Mar 17, 2017 - Market Update

Short recap

Asia cautious before G20 FinMin and central bankers meeting (Fri/Sat)

EU opening lower

Foreign investors to be able to by Chinese mainland bonds in HK (important change going forward)

G20 – not high expectation, protectionism, free trade and currencies the main themes

US Treasury Secretary Mnuchin made “diplomatic comments” on USD and good international trade relations

US budget – Trump looking at heavy spending for security, topped with cuts in green projects, diplomacy and foreign aid programs

This may back fire to US as they will lose the international presence to mainly China

New approach from US to North Korea coming

US defense stocks to do well (draft of new budget) but trading at high valuations

S&P 500 weak with 2370/80 support

EU equities – as mentioned few time before EU stocks may be an interesting opportunity on the back of short covering after eventual Le Pen defeat

Institutional investors and HF staying short EUR and hedging stock positions for now

What may be reversed after FR elections

Gold – correction higher coming to an end as weaker USD is being offset by higher bond yields

Still neutral but geopolitical risks and potential stock market correction may push gold higher

Nowotny knocked it up yesterday evening – as ECB rate increase may be on the way

Could rise deposit rate before main refinancing rate and end of QE

His comments helped EUR and Bund yields higher

10-yr Bunds yields erased half of the FOMC losses

Now 0.47%, on the way to 0.50%

10-yr Trys yields higher at 2.53%

In between the lines there was also “likely” discussion about who will replace Draghi in 2019

…now it makes sense why Nowotny’s rhetoric was so strong

On the contrary:

USD pullback not to last long as it is getting expensive as it is getting expensive to finance short USD positions

FX markets not reflective yet the rate differentials

Rates not reflecting the 2018/19 dots fully

USD is the 3^rd highest yielding currency among G10

DXY support at 99.26 (61.8% Fibo), then 99.00

Zone of uncertainty, range to decide about next USD direction

USD needs to find support around these levels

Otherwise we have already reached a cyclical high

Data

UK: Bank of England Quarterly Bulletin – anything on future rate hikes?

US: Industrial Production – expected further increase

US: University of Michigan Consumer Sentiment Index – a negative surprise may be coming

Merkel meeting Trump today

Mar 17-18 – G20 FinMin meeting

Should you have any questions feel free to contact me anytime.

Good luck Champs!

Mr Hawk

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