA for the first time since Nov 9th (day after Trump’s victory). Financials down 2.2% here…key to gauge the unwinding of the reflation trade…
20h
Ole Hansen Ole Hansen
Crude oil has hit new lows for the day as the risk off sentiment in stocks has triggered additional long liquidation. Both Brent and WTI are holding above last week’s lows at $49.71 and $47.01 respectively. Sentiment is heavy with US stocks likely to be the main focus for the remainder of the day.

Gold meanwhile is struggling to break above $1260 and this is raising a few eyebrows considering the multiple tailwinds currently coming from the other markets. Various commodity indices, including the Bloomberg Commodity Index are under pressure from weakness in energy and agriculture. This is likely to have triggered investor redemption which is also hurting gold, one of the biggest components of the BCOM index.
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