Steen Jakobsen, chief economist and CIO of Saxo Bank is back from a Tour De France and summer holiday and says “it’s time for status on macro view and a look into what rest of 2014 gives us”.

Steen shares his views in a Trading Floor post Steen’s Chronicle: Three things can’t be hidden long: The sun, the moon and the truth (Buddha).

This week saw US GDP rebound an impressive 4.0% taking the run rate for GDP in 2014 to 2.3%, still shy of the ambitious 3.0% the consensus firmly believe in. Wall Street is busy selling strategies on how to hedge the coming hike in policy rates from Fed and we are, again, told how rates will explode.

This narrative will implode and shortly, if I look at Saxo Bank’s JABA models:
Main Macro and Market calls:

Saxo Bank Main Macro and Market Calls

  • Fixed income will outperform all assets class’ in 2014 – View established in Q4-2013. Long 1.5% Danish Government bond, Long Bunds futures, Long 10 Year USA.
  • US Dollar will sell off in H2 of 2014 – NEW VIEW. Long EURUSD and adding short
  • USDJPY. Targets: 1.40+ and 96.00 USDJPY. Yield in US will accelerate to downside in Aug-Nov.
  • Germany will reach negative growth by Q1-2015 & France will be in recession. 
  • Euro growth reach zero again. 2014 another lost year in economics and non-reforms
  • Inflation expectations will bottom in Q4 – major buy signal for gold, silver and more importantly mining.
  • Short Dax since 10.000 – and still believe in 25-30% correction in H2-2014 as projected all year.
  •  Geopolitical risk will see keep energy prices elevated – leaving the consumer with less disposable income and companies with thinner profit margins.

Alpha Positions

ALPHA Positions: (all of which is more than three month old except EURUSD and Crude)

  • Fixed income: Long Bunds since November 2013 / Long 10 Y since April – adding IEF on this “Fed scare”
  • Equity: Short DAX only
  • Commodities: Long Sep. WTI Crude (since two weeks ago)
  • FX: Long EUR/USD from yesterday just below 1.3500 in Sep. Futures, Short AUDUSD Sep
  • Futures (one month old), short ZAR calls – and looking to sell USDJPY

Beta Positions

  • Long 80% fixed income since Q4-2013 – mainly Danish government bonds, Bunds and IEF.
  • Long 15% long equity: AA, INVN, VALE – looking to buy mines, insurance companies and utility in Germany. Major short position not confirmed yet.
  • Cash 5%

More in report. Brief synopsis of Steen’s views: Short the German DAX, long US treasuries and German Bunds, gold and silver major buy signal coming up, US dollar topping vs. Euro, energy firm.

As a proxy for 10-year US treasuries Steen mentions IEF the  Barclays 7-10 year duration US treasury ETF. The play appears to be intermediate-term, citing “inflation expectations” in the 4th quarter. 

Mike “Mish” Shedlock