Inflation is coming ? or rather inflation expectations...and MMT is the new black in economics...

With all the talk of MMT – and concept of "no price for infinite debt"….. the risk here is a BIG move in US interest rates, as for 2019 10YR yield is WAY BEHIND the move in inflation!

 

Look at below charts on how 5y5y swaps – proxy for inflation expectations is rising fast……

 

Here two important links:

 

FT – An MMT response on what causes inflation

 

Stephanie Kelton – advisor to Bernie Sanders "explains" MMT

 

ACTION:

 

 

Sell 10 YR US Futures @ spot  @ 121 19.5/32 with a close @  122-29 (on close of day)

 

 

 

 

5y5y US and EUR swaps (dashed greenish US and red EUR.. and 10 YR US yield

 

 

 

 

Inflation expectations is now same level as when the US was forcing tax cuts and MAGA agenda fully in January 2019

 

 

 

 

The MMT – Modern Money Theory talk is getting out of control …. This is my internal comment yesterday to my team:

 

Internal note - start

 

Rarely have I seen such a 'turn around' in narrative in such a short time....impressive (not MMT!)

Seems we need to adjust our policy response book with:

Another leg of pretend and extend now that QE and low rates is being - finally- seen as inadequate ...

 

Remarkably no one discuss' the that fact that we have socialism or statism already

 

• No market trade freely
• Zero price discovery
• No marginal cost of capital allocation

 

But monopolies and state buying everywhere. Hence without trying/ testing the premise we are doomed to make further mistakes

 

My conclusion

 

The MMT – Modern Money Theory talk is getting out of control …. This is my internal comment yesterday to my team:

 

Rarely have I seen such a 'turn around' in narrative in such a short time....impressive (not MMT!)

Seems we need to adjust our policy response book with:

Another leg of pretend and extend now that QE and low rates is being - finally- seen as inadequate ...

 

Remarkably no one discuss' the fact that we have socialism or statism already!!!!

 

• No market trades freely
• Zero price discovery
• No marginal cost of capital allocation

 

But monopolies and government/central banks buying everywhere. Hence without trying/ testing the premise we are doomed to make further mistakes

 

My conclusion

 

Be long - very long inflation...especially after growth low in Q4/ Q1 this and next year !!

 

AND…

 

For those you who wants to learn from history I implore you to read Paul A Volker book: Keeping at it and the chapters on how he and Treasury Sec. Connally took the US out of the Bretton Woods agreement with policy at the time being… control, tariffs (on Germany) and devaluing the Dollar….and trying to ditch trade deal with Canada!..... READ!

 

Safe travels,

 

Steen

 

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

Please visit our website at www.saxobank.com

 

 

 

 

 

 

 

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Steen's Chronicle: Macro Q1

Dear All,

 

Although I did sent you a macro presentation yesterday, I now have the "finished" product of our medium to long-term macro narrative ready….

 

2018 was for us: The Four Horsemen, now… 2019 will be The Global Policy Panic

 

There is also main conclusions, plus my present asset allocation and we are entering "full risk on" mode as we navigate January, trade wars, Brexit and the likes.

 

For those who read yday's presentation there is many new charts and a new structure/flow..

 

We will shortly also publish our Q1 Macro Outlook  - please follow on Home.SAXO

 

Enjoy the weekend and as always "safe travels"….

 

 

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

Please visit our website at www.saxobank.com

 

 

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Macro Digest: Too much priced into 2019 already

• Market has done a 180 degree turn on direction of US yield – from talking 400+ bps in 10Y US to now trading @270 bps!  (see chart blow)  // Furthermore "market" is now pricing FED to cut rates in 2019!!!

 

• This is VERY unlike in the present narrative carried by Fed – a pause – our position since Q3-2018 – very likely, but a direct cut is NOT what Fed is looking or even preparing for…

 

• Having said that we still see "recession light" in 2019 as the Four Horsemen – our 2018 macro theme still is playing out negatively and now on reported data…

 

• There will be "trade deal light" but as with other Trump "deals" they are not worth the paper they are signed on. China and US both needs this – hence we will get "something"

 

• Inflation has collapsed – increasing REAL YIELDS, so despite lower nominal rates the overall "price of money in real terms" still punitive….

 

• We still expect "cycle-low" in markets to be here in January……

 

 

 

Our take / Investment  change:

 

Move from OVERWEIGHT US FI to slight UNDERWEIGHT……..Selling US 10 Y Futures @ 121 29/32 w a 122 29/32 stop.

 

 

 

 

 

This was our 2018 macro theme…

 

Price of money rising (QT, FED hikes, ECB lowering support and BOJ stealth, but PBOC expansion into panic)

Quantity of money "collapsing" … QT, aftermath of China deleverage, macro prudential one-off (RBA(housing), less ECB and BOJ)

Anti-globalisation – Trump in 2018 was all about CHINA negative…

Energy – prices hit highs in US dollar but ever higher in weak EM currencies – net impact: less consumption

 

 

 

The 2019 Macro theme:  Global Policy Panic.

 

Already seen:

 

• RRR cut in China – promises of tax cuts and monetary easing.
• FED Powell – looking at down-side risk….
• RBA in rhetoric panic over state of lending, SME and housing…..
• ECB dovish as ever… and a new incoming President an issue…

 

 

 

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Steen’s Chronicle: The global police panik

 

Dear Friends

 

Please find my latest macro piece titles: The Global Policy Panic

 

The main thesis being that Q1 will see politicians and central bankers panic extending the pretend-and-extend cycle one final time

 

Safe travels

 

Steen

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Steen's Weekly Macro Chart: Theme? Stress, stress and more stress

Attached the Weekly chart – partly from Saxo Macro-mania, partly from best of Twitter likes this week…

 

Themes:

 

• UK – Our biggest NEGATIVE view – not only is credit impulse collapsing but REAL WAGES in UK below ITALY since 2008! This almost guarantee a run for PM Corbyn!!!!
• US – Inflation well below 200 pc now – (FED SF agrees this morning) setting up OVERWEIGHT in US Fixed Income @ or just after December hike – REMEMBER Powell speaks tomorrow
• Global Monetary base lowest -smallest – since 2006…….
• US – Credit falling out of bed – any the Mortgage market price home owners @ 500 bps almost..! Cycle end is near..
• The Illusion of Capitalism  - most markets in the world driven and operated as MONOPOLIES – the exact opposite of capitalism with market allocated freely priced goods – Wonder why we have no growth and no productivity – this chart shows you why!

 

 

 

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

Please visit our website at www.saxobank.com

 

 

 

 

This email may contain confidential and/or privileged information. If you are not the intended recipient - or have received this email by mistake - please notify the sender immediately and destroy the email. Any unauthorised copying, disclosure and/or distribution of the contents and/or attachments in this email is strictly prohibited.

Email transmission security and error-free delivery cannot be guaranteed as information could be intercepted, corrupted, destroyed, delayed, incomplete and/or contain malware (virus). The sender of this email, therefore, does not accept liability for any errors and/or omissions in the contents of this message, which may arise as a result of email transmission.

Macro Digest: The Brexit deal which keeps giving…

Macro Digest: The Brexit deal which keeps giving…

 

Full text of "Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community as endorsed by leaders at a special meeting of the European Council on 25 November 2018"

 

Our analysis:

This was the 'easy part' of the Brexit deal – agreeing with a desperate EU. The vote is unlikely to carry in the UK Parliament setting up additional nervousness and volatility - PM May looking to get vote in Parliament before Christmas.

We remain serious concerned about the UK economy – our Credit Impulse in UK has collapsed to unheard lows, which tells us UK economy could be recession driven by summer of 2019.

 

We deem the vote to be a loss for PM May as of now (with 70% probability)

Any rally in GBP should be sold (Critical support sits @ 1.2660), as the UK parliamentary system is working its way towards a non-solutions and as such risk a handover of control in Parliament despite the lack of alternative. The ultimate price could be a split of the Tory Party before 2019 is over.

EU officials was "crying" this morning as they after more than 20 month of negotiation gave their ok after less than an hour's discussion.

EU described it as a "orderly withdrawal". The EU immediately returned to their old ways of intimidating the opposition by having the EU Commission President JC Juncker say: "….anyone in Britain who the bloc might offer improved terms if MPs rejected the deal would be "disappointed"" (Source: BBC - https://www.bbc.com/news/uk-46334649)

Reuters carried the British opposition response which was not kind:

BRUSSELS (Reuters) - Britain's main opposition Labour Party will oppose the government's Brexit deal in parliament, its leader Jeremy Corbyn said on Sunday, describing the agreement approved in Brussels as "a miserable failure of negotiation".

"This is a bad deal for the country. It is the result of a miserable failure of negotiation that leaves us with the worst of all worlds. It gives us less say over our future, and puts jobs and living standards at risk," Corbyn said in a statement.

"That is why Labour will oppose this deal in parliament. We will work with others to block a no deal outcome, and ensure that Labour's alternative plan for a sensible deal to bring the country together is on the table."

The "easy part" for PM May was to make a deal with an EU desperate to close the talks, now the focus is on Parliament. Already this Sunday the deal has been met with a no thank you from Labor (see above) and the 10 Northern Ireland – The Democratic Unionist Party - mandates which secures May her majority in Parliament.

British media also insists that up to 90 lawmakers of her own party have said they will vote against the deal. PM May hopes to have a vote before Christmas.

Links

https://www.theguardian.com/politics/eu-referendum+tone/comment

https://www.ft.com/brexit

https://www.economist.com/brexit

Safe Travels,

Steen Jakobsen

Chief Investment Officer, Saxo Bank

 

 

 

 

 

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Macro Digest: Re-introducing Saxo Stress Indicator

Dear All,

 

A few years back we used to publish our WEEKLY STRESS INDICATORS and some clients/readers have requested as return of it…

 

There is some restriction in using STRESS INDICATORS in terms of data feed, so in its place I will introduce this format: SJ's Weekly Charts. A collection of chart I have seen / produced over the last week.

 

Enjoy,

 

Steen

 

 

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

Please visit our website at www.saxobank.com

 

 

This email may contain confidential and/or privileged information. If you are not the intended recipient - or have received this email by mistake - please notify the sender immediately and destroy the email. Any unauthorised copying, disclosure and/or distribution of the contents and/or attachments in this email is strictly prohibited.

Email transmission security and error-free delivery cannot be guaranteed as information could be intercepted, corrupted, destroyed, delayed, incomplete and/or contain malware (virus). The sender of this email, therefore, does not accept liability for any errors and/or omissions in the contents of this message, which may arise as a result of email transmission.