DON the HELMETS by Steen Jakobsen
Total Page：16
File Type：pdf, Size：1020Kb
By #SAXOSTRATS DON THE HELMETS By Steen Jakobsen The breakdown of the social contract could send Trump to victory and exacerbate volatility throughout markets. Yet, from extreme disruption comes change and the need for a clear out of the current false premises underpinning the system is massive We enter the fourth quarter with extreme low volatility, term position on dollar possibly sending EURUSD interest rates, inlation and growth, combined with high towards a test of 1.00 and some stabilisation of USDJPY anxiety and social inequality. Q4 can and must be about around 100.00, and more against our core long-term the US Presidential election which looks tighter and view, we’re short gold and silver. tighter but it is also a time of the year which seasonally is weak for risk-on as well when governments typically Another reason for this end-of-year belief in a higher become evasive on how little money they will spend on dollar lies with the credit market. The TED spread, which the budget. In other words ‘It’s show time!’ traditionally illustrates credit stress, has risen 40 basis points during the year, and likewise the related LIBOR, I remained convinced the world can’t survive on a which relates to the price of money between banks. stronger US dollar, but despite this, we at Saxo Bank have been laser-focused the past few months on how The Federal Reserve is yet to deliver a rate hike this the ‘cost of capital’ has risen for non-government and year, but the market has done not one, but two hikes how funding in dollar has been slowly but surely drying for the small amount of money which trades freely up. This has led us to a positive short- and medium- without government intervention. It’s also highly likely www.saxobank.ae · Saxo Bank A/S · Philip Heymans Allé 15 · 2900 Hellerup · Denmark · Telephone: +45 39 77 40 00, E-mail: [email protected] Dubai, Currency House, 1st Floor, DIFC, P.O. Box:506830, Dubai, United Arab Emirates, Phone: +971 4 381 6000, Fax: +971 4 325 9209, E-mail: [email protected] Abu Dhabi, Etihad Towers, Tower no. 3, Unit 1401, P.O. Box: 43082, Abu Dhabi, United Arab Emirates, Phone: +971 2 408 8000, Fax: +971 2 658 3400, E-mail: [email protected] 1 By #SAXOSTRATS that post the US election, the Fed will move one more in motion what I have been calling for, for years – the time with a 25-bps hike in December at a 60% chance. need for change. The Fed still wants to hike, while counterparts the Republican candidate Donald Trump may or may not European Central Bank, the Bank of England and the win the US election but his voters and support cannot Bank of Japan are running out of options meaning the be ignored. The social contract remains broken and the support or Put for the market is weakening. We have implications abound. seen recently that even the policy makers indirectly For the record, I think Trump will be the next US acknowledge that not only is quantitative easing and President, not because of what he stands for and QQE not working, it could feed bubbles in the housing certainly not for what says, but because he is so anti- sector and markets. It’s inally establishment. If Trump takes dawning on them that something the White House, it will not be else is needed. because of him but because of the deep unpopularity of his But what is the something Democratic opponent Hillary else? Clinton who represents 100% THE WORLD IS ONCE more of the same, a course Well the new is the old – don’t which has left many Americans lose me here – as the world is AGAIN DREAMING OF poorer. once again dreaming of a iscal A FISCAL EXPANSION expansion to save the world. TO SAVE THE WORLD Don’t forget that the social This is the very remedy which contract through the centuries was used back in 2009 when this has been built on the trust that most unusual business cycle was kicked into gear, both the ruler and ruled would beneit, not through this but there is one caveat we have to make. cycle of pretend-and-extend. The ruled have lost jobs, disposable income and their belief in the future. Fiscal deicits sit with the politicians and most governments are on a diet when it comes to spending, Anyone running for oice anywhere in the world on an especially the major economies in the West. The anti-establishment platform will be elected I will argue. US, France and Germany are all going into election. This again is neither on merit nor ideas, but merely Typically, nothing happens during an election and in the because this world can no longer deal with more of the ensuing 100 days, so while the rest of 2016 will see talk same. More of the same means a world where we have about one day getting more iscal stimulus and about the highest inequality ever, lowest productivity, steering how we should invest more infrastructure, the political rates and inlation, coupled with all-time low volatility calendar will straitjacket action essentially postponing and maximum complacency. policy until...this time next year! I think Q4 will bring the irst sign of change to the Already, 2017 has the look of another lost year for political process and hence will bring about higher growth, but I get the feeling that 2017 will create volatility in markets. Initially, the market will be shocked enough disruption, noise and marginal change, to set to ind that their portfolio is so correlated that hiding in www.saxobank.ae · Saxo Bank A/S · Philip Heymans Allé 15 · 2900 Hellerup · Denmark · Telephone: +45 39 77 40 00, E-mail: [email protected] Dubai, Currency House, 1st Floor, DIFC, P.O. Box:506830, Dubai, United Arab Emirates, Phone: +971 4 381 6000, Fax: +971 4 325 9209, E-mail: [email protected] Abu Dhabi, Etihad Towers, Tower no. 3, Unit 1401, P.O. Box: 43082, Abu Dhabi, United Arab Emirates, Phone: +971 2 408 8000, Fax: +971 2 658 3400, E-mail: [email protected] 2 By #SAXOSTRATS WHILE THE REST OF 2016 WILL SEE TALK ABOUT ONE DAY GETTING MORE FISCAL STIMULUS AND ABOUT HOW WE SHOULD INVEST MORE INFRASTRUCTURE, THE POLITICAL CALENDAR WILL STRAITJACKET ACTION bonds, or gold does not work. The inal warning we have is the fact that we today have cross-asset correlations in the high 60s% meaning there is no hedge to be had as all assets are moving in the same direction. In other words, we have come full circle having not moved anywhere in eight long years. Exhaustion with turning the wheel is at maximum and there’s no-one left who wants to send it spinning again. All macro changes in history originate from political mistakes. Trump becoming president may be a big mistake, but it will set in motion the disruption which the world needs. We are headed for a bumpy ride and we’d advise helmets. But, this is also a ride which will clear out a lot of the false premises on which this market has been built. www.saxobank.ae · Saxo Bank A/S · Philip Heymans Allé 15 · 2900 Hellerup · Denmark · Telephone: +45 39 77 40 00, E-mail: [email protected] Dubai, Currency House, 1st Floor, DIFC, P.O. Box:506830, Dubai, United Arab Emirates, Phone: +971 4 381 6000, Fax: +971 4 325 9209, E-mail: [email protected] Abu Dhabi, Etihad Towers, Tower no. 3, Unit 1401, P.O. Box: 43082, Abu Dhabi, United Arab Emirates, Phone: +971 2 408 8000, Fax: +971 2 658 3400, E-mail: [email protected] 3 By #SAXOSTRATS GREEN BUT GUARDED By Ole Hansen Commodities remain on track to record their irst year of positive returns since 2010. But with the Bloomberg Commodity index up by less than 10%, it could all Commodities are still on track to still change before year-end. While the energy sector continues to stabilise following a two-year sellof, it has post their irst overall green year primarily been the precious metals sector with its 29% since 2010, but concerns remain on gain that has helped stop the commodity rout. multiple fronts. Crude oil and gold Global commodity demand has yet to recover as in particular face a variety of risk continued questions about global growth are being asked. Instead, most of the gains – apart from those events that could send prices lower seen in precious metals – have been due to the supply before the start of 2017. side adjusting, either through cutting production (oil and industrial metals) or through involuntary disruptions caused by weather (softs). www.saxobank.ae · Saxo Bank A/S · Philip Heymans Allé 15 · 2900 Hellerup · Denmark · Telephone: +45 39 77 40 00, E-mail: [email protected] Dubai, Currency House, 1st Floor, DIFC, P.O. Box:506830, Dubai, United Arab Emirates, Phone: +971 4 381 6000, Fax: +971 4 325 9209, E-mail: [email protected] Abu Dhabi, Etihad Towers, Tower no. 3, Unit 1401, P.O. Box: 43082, Abu Dhabi, United Arab Emirates, Phone: +971 2 408 8000, Fax: +971 2 658 3400, E-mail: [email protected] 4 By #SAXOSTRATS Oil lower for longer From the vantage point of early 2016, the year’s inal quarter was widely expected to deliver a irm recovery for oil prices. Prolonged price weakness, it was thought, DURING THE FINAL would ultimately trigger strong demand growth while reducing high-cost production enough to balance the QUARTER WE EXPECT market.