Macro Monday Week 45: Global Growth Is Still In Free Fall

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

2019-Nov-04

Macro Monday WK 45: Global Economic Growth Is Still In Free Fall

A  replay of the call is available HERE

TGIM & Happy Macro Monday everyone, hope everyone had a great wkd & for the Global Rugby watchers out there Congrats to the new Champions South Africa, as well as great effort by England & New Zealand.

We really have only 6 wks left to mid Dec, before folks start switching off their computer screens, putting down their phones & letting their twitter handles cool off (most folks at least, pretty sure Trump will tweet through Dec!)

This wk is still post digestion of the Fed’s one & done from last wk, we are now sitting with 13.5% prob of a cut for the Dec 11 meeting. And even going to 16 Dec 2020, that is c. 77%. At the same time, the global growth continues to fall, which would suggest to KVP that at some point Fed will need a few more ‘insurance cuts’ Also remember 2020 for the Fed is a half-life year, given US 2020 Nov elections. We covered the Fed & BoC decision last wk on our cross-asset brief, this also included links to statement & press conference replays

Speaking of 2020, note how no one is really talking about Biden anymore? Seems to be Warren, Sander or Buddah Buttigieg… - at least in Iowa. Still early days, would expect the likes of Harris, Yang & Booker to drop out… still early days to Jul 2020 nomination

Wishing everyone a great wk ahead.  

Namaste

-KVP

**

Summary of Prior Week:

• FED: Pretty much delivered a one & done session. Yet the market not fully buying that

• BoC: Keeps rates unchanged, yet does potentially open up the door for flexibility to a cut – again more about non domestic pressures

• CH Econ: Again misses across both Mfg. & Serv. PMIs from China: 49.3a 49.9e & 52.8a 53.7e. So that’s half a year of consecutive contraction in its mfg. PMI

• US Econ: Despite a very strong set of NFPs 128k a 90k e & big revisions to 180k (136k), we saw misses on the MoM AHE 0.2%a 0.3%e & more importantly on the ISM mfg. 48.3a 48.9e 47.8p, marking three back to back months of contraction in manufacturing

• EQ: SPX 3022 +1.2% is just 4 points shy of making new ATHs. Bulls controlled equities across the globe

• FI: Back towards 1.70% lvls on USTs

• FX: -0.61% for DXY, Euro & Yen strengthen on the wk

• CMD: Predominantly up across the complex, with +10.4% NatGas & Coffee +4.6% leading

• Vol: Lower to 12.30 -2.8

COT Report: [@Ole_S_Hansen]

• Post 4 wks of USD additions, we are now into wk two of lower net USD positioning with a -17% (-28%) drawdown to $12.6bn ($15.2bn)
• We continue to AGAIN see big increases in CAD longs from 33K to 44K – its amazing, to KVP at least… that we have just not seen massive CAD strength, now even with CA rates highest in DM
• Once again worth noting the market is still short sterling (despite a -38% reduction, up from last wk’s -28%) & this does not account for the world’s AM being massively UW other UK assets
• i.e. post a firm Brexit & clarity on elections, KVP would likely expect a tsunami of capital into the UK assets. Caveats: situation fluid, a Corbyn gov. & negative UK credit impulse (recession)
• Worth noting this set of CoT profile (from Tues close last wk) was pre Fed & BoC…
• Now into 3 wks of commodity expansion

Week Ahead

Key Focus:

• RBA | US ISM Services | EZ PMIs| US Earnings

Central Banks (SGT):

• RBA 0.75% e/p (5) BNM 3.00% e/p (5) BoT 1.25% e 1.50% p (6) BoE 0.75% e/p (31)

FOMC Speakers (SGT):

• Evans, Williams, Brainard

Other (SGT):

• US & CA Daylights Saving Time Shift, Japan Mon Bank holiday, ECB’s Lagarde Speaking (believe its first public speech as ECB governor)

Econ Data:

• US: Factory Orders, Final Serv. PMI 51.0e/p, ISM Non-Mfg. 53.5e 52.6p, JOLTS, Crude Oil Inventories, UoM Sentiment
• CH: Caixin Serv. PMI 51.5e 51.3p, TB, CPI 3.2%e 3.0%p, PPI -1.5%e -1.2%p 
• EZ: PMIs Mfg. 45.7e/p Serv. 51.8e/p, GER Mfg. 41.9e/p GER Serv. 51.2e/p, EU Economic Forecasts 
• JP: Monetary Base, BoJ minutes, Avg. Cash Earnings
• UK: Serv, OMI 49.6e 49.5p, BoE Inflation Report, House Prices, BoE Rate Decision
• NZ: Milk Auction, ANZ cmd prices, Jobs Data
• AU: RBA Rate decision, MI Inflation Gauge, RS, RBA Monetary Policy Statement, TB, Home Loans
• CA: TB, Ivey PMI 49.3e 48.7p, Housing Starts, CA Jobs Data, Building Permits

Chartography & Price Action

• Snapshot of US earnings so far, all a revenue growth story +3% & mild earnings recession -1.0% story. Basic Materials plus Oil & Gas sectors continue to under-perform on a sector basis, both on top & bottom line (-8.4%, -34.5% and -28.4%, -31.5%). So far Utilities & Health Care have the best earnings growth at +9.3% & +8.5%
• Number of weekly charts from DXY to Gold, Silver, to SPX, Nifty-50, VIX & Hog Futures showing the very clear consistent seasonal effects that Raymond fantastically flagged

From Home.Saxo

• Peter’s latest monthly piece on equities: Macro & Equities Divergence Increased in October
• Hardy’s latest FX Breakout Monitor: USD Outlook still chef focus after strong payrolls

• Jakobsen on all things brexit: The UK General Election Finally Agreed, Brexit Not So Much

• Hansen's latest commodity focus: Crude Oil