Welcome back to the "mad house" – we are in for an extremely active week:
· Bank of Japan, Federal Reserve and Bank of England all meet this week
· Technology stocks getting nervous so much that FAANGS has become MAGA
· China is almost desperately activating both easier monetary policy but also more fiscal spending to counter the deleveraging process which has been hailed so much by President Xi
· Dollar peaking with the GDP number last week? We think so……
Bank of Japan tomorrow could be the most important central bank meeting this year…The consensus is that BOJ may tweak their YCC policy (Yield Curve Control) to accept a higher 10Y JGB yield of 10 bps vs. a narrow band around 0% at present and then to fix 5Y yields a 0% from tomorrow. The problem is the flat yield and negative short yield hurts the financial sector earnings and ability to lend. 10Y JGB link
Inflation numbers continues to erode despite the best effort from BOJ – The risk here is that BOJ will weight short-term negative, i.e banking sector loss' higher than illussive long-term goals of inflation above 2% IF so… USDJPY could be come of dramatically and probably signal a top in place for the overall dollar as the GDP number from Friday most likely was a cycle high based on tax credit from April and export of agriculture products ahead of the trade war.
Bank of England is 90% likely to hike interest rates on August 2nd, while FOMC is "in between meetings"
Meanwhile similar to 2007 China has started an quite aggressive countercyclical losening of monetary policy plus increase fiscal spending. This WILL change the dynamics of global growth and the direction of the US Dollar. Don't forget the Dollar is the reserve currency so the directions of it will be driven by the ever changing dynamics between growth in the US and growth in the rest of the world. More on this later.
Technology has become centre with Facebook and Twitter misses. Is this buy opportunity or is the world of engagement changing away from "in your face" marketing ploys and data selections? Maybe the recent change of word plays from FAANGS to MAGA is a reflection of peaking investor appetite in "user driven technology"?
Move over FAANGS, make way for MAGA
Calendar for central bank this week
Source: Bloomberg
Some nervousness in technology showing up…
Source: The Daily Shot – WSJ
Clear sign of how China is ramping up activity across the board…
Is China going to safe the commodity sector again ?
Source: The Daily Shot
If in doubt China is easing then look at 3M SHIBOR below
Source: The Daily Shot
Some key links I think is interesting from the weekend:
Select group of hedge funds doing so well they don't take customers….
https://www.wsj.com/articles/these-hedge-funds-are-doing-great-but-dont-want-your-money-1532869201
Iran about to implode? Currency – RIAL – reach 111.500 to the Dollar!
https://www.jpost.com/Middle-East/Iran-currency-extends-record-fall-as-US-sanctions-loom-563697
Turkey – US relationships is stretched on Pastor..
http://www.arabnews.com/node/1347391/middle-east#.W128J6zJw3U.twitter
US mid-term election – looks more and more likely the Democrats gets the House?
Why Washington insiders think Democrats will take back the house:
Four takeways from long term GDP revision
https://www.nytimes.com/2018/07/27/business/economy/revised-gdp-report.html
US considers military options to keep Strait of Hormuz open (Iran)
Germany's increasingly bold nationalists spark a new culture war – This is a MUST READ to understand how the dynamics of democracy and populism is changing society step-by-step away from pluralism to "you are either with me or against me"….
https://www.ft.com/content/c817306c-914e-11e8-b639-7680cedcc421
Wall Street seizes on another front to bet against Tesla
https://www.ft.com/content/44c7e38c-9054-11e8-b639-7680cedcc421
The US chip industry starts to wake up to new competitive reality – This is really important – chip power sits at the root of every technology step and evolution – falling return on R&D will slow, significantly, AI and technology. READ!
https://www.ft.com/content/44c7e38c-9054-11e8-b639-7680cedcc421
We will be out with reports on weather/Grains – Ole S Hansen, Peter Garnry will be out with note on FAANGS vs. MAGA and John Hardy will touch on BOJ plus forever falling CNY – Why isn't it impacting risk (yet)?
Safe travels and week,
Med venlig hilsen | Best regards
Steen Jakobsen | Chief Investment Officer
Saxo Bank A/S | Philip Heymans Allé 15 | DK-2900 Hellerup
Phone: +45 39 77 40 00 | Direct: +45 39 77 62 23 | Mobile: +45 51 54 50 00
Research: http://www.tradingfloor.com/traders/steen-jakobsen
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