Macro Dragon: Its about the BoE, not the ECB... Plus Trump vs. Macron Tues Could Spell Risk-Off

Macro Dragon: Its about the BoE, not the ECB... Plus Trump vs. Macron Tues Could Spell Risk-Off

Macro 1 minute to read
Kay Van-Petersen

Global Macro Strategist

Summary:  Macro Dragon = Daily Cross-Asset Global Views

We kick off WK # 4 with a Macro Dragon that looks at all the Major Central banks that will be meeting over the next two weeks including: BoJ, BoC, ECB, Fed & BoE - in addition to KVP's views we also link to the most recent statements. BoE is the most interesting given its recent tilt to the dovish-side & currently c. 70% prob of an insurance cut next Thu 30 Jan. This potentially creates some headwinds against sterling crosses & tailwinds for those tactically short sterling going into next wk. Biggest current market risk would be Trump / Macron (Tue?) fall-out on digital tax of US tech.


(Note that these are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations.)

 

2020-Jan-20

Macro Dragon: Its about the BoE, not the ECB...  Trump vs. Macron Tue Showdown

 

Welcome to WK 4 & Happy Macro Monday + MLK Day…

Welcome to WK 4 in the Macro Dragon land everybody – hope we all had a phenomenal, productive, growth plus laughter filled wkd. Don’t forget the US has a long wkd with MLK Mon today.

And for those in places like Canada that are experiencing almost 3 feet of snow dumped in just two days, stay warm & safe – if only we could transfer that blizzard to burning Australia.

At the very least we are down to about 75 fires given some relief rain, from what was well over 100 fires – yet official rainy season is really not until back end of Feb. KVP (& a lot of others are) is amazed that Australia’s “PM” Scott Morrison has still not stepped down amid the anger of the public & we have not seen a much bigger flood gate of fiscal policy from the government. The paradox of the fires, is that they worsen the effect of the flooding when the rains do come – which is now the next shock that parts of the country is feeling.

Lastly on the climate crisis & mother nature front, even though the Taal Volcano (c. 40miles south of Metro Manilla’s 13m people) is still under a rating of 4 out of 5, it does seem to be weakening with most of the action (lava flow) taking place underground. Here is the latest update from the PH officials.    

 

Central banks over rest of Jan…

Over the next 2 wks we will be hearing from some central banks, including these 5 major ones:

WK 4: BoJ Tue 21 Jan,  BoC  Wed 22 Jan, ECB Thu 23 Jan

Currently from KVP’s viewpoint all the above are likely to be a wash.

BoJ -0.10%e/p, just cannot see them being pushed to do much unless we have DollarYen well south of 103 & likely 100 for an extended period of time – remember their BS is +100% of their GDP, that’s over 4 trillion US dollars!

With the DollarYen above 110 & likely in the midst of a big break-out higher, they are gonna keep their feet on the desks – what could get interesting for BoJ & its watchers, is if we start getting a more dovish Fed later in the year.

Link to last BoJ statement from 19 Dec 2019 plus its Summary of Opinions from that meeting

BoC’s 1.75%e/p Poloz still comfortable with how things are, his fireside chat two wks back was pretty neutral by KVP’s taking – there is definitely a consensus bias out there for them to need to cut, which does not make it wrong. Link to last Dec 4 BoC statement & Poloz fireside chat on Thu 9 Jan 2020.  

Also just as a reflag, he does step down this year & its likely to be his number two that gets the seat, Wonder Wilkens – no, KVP does not anticipate any delta in policy, they seem quite objective & good in deciphering the data, plus likely only one of the few central banks that still really considers things more on a medium to long-term basis… rather than the shortterm-ism of the Fed, BoJ & potentially ECB.

On ECB -0.50%e/p again likely nothing. Yes, Lagarde has asked for a review of how the institution works, yet last KVP heard that report may take up to a year to put into place. Think political capital for more easing was completely depleted towards the tail end of Draghi’s term & a hike is about as unlikely as Trump not tweeting for a wk. Link to ECB’s 12 Dec 2109 Statement & Press Conference

Note we also have central banks from Malaysia 3.0%e/p on Jan 22, Indonesia 5.0%e/p on Jan 23
and Norway 1.50% Jan 23. Latter is particularly interesting, as if there is one central bank that could likely hike in 2020 (they bucked the trend in 2019), it could be Norway which has a relatively closed economy compared to its cousins Sweden & Denmark.



WK 5:
Fed Wed 29 Jan & BoE Thu Jan 30

So KVP already covered his thoughts on the fed 1.75%e/p, in what is likely going to be one of the most important Macro Dragon pieces of the year: 2020 is Half-life for the Fed… Likely 1 cut by 1H20 Key delta is like to come from Apr & cut likely in Jun, however they could use Mar date where projections are due to start to signal that a safety cut could be in the works. Risks of course here are consistent uptick in US economic data, as well as RoW.

The BoE is really the one that is up for contention, as last wk saw three different MPC members including Carney (& they are not the 2 that advocated for cuts in the Dec meeting that was 7-2), lay out some dovish sounds that now has the market implying c. 70% chance of a 25bp cut, this compared to 9% prob at the end of 2019.

The view is if there is a cut, it is likely an insurance cut linked to raft of recent wk data in the UK – Citi’s UK economic surprise index has taken a nose dive from about -31 earlier in Jan to the current -59. Its worth noting that we still have job data & PMIs due before the meeting & a sharp showing here may damped the need for a cut. Still the next BoE meeting would be almost two  months away on Mar 26.

Link to last BoE statement & minutes from Dec 19

Note this make KVP open to consider tactical & near-term shorts on sterling going into next wk, yet would likely look to consider going long on an actual cut or lack of. GBPCHG in particular is sitting at potentially critical lvls for a downside move. AUDGBP & NZDGBP could see some upside tailwinds.

Again time-stop on this is key. Note strategically KVP is a massive long-term bull on sterling & UK assets – more on this later this wk, on 20-4-20.

Further thoughts on rest of wk 4:

  • In addition to the central banks, note again no US leadership today as long wkd due to MLK Mon in the states
  • Chinese New Year kicks off from next wk – so expect the usual dampening of liquidity in the region, especial North Asia
  • Earnings season in the US continues into wk 2, financials seem to have done quite well overall last wk
  • Potential downside risk on Tue – as that should be the deadline for US/FRA to strike a deal on the digital tax that Macron is proposing for all the big US tech players that are arbitraging their international tax commitments (I guess lack of)
    • Obviously if this escalates, its US vs. EU… not US vs. FRA… and Trump would have just shut down one fire to start another! Treasuries & gold would be KVP’s go to… as well as potential tactical shorts in EURJPY or EURCHF…  
    • This is something that is not being appreciated by a market that is currently annualizing over +50% for the S&P 500. Note the S&P is +3.1% YTD, whilst the Nas-100 is +5.1% YTD
  • More noise on Trump Impeachment – meh!
  • Local Italian elections
  • And in a world where the Elite are reviled (Yet admired & likely coveted secretly), its that time of year again for Davos. And yes, once again KVP turned down the annual invite…
  • Econ wise, its all about Flash PMI Fri that will give us a sense if manufacturing & overall global activity is really turning up higher

Have a great wk everyone, good luck out there & don’t forget to keep your mind open to opportunities  

-KVP

-

Some Anchor Pieces from #SaxoStrats:

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.