Intraday Market Thoughts

Deal Mirage, Earnings Unease & G7 Chatter

Jul 18, 2019 10:24 | by Adam Button

A fresh report on Wednesday saying the US-China have failed to make any progress since the G20 hurt sentiment. Moreover, there is a growing sense that the conditions aren't right for a deal. GBP is the strongest currency on a combination of stronger than expected UK retail sales and comments from EU chief Brexit negotiator reviving hopes of reaching a compromise on the Irish border issue.See the notes on Alcoa, CSX and Netflix below. Euro lost ground on a report stating that the ECB may revamp its approach to inflation. Both of this week's newly added Premium trades are in the green. There are currently 6 trades open. The Premium Video titled "The Short Backed by All 3 Metrics" is out.

A WSJ report said US-China talks are hung-up on executing the US pledge to allow Huawei to buy US technology. Once that's sorted out, China has pledged to buy US agricultural goods. The problem is the White House is struggling to decide what to allow the Chinese telecommunications company to buy so everything has grinded to a standstill.

The inability to make any concrete progress after several indications of an agreement is a sign of trouble. Equity markets stumbled Tuesday after initial comments from Trump expressing displeasure and they fell further Wednesday on the report.

The economic backdrop also makes it tough to envision a deal. The US reopened talks in December after a 20% drop in stock markets; now they're at record highs. There are also signs that China's economy is surviving a pivot towards consumers with retail sales strong in the latest quarter.

G7 FX Chatter

Here is a tweet from Ashraf on the G7 meeting in Paris:

In other economic news, the Fed's Beige Book underscored a solid US economy with 'modest' growth. Commentary highlighted unease about trade but a 'generally positive' outlook and higher loan demand. Earnings continue to paint a slightly different picture. Railway operator CSX warned of softening demand Tuesday and aluminum giant Alcoa cut its global demand forecast Wednesday. Netflix tumbled 13% on news that it lost 130K US clients.

Act Exp Prev GMT
Retail Sales (m/m)
1.0% -0.3% -0.6% Jul 18 8:30

How Many Cuts for a Solid Economy?

Jul 17, 2019 14:23 | by Adam Button

The US dollar rose Tuesday on the combination of stronger retail sales and Fed hints that cuts might not be so deep. The pound lagged and cable fell to the lowest since April 2017 on Brexit fears. CPIs for UK, Eurozone and Canada all came in within expectations, but GBP continues to focus on No-deal related remarks 6 days ahead of the revelation of the new PM. US building permits and housing starts fell by more than expected.  2 new trades were issued on Tuesday for Premium members, supported by 5 technical charts.

توضيح جديد عن الإسترليني و اليورو و الداو جونز

Click To Enlarge
How Many Cuts for a Solid Economy? - Video Arabic Jul 17 2019 (Chart 1)

From the Fed

Former St. Louis Fed President Bill Poole once argued that markets focus too much on the upcoming Fed meeting and not enough on themes and policies that will persist. At this point, a July 31 cut is inevitable. Retail sales were strong with the control group up 0.7% compared to the +0.3% consensus but minutes after the release, Powell brushed it off. He called the consumer and domestic economy solid but once again pointed to uncertainty on trade, business investment and inflation.

It's increasingly clear that the Fed thinks it has gone beyond neutral and needs to take back some rate cuts to boost inflation. Evans and Kaplan added more color Tuesday with Kaplan's comments giving a boost to the dollar by framing a cut as 'tactical' and not the start of a cycle. Evans continued to flirt with the idea of a 50 bps cut but was clear that he only sees 50 bps in total easing this year and whether it was all at once or in two parts was a matter of strategy.

Markets and the Fed are on the same page in terms of near term action but where the rhetoric and market pricing diverges is into 2020. There is a 45% chance of four or more cuts by this year priced into the Fed fund futures market. The implication is that there will be a deeper slowdown but the Fed and other central banks could engineer a soft landing.

Back to Politics

Of course, since it's 2019, it all comes back to politics. What markets are grappling with is Brexit and the US trade war. Johnson and Hunt both said they would need to tear up the Irish border backstop Tuesday and a leak suggested Johnson was serious about keeping out MPs around the Oct 31 Brexit deadline. That helped to send cable down 110 pips. On the US side, Trump took a less optimistic tone on China and talked about tariffs. That hurt equities.

Inflation will be the theme in the day ahead as the pound searches for a spark of life in a market that's betting heavily against it, according to CFTC data. The consensus is for a flat monthly reading and 2.0% y/y rise.

Earlier today, Canada's June CPI held at 2.2% (median core y/y) with the figures among the few spots showing an acceleration in inflation (and an acceleration in activity). The Canadian dollar remains by far the strongest currency so far this year as it is over the last 6 months.

Act Exp Prev GMT
CPI (m/m)
-0.2% -0.3% 0.4% Jul 17 12:30
Eurozone Final CPI (y/y) [F]
1.3% 1.2% 1.2% Jul 17 9:00

Shale & Powell Resistance Eyed

Jul 16, 2019 12:40 | by Adam Button

USD is up across the board, while GBP is at new 2019 lows on fears of no-deal Brexit despite the strongest rise in UK earnings/pay in over 11 years. An important US data report is due shortly, followed by several Fed speakers including Powell (see below). Will Powell's speech present new resistance to the US dollar as it did last week (as is Shale doing to oil)? The rise of US shale has changed all the rules for crude oil and trading around hurricanes is no exception.  CFTC data showed an increasingly crowded GBP trade. Two new Premium trades are set to be issued this week.

Click To Enlarge
Shale & Powell Resistance Eyed - Us Crude Weekly Jul 16 2019 (Chart 1)

WTI crude rose to the highest since late-May last week as it climbed above $60. There was some concern heading into the weekend with Hurricane Barry threatening the Gulf coast. It ultimately made landfall as a Category 1 stor and underperformed most forecasts.

The start of hurricane season is a fresh reminder that old rules for US crude may not apply. A decade ago, the US imported roughly 5 million barrels per day of crude via the Gulf coast that meant that any disruption due to storms would leave the market undersupplied and prices would rise.

But due to the shale revolution, Gulf net exports are now roughly zero. That could leave gluts points and drive down prices, especially if refineries are forced to close. At the same time, there will still be offshore production shutdowns so global supply could be curbed, but the mechanics are no longer nearly as straightforward as they once were and the trade is often to fade any storm-related spikes.

Retail Sales, Powell et al

Looking ahead, Tuesday's release of US June retail sales (control group) is expected to show a 0.3% rise from a downward revised 0.4%. Fed Vice chair Bowman speaks 15 mins before retail sales, followed by Fed Chair Powell in Paris at 13:00 Eastern (18:00 London). Chicago Fed's Evans will speak 2.5 hr later. 

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -36K vs -31K prior GBP -73K vs -64K prior JPY -4K vs -1K prior CHF -10K vs -11K prior CAD +9K vs +6K prior AUD -54K vs -58K prior NZD -22K vs -24K prior

The general theme over the past few weeks is US dollar longs headed to the sidelines but that's not the case in cable as specs bet that whatever is troubling the US will be overshadowed by relentless Brexit uncertainty.

Act Exp Prev GMT
FOMC's Bowman Speaks
Jul 16 12:15
Fed Chair Powell Speaks
Jul 16 17:00
FOMC's Evans Speaks
Jul 16 19:30

أداء القطاعات في الدورة الاقتصادية

Jul 15, 2019 17:05 | by Ashraf Laidi

نلقي نظرة على قطاعات السوق التي تعرض أفضل أداء خلال أي جزء من الدورة الاقتصادية. يكون أداء بعض القطاعات جيداً خلال فترات التوسع الاقتصادي، بينما ترتفع قيمة القطاعات الأخرى خلال التباطؤ الاقتصادي والركود. التحليل المفصل

If you're taking time off

Jul 12, 2019 14:54 | by Ashraf Laidi

If you're planning to take a short holiday and return just in time for the Jul 31st FOMC decision, make sure to keep an eye on next week's release of US June retail sales, industrial production and a few Fed speakers. But there are some crucial items FX traders need to be aware of next week and the one that follows (excluding a very busy US earnings week). And here is a tweet on Fed cuts and indices.

Since you're aware that the new UK PM will be announced on July 23rd, next week should witness some volatility in GBP pairs as articles, reports and breaking stories unfold about candidates Hunt and Johnson. UK and inflation data will also be key. So far, cable has managed to hold the January lows.

Next week is the final week we hear from Fed speakers before the 2-week silent period begins. Speeches from Williams, Bowman, Evans and Powell will be most relevant to USD and gold traders. USD remains held at 1.1240 and 109.00 vs EUR and JPY, while gold must secure the 1382/3 support.

And we close from my April 12th IMT piece titled “Could we see DAX 12700?” when DAX was at 12000. This is a piece from which we can learn a lot. I was very bullish indices from January into April, but changed my stance midway through the May decline. It was a poorly taken decision. Take a look at the index over the last 4 months.  Since then, we focused our Premium trades on FX and metals, where action should remain for the rest of the summer.