• Friday’s NFP will be artificially boosted by the hiring of temporary Census takers
    by Christopher Dembik on September 2, 2020 at 1:00 pm

    The consensus expects a mixed NFP report for the month of August characterized by a new decrease in the official unemployment rate (U-3), a slowdown in payrolls and a new rise in the broad unemployment rate (U-6). There will be two major points of interests. First, we expect the NFP report will be boosted by massive hiring in temporary Census workers, thus giving a misleading image of the real unemployment trend. Secondly, it is likely that the recent boom observed in public-sector education employment will be normalized or reversed in August due to the spread of the virus. A mixed U.S. Non-farm payrolls report for the month of August is expected. On the upside, the unemployment rate (U-3), which is the most followed indicator by market participants, is forecasted down at 9.8% from 10.2% in July, which would be the lowest level reached since the pandemic shutdowns started. On the downside, the consensus amongst economists expects that the broad measure of unemployment, called U-6, which includes the total unemployed plus all persons marginally attached to the labor force and the total employed part time for economic reasons, will increase for the first time since April to 17.3% versus 16.5% in July. The rise in the U-6 unemployment rate is likely to reflect the impact of COVID-19 resurgence in some regions and the implementation of further social distancing measures. Finally, payrolls are forecasted to rise 1.4 million in August, down from 1.763 million in July. If confirmed, it would be the smallest gain since May, when the lockdown started to be lifted in some states. We expect the NFP report will be artificially boosted by the hiring of hundreds of thousands of temporary Census takers. In a recent blogpost, Bill McBride pointed out that the U.S. Census Bureau has recently released an update (see here) on 2020 Census Paid Temporary Workers. As it is the case every ten years, the Census Bureau carries out a count of every resident in the United States. To do so, it hires a very large number of temporary Census takers. In the July employment report reference week (from July 12 to July 18), the government hired about 50,000 workers and this number jumped to 288,204 in the August reference week (from August 9 to August 15). Said differently, the August BLS employment report is likely to be artificially boosted by the hiring of 237,800 new Census takers. Given these jobs are temporary and massively impact total payrolls, we think the right way to assess the underlying employment trend consists in subtracting from the headline figure the change in the number of Census takers. This adjustment method may sounds a bit unconventional since we use both seasonally adjusted and non-seasonally adjusted data but this is the only way to have a better understanding of the real state of the U.S. labor market. Finally, a normalization or reversal in public-sector education employment may happen after July’s boom due to the spread of the virus. In the July report, we have seen an unusual large increase in local and state government education hiring (for a total of 245,000). The BLS noted: “Typically, public-sector education employment falls in July, but declines occurred earlier than usual this year due to the pandemic, resulting in unusually large increases in local government education (+215 thousand) and state government education (+30 thousand)”. A new increase is unlikely to happen in August. As a direct consequence of COVID-19 resurgence, back-to-school hiring that typically happens in August have been postponed to September or even October, resulting in a likely normalization of even reversal in public-sector education employment. Christopher Dembik Head of Macro Analysis Saxo Bank Topics: Macro United States NZDUSD USDNOK Usdrub USDJPY USDMXN USDCAD USDCHF USD USDZAR USDTRY XAUUSD CADUSD AUDUSD GBPUSD EURUSD

  • FX Update: EURUSD in correction mode after poke at 1.2000
    by John Hardy on September 2, 2020 at 12:10 pm

    Summary: ECB Chief Economist Lane talking up currency effects in ECB decision making and a record weak EU core CPI print yesterday have the euro on the defensive. Elsewhere, is the sterling rally legit or set to quit after a squeeze on shorts? And AUDNZD is nearing a pivot level on the chart for establishing whether the bull trend holds. Trading focus: EUR and EURUSD on the defensive after 1.2000 touch: the magic 1.2000 level was ever-so briefly touched yesterday before EURUSD closed back lower and followed through below 1.1900 in today’s trade. ECB Chief Economist lane took pains to point out that the strong EURUSD is a factor in their modeling just as EURUSD was pushing into the 1.2000 area and then we also saw that record low year-on-year core August CPI inflation reading yesterday at 0.4%, far worse than expected. One thing that could quickly right the ship for the euro even if the ECB does try to pull out the stops next week (more QE really matter?) is that European risk assets may enthuse to the top being taken off the euro rally – major European indices have been very rangebound relative to the strength in the US, but some of them are threatening resistance again in today’s very strong session. Chart: EURUSD The question for traders is whether this is a brief one-off or an opportunity for a deeper consolidation – testing the 1.1750-1.1700 pivot zone or something on a larger scale. I have been in favour of a consolidation of decent magnitude, but most USD pairs have failed to post anything resembling one, so confidence is merely fair for a bearish trade, given the prior failure of what seem excellent pattern reversal setups (like yesterday’s shooting star candlestick after touching the cycle highs) to provide any follow through lower. A close below 1.1850 would take us down through the local rally wave’s 61.8% retracement, but the bigger test looks like the 1.1750+ recent lows and then the 1.1700 area. Note that a mere 38.2% retracement of the rally sequence from the late June consolidation low (that low almost a perfect 38.2% test of the rally off the early May low, by the way), is at 1.1688, while the 38.2% retracement of the entire rally off the March panic low comes in just below 1.1500, as does the 61.8% retracement of the rally wave from the June low.  What to trade? Tactically, I like standing aside here or maintaining shorts on this break below 1.1900 and then watching how the price action shapes up around 1.1700 if we get down there. AUD and NZD working on the night moves We saw diverging fortunes for the AUD and NZD overnight after Australia’s Q2 GDP came in at a weaker than expected -7.0% QoQ vs. -6.0% expected after AUDUSD had managed to scrape to new highs for the cycle above 0.7400. The subsequent consolidation looks innocuous enough, as the pair would need to work below 0.7250 to derail the late rally – something that would likely also require a distinct change of mood in equities and not least commodities markets. Testing the long case around 0.7310 (38.2% of recent wave) will be tempting with stops below 0.7240 (61.8% of recent wave) The kiwi (NZD) on the other hand, powered higher on the RBNZ’s Orr oddly pronouncing no concern on the exchange rate, something that the central bank has mentioned before as a major factor in policy considerations and has also put its intervention money where its mouth is on occasion. Orr also talked up the still dovish tilt of the central bank and apparent readiness to ease further – if NZD doesn’t stop rising right here, this will be soon indeed. In relative strength terms, AUDNZD is the one to watch and needs to find support perhaps head of 1.0800 to avoid a retest back into the 1.0600 and lower area. Another franc fakeout? The franc had one of those days that it has had on several occasions over the last several weeks – a huge one day ramp that struggles to hold into the next day. It is impossible to gin up a narrative for these moves except to perhaps attribute them to major profit taking (and possible SNB intervention?) in USDCHF at 0.9000 just as EURUSD hit 1.2000 yesterday. If the EURCHF move fades deeply back below 1.0800 then we can likely sit on our hands for a time and keep any view on CHF to the side for now. CHF volatility most likely picks up in a full-on recovery mode, with higher yields – not what we’ve seen in recent days. GBP rally too legit to quit? Finally, we continue to watch sterling here as EURGBP has managed a solid break below the prior range lows around 0.8900, which could open up for the 0.8700 zone. Some of this is likely inspired more by Euro negativity in the wake of yesterday’s CPI as there is little UK news flow to celebrate. As for GBPUSD – the 1.3500 level is a massive chart point and trend support starts at 1.3250. Would like something to grab on to for arguing for higher sterling, but sometimes one gets the strongest portion of a directional move before there is any clear attribution. John Hardy Head of FX Strategy Saxo Bank Topics: Forex USD EUR JPY USDJPY EURUSD AUD AUDUSD CAD NZD NOK GBPUSD EURGBP USDCAD EURJPY Coronavirus

  • FX Breakout Monitor: September 2, 2020
    by John Hardy on September 2, 2020 at 9:15 am

    A look at the latest set of currency pairs that are breaking out to new levels and ways to trade these developments. Today USD bears are concerned about the status of the weak USD and CHF is on the move. Today’s Potential New Breakout Signals With the reversal in price action for most USD pairs late yesterday, we have no new breakout signals of note as this was one of the chief sources of recent breakouts. We do highlight below the potential for a EURCHF breakout to the upside that is possible on another stronger close higher today. In other developments, with the USD reversal and a sharp weakening in the CHF yesterday, USDCHF has very suddenly switched gears and deserves watching in the days ahead. Chart highlight: EURCHF EURCHF has ripped higher since yesterday with no real development of note behind the move – in fact, arguably the very low Euro Zone CPI reading suggests that traders will be looking forward to more forceful easing from the ECB and the ECB’s Lane even mentioned that the EURUSD rally is important as EURUSD teased 1.2000 – both of which are euro negative. On the other hand, and perhaps more importantly in the longer run – deflationary risks could trigger more generous EU fiscal stimulus which is usually more FX positive. In any case – the notable area on the EURCHF chart is the 1.0825-1.0850 area series of highs that turned back the action on every prior occasion, and quickly so. So far today, this pattern appears to be repeating – so the price action needs to stick above 1.0835 into today’s close to register a proper break. Breakouts on the radar: USDCHF and EURCAD Chart: USDCHF An upside break for the USDCHF is actually not terribly close (as of this writing about 0.6 ATR further to the upside), but it is somewhat remarkable that it is less than 1 ATR (average true range) away given that the pair just posted multi-year lows recently. The action of the last two sessions has been driven by both USD strength and CHF weakness since early yesterday. Chart: EURCAD Not a heavily traded pair, but interesting to note the scale of EUR weakness being felt here as well as in other euro pairs. A boost in the oil price would be helpful for bears here looking for further CAD appreciation. Table: Breakout Monitor The breakout monitor below offers an overview of recent daily breakouts (a close above or below the prior 19-day highs or lows and 49-day highs and lows to give an indication of whether it there is also a medium term development). John Hardy Head of FX Strategy Saxo Bank Topics: Forex FX Breakout USD EUR JPY EURUSD GBP GBPUSD AUD NZD SEK NOK CHF USDJPY CAD USDCAD GBPJPY EURSEK EURNOK AUDNZD Silver Gold AUDUSD Usdrub ZAR Mexican peso (MXN) EURJPY

  • Equity valuations, Tesla’s capital raise, watch US tech earnings
    by Peter Garnry on September 2, 2020 at 8:45 am

    Equity valuations are hitting highest levels since October 2000 as the speculative fever grows. Tesla is raising $5bn in equity capital to fund growth. Five US technology earnings will report tonight after the US close. The relentless rally in global equities driven by the technology and health care sector has pushed equity valuation on the MSCI World Index to 1.31 standard deviations above the average since 1995. This is the highest level since October 2000. The jump in valuation is naturally driven by the combination of collapsing earnings and cash flows, and the strong bet on a sharp rebound in economic activity. This means that the Q3 earnings in October and November will be crucial for the equity market. The earnings season happens to collide with this year’s US election setting the market up for a high-risk period over this two-month period. The October monthly contract on VIX futures has moved up to 33.4 which is a quite elevated level for expected volatility. Back on July 8 we tweeted that Elon Musk, the CEO of Tesla, should consider taking advantage of the high equity valuations of Tesla’s shares and issue equity capital to accelerate growth even further. Less than two months following our thoughts Tesla announced an equity distribution pact worth $5bn meaning that the company can issue new shares “from time to time” with the intention to use the proceeds to strengthen its balance sheet and fund growth. The world’s leading EV-maker is expanding rapidly having just finished a manufacturing plant in Shanghai and is expanding with new factories in Germany and Texas. The news caused its shares to decline by almost 5% yesterday which is significantly above the dilution effect from the new shares. In the option market a lot of activity is still visible on the $500 strikes with heavy call option volume on the expiration date on Thursday. This means that today’s price action will even more exciting. Today a small group of US technology companies will report earnings after the close. The companies are Crowdstrike, Copart, MongoDB, Guidewire and Smartsheet. What we have observed over the past couple of weeks is that US technology companies reporting earnings have seen speculative rallies into the releases, so potential behaviour could happen again in today’s session. Of the companies reporting today especially MongoDB stands out with a 31% rally since 10 August. It seems investors are betting heavily that analyst estimates are way off expecting revenue only to grow 28% from a year ago following a 46% growth in FY21 Q1 (ending on 30 April) which showed robust revenue generation despite COVID-19. Peter Garnry Head of Equity Strategy Saxo Bank Topics: Equities Corporate Earnings Tesla Motors Technology

  • Podcast: VIX structure and what it means
    by Saxo Market Call on September 2, 2020 at 7:30 am

    Today we look at another strong equity session - this time a more broadly positive one, discuss the turnaround in the US dollar and key commodities developments, but most of all the remarkable behavior of the VIX and what options markets are telling us about now and about the US election risk. Listen to today’s podcast and have a look at today’s slide deck. Follow Saxo Market Call on your favorite podcast app:     If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Saxo Market Call Saxo Bank Topics: Podcast Forex Equities Commodities Macro Nasdaq EURUSD Gold Crude Oil

  • Market Quick Take - September 2, 2020
    by John Hardy on September 2, 2020 at 6:25 am

    The major US equity indices snapped back higher to close at fresh records, with the broader market also participating as small caps stocks erased the weak session from Monday. European equities closed mostly unchanged yesterday after a choppy session but may take heart this morning from the euro backing well off new highs yesterday against the US dollar. What is our trading focus? S&P 500 Index (US500.I) and NASDAQ 100 Index (USNAS100.I) – US equities closed at new record highs and the day’s session was not marred by the divergence so much in evidence in recent days, as stocks rallied nearly across the board, including a full comeback from Monday’s session for small caps yesterday. While the good cheer continues, we have argued that the price action has steepened to a degree that is difficult to maintain and we are charging toward a very significant event risk in two months – the US election, with very different outcomes. More to follow on that. STOXX 50 Index (EU50.I) – European equities managed to pick themselves up from new local lows and close approximately unchanged. The failure of EURUSD to maintain its break to new two-year highs and above 1.2000 could contribute to a brighter outlook for Europe today if the euro continues lower again. As well, the August CPI reading was the weakest year-on-year reading ever and is prompting hopes for forceful signaling from the ECB at its meeting next week. EURUSD – EURUSD poked to new highs for the cycle yesterday, just managing to breach 1.2000 before falling sharply and trading this morning closer to 1.1900. The weakest ever core CPI reading yesterday for August raises the likelihood that the ECB will pull out all of the stops with new measures aimed at defeating deflation risks at its meeting next Thursday. The 1.1900 level has been pivotal and a close significantly below could raise the risk of a move back toward 1.1700, especially as speculative long positioning is at a historic extreme in the US currency futures market. Spot Gold (XAUUSD) & Spot Silver (XAGUSD) - Yesterday’s price action was somewhat discouraging. This after gold failed to challenge $2000/oz despite support from a weaker dollar, record low US real yields and supportive comments from US Fed members. Silver meanwhile failed to attract additional buying despite reaching its strongest level against gold since April 2017. It may signal markets that need a longer period of consolidation and that they - at least in the short-term -  may struggle to break higher without support from a weaker and already oversold dollar and a further decline in yields. The euro reverting back below €1.19 also raising some nervous eyebrows. This after ECB member Philip Lane said “the euro-dollar rate does matter.” The area of resistance remains between $2000 and $2015/oz with trendline support from the June low at $1924/oz. WTI Crude Oil (OILUSOCT20) & Brent Crude Oil (OILUKNOV20) - both remain rangebound with WTI being anchored around $43/b and Brent around $45.5/b. This despite a generally price friendly news flows this Wednesday. US crude stocks are expected to show a sixth weekly decline when the EIA reports at 14:30 GMT today. This after the American Petroleum Institute reported a 6.4 million barrels drop last week. US ISM date beat estimates while OPEC only increased production by half of what was agreed for August according to a Bloomberg survey. WTI and Brent both trade above their 200-day moving averages but continued coronavirus concerns and slowing demand into the autumn/winter months have so far helped capped the upside. AUDUSD - the AUDUSD suffered a setback overnight, in part as the US dollar staged a minor comeback yesterday, but also as Australia posted a weaker than expected Q2 GDP number (more on that below). The move has not yet done any technical damage to the rally in AUDUSD, which would require that the price action slips back below 0.7250-25, so trend followers would look to add to longs well ahead of those levels. AUDNZD – the AUDNZD was in for an ugly drop yesterday as the RBNZ Governor Orr, widely considered one of the most dovish central bank heads, said that he isn’t concerned about the kiwi (NZD) exchange rate, which promptly spiked higher, particularly against a struggling AUD on the latter’s weak GDP report. This has taken AUDNZD down to a critical 1.0800-50 pivot zone that needs to survive if the rally from just below 1.0600 is to survive. Tesla (TSLA:xnas) - Tesla closed over 4% lower yesterday after announcing that “from time to time” it will sell as much as $5 billion in new shares, according to an 8k regulatory filing. It will purportedly use the sale proceeds to bolster its balance sheet and for other purposes. It would be the largest of such secondary offerings in the company’s history if it even reaches half of that total. Note that Tesla’s common stock count grew by 20 million shares in Q1 and another 5 million in Q2. That more than 3% growth in shares outstanding contrasts with Apple reducing its share count by 2.3% via buybacks over the same two quarters. Walmart (WMT:xnys) and Amazon (AMZN:xnas) - Walmart announced yesterday its new Walmart+ service in the US that will compete with Amazon Prime as a subscription-based model that will allow subscribers free shipping for orders over $35 dollars and fuel discounts at Walmart’s fuel stations. The pricing compares favourably with Amazon’s. While Amazon has significant other business units – especially its Amazon Web Services - it will be interesting whether the market begins to treat Walmart valuation differently based on its significant move into e-commerce, something it showed signs of doing late last week with the announcement of Walmart’s interest in joining Microsoft in its bid for TikTok operations – with that effort currently in confusion over new Chinese official involvement in the sale. Crowdstrike (CRWD:xnas), Copart (CPRT:xnas), MongoDB (MDB:xnas), Guidewire Software (GWRE:xnys), Smartsheet (SMAR:xnys) – US earnings releases all reporting after the close. Given the positive momentum into earnings we have observed across many recent earnings releases such as Zoom and Salesforce our view is that many of these names could see price action ahead of earnings release. What is going on? Australian recession is confirmed – first in 28 years – the Australia Q2 GDP estimate of –7.0% QoQ (worse than the I-6.0% expected), thus confirming two consecutive negative growth quarters and ending Australia’s near three-decade positive GDP run. The news was inevitable, given the Q2 lockdowns, and now the outlook is key, as the government and central bank are faced with a two-speed recovery, with the mining industry booming on commodities demand from China while the services sector is still in the throe of dealing with the virus aftermath. Axios reports on risk of a “Red Mirage” on US Election Night this November 3rd – according to the story, it is quite possible, if not likely, according to a Michael Bloomberg-funded intelligence group called Hawkfish that Republicans will have voted in far greater numbers in person than Democrats and could appear to have a strong lead on election night as votes are tallied, as the many mail-in ballots will take days and weeks to count, enhancing the risk that US President Trump could declare victory before results are fully tallied or bring new accusations of voting fraud. As well, mail-in ballots are rejected at a higher rate than in-person ballots. US long treasuries rally further - risk appetite as strong yesterday, but that didn’t prevent long treasuries from putting in a strong session yesterday and more or less completing a reversal of the recent sell-off wave that took the 10-year benchmark yield close to the interesting 0.75%. With this rally, treasuries revert to becoming uninteresting again, unless a new sharp sell-off materializes or if this rally extends aggressively and flattens the curve further, which would suggest that the market’s growth and inflation outlook are waning. What we are watching next? US August ADP Private Payrolls change up today - this data series missed badly in July, only posting a rise of +167k jobs, when millions across the US are unemployed. Recent weak confidence numbers in the US suggest that the labour market remains weak, and support in the form of benefits was curtailed at the beginning of August, so for the bottom half or more in the K-shaped recovery, the outlook could be worsening without a stronger bounce-back in sentiment and hiring. US election risks – as an indication of how seriously this market is treating the risks around the US election due to the very different implications for policy, Bloomberg ran an article claiming that this is the “worst event risk in VIX futures history” as evidenced by the spike in prices for the October VIX futures relative to prices for September and November futures. Economic Calendar Highlights for today (times GMT) 1215 – US Aug. ADP Employment Change – expected at +1M vs. +167k in Jul. 1300 – UK BoE Speakers Governor Bailey and others 1400 – US Fed’s Williams (Voter) to Speak 1400 – US Jul. Factory Orders 1430 – US Weekly DoE Crude Oil and Product Inventories 1600 – US Fed’s Mester (Voter) to Speak 1600 – US Fed Beige Book 0145 – China Aug. Caixin Services PMI   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:     John Hardy Head of FX Strategy Saxo Bank Topics: Macro Equities Commodities Forex Quick Take EURUSD Gold Silver AUD AUDUSD AUDNZD Tesla Motors Wal-mart Stores Amazon.com Australia United States US Election

  • FX Breakout Monitor: September 1, 2020
    by John Hardy on September 1, 2020 at 10:30 am

    A look at the latest set of currency pairs that are breaking out to new levels and ways to trade these developments. Today we finally see EURUSD breaking to a new high. Today’s New Breakout Signals Today, we have just a few new signals, including the EURUSD (and USDCHF) finally joining the other USD pairs late yesterday in showing USD weakness. As we flagged in yesterday’s post, EURNOK has now officially posted a major new low for the cycle and since early March, joined by NOKSEK as SEK has been caught in a neutral range against the euro lately. Finally, EURJPY has bounced back, closing at a new 19-day high after recovering from the news that Japan’s Prime Minister Abe is resigning. Chart highlight: EURUSD EURUSD closed at a new high for the cycle yesterday above the prior high close of 1.1931 and followed through higher overnight. Clearly, the 1.2000 level is the psychological barrier of the moment, and having extended this far, it would be a disappointment for fresh longs here if the pair closes back significantly below 1.1900. Breakouts on the radar: USDJPY and EURCHF Chart: USDJPY USDJPY is one of the more interesting potential breakouts on the radar, having actually just managed to post a new 19-day low close on Friday in the wake of the Japan PM Abe resignation news. It is clear from the range established since the July 31 low that the 105.00-104.50 zone is the critical one for this pair if it is to develop any downside momentum. Chart: EURCHF EURCHF is another interesting chart for traders, as so many prior squeezes into this 1.0800-50 zone have failed to punch through. Note that the high 19-day and 45-day close is 1.0834. Table: FX Breakout Monitor Table: Most recent new breakout signals for each currency pair. John Hardy Head of FX Strategy Saxo Bank Topics: Forex FX Breakout USD EUR JPY EURUSD GBP GBPUSD AUD NZD SEK NOK CHF USDJPY CAD USDCAD GBPJPY EURSEK EURNOK AUDNZD Silver Gold AUDUSD Usdrub ZAR Mexican peso (MXN) EURJPY

  • Precious metals pop higher as dollar extends slump
    by Ole Hansen on September 1, 2020 at 9:15 am

    Gold and silver have entered September in buoyant mood as they continue their rebound. Driven by a combination of a weaker dollar, lower real yields, inflation hedge demand from money managers and general risk appetite as seen through the continued rally in stocks. What is our trading focus? XAUUSD - Spot gold XAGUSD - Spot silver XAUXAG - Gold-Silver ratio IGLN:xlon - iShares Physical Gold ISLN:xlon - iShares Physical Silver ____________________________________________________________________________________________________ Gold has entered September in buoyant mood as it continues its rebound towards $2,000/oz. The combination of a weaker dollar, lower real yields and the US Fed Vice Chair Clarida talking about yield-curve control (YCC) are the key drivers behind the latest move higher. Widely considered influential in setting the Fed’s policy, Clarida was more specific in discussing an eventual yield-curve-control policy in a speech yesterday than was Fed Chair Powell in a major speech last week. He said that while conditions for YCC were not "warranted” at the present time, it “should remain an option that the committee could reassess in the future if circumstances changed markedly.” Whether for this or for other reasons, the USD dropped to broad new lows, especially against the Euro where speculators through futures have accumulated a record short. While US ten-year yields  remained range-bound as per the chart below, the underlying components of real yields and breakevens continues to move in their separate and gold supporting ways. Today the 10-year US real yield touched a record -1.1% today while inflation expectations as seen through the breakeven rate has reached a 16-month high at 1.82%. The Gold-Silver ratio (XAUXAG) which measures the value of one ounce of gold in ounces of silver has dropped to 69, the lowest since 2017. The renewed out performance occurred in response to a supportive rally in copper which reached $3.0945/lb in Asia after China reported a better-than-expected Caixin PMI Manufacturing data. In addition to these growth positive news copper has now for several weeks been supported by tight supplies at warehouses monitored by the major futures exchanges together with the weaker dollar, not least against the Chinese Renminbi which has rallied to a 15-month high at 6.82. Gold is once again taking aim at the psychological $2000/oz level above which the price has only closed five times back in early August. The trifecta of dollar weakness, falling real yields and the general level of risk appetite should potentially already have seen it back above that level. Perhaps a sign that the period of consolidation may extend a bit further before the price eventually mount a challenge at $2000/oz and the next level of resistance at $2015/oz. The underlying demand remains firm with the pension funds and real asset managers around the world increasingly waking up to the need for inflation protection. Not because inflation is an issue but just as much because they don’t want to be left without when and if inflation becomes an even bigger theme than now. Our positive view on precious metals remain unchanged and has if anything been strengthened by the latest developments. The biggest risk to the bullish narrative remains the risk of corrections hitting key markets such as the dollar and stocks. A stronger dollar would reduce the tailwind while a sudden stock market correction may drive the need for cash, something gold liquidation can provide. Ole Hansen Head of Commodity Strategy Saxo Bank Topics: Commodities Coronavirus Gold Silver

  • Euro Area: The inflation shocker
    by Christopher Dembik on September 1, 2020 at 9:00 am

    It is a big miss. Today's disappointing inflation statistics will increase the pressure on the ECB to deliver a very dovish message at the upcoming Governing Council on September 10. It should come as no surprise that the euro area flash HICP and core inflation are significantly down in August. Most of regional surveys that have been released over the past days confirmed a contraction or a slowdown on a YoY basis. In Germany, HICP contracted at minus 0.1% vs 0.0% prior, in Spain it was out at minus 0.6% vs minus 0.7% prior, in France it slowed down at 0.2% vs 0.9% prior and in Italy it collapsed at minus 0.5% vs 0.8%. We will have the detailed HIPC contributions published on September 17 by Eurostat but it is safe to say that the slowdown in inflation is mostly due to the reversal in non-energy goods inflation (which represents 26% of the total basket and is split into semi durables, such as clothing and recreational equipment, durables, such as cars and household appliances and non-durables, which refers to pharmaceutical products or newspapers for instance), post-summer sales in most countries and continued downward pressure in services linked to passengers transport (notably regarding airline fares). In most euro area countries, the underlying trend is going down, thus supporting the idea the coronavirus has been deflationary in the short term. The downward pressure is likely to continue as long as aggregate demand will remain patchy and it could be accentuated, with some delay, by the ongoing appreciation of the euro exchange rate. Over the past three months, the EURUSD cross have increased by more than 7.6% and in trade-weighted terms, the euro is close to record highs. Despite concerns about the spread of the virus in Europe, the strong euro narrative remains prevalent among investors. The exchange rate effect will take a few months to show up in inflation figures but it could translate into a lower inflation of around 0.4-0.5ppt according to our estimates. In terms of monetary policy, today’s inflation data seriously question the ECB’s baseline inflation scenario and the inflation forecasts from June. It puts pressure on the ECB ahead of the September 10 meeting and will force the Governing Council to adopt a dovish stance to address investors' concerns about lower-for-longer inflation. Taking into consideration these statistics, a stronger euro that does not help, and the increased risk of second wave of the virus in many European countries (see our recent analysis about France’s “exponential” second wave), we think that the question is not whether the ECB will spend or not the entire €1.35tn PEPP envelope, which was a subject of debate among economists a few weeks ago, but rather whether the monetary policy stance is loose enough. Said differently, we still expect that the PEPP envelope will be increased again by year-end, thus confirming that we are not getting out from accommodative monetary policy anytime soon. Christopher Dembik Head of Macro Analysis Saxo Bank Topics: Macro EURSEK EURUSD European Union (EU) EURPLN EURGBP EURJPY EURNOK EURCHF EURCAD EURAUD EUR Europe

  • Podcast: US megacaps zoom higher, tepid action elsewhere
    by Saxo Market Call on September 1, 2020 at 8:00 am

    Today we look at a fresh record for US megacaps as the Nasdaq zoomed higher to a new record close even before virus lockdown poster child Zoom Video Communications reported a blowout quarter after the close. Elsewhere, equity action was merely tepid to downright downbeat Down Under. The USD weakened to new lows, helping power precious and industrial metals higher. Listen to today’s podcast and have a look at today’s slide deck. Follow Saxo Market Call on your favorite podcast app:     If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Saxo Market Call Saxo Bank Topics: Podcast Forex Equities Commodities Macro Nasdaq EURUSD Gold Crude Oil