Intraday Market Thoughts

تصحيح: سجل لويبينار الغد

Jul 25, 2016 15:01 | by Ashraf Laidi

"ما تبقى من سلة جانيت يلن؟ وماذا نتوقع من البنك المركزي الياباني يوم الجمعة؟ قبيل قرار الاحتياطي الفدرالي يوم 27 يوليو الويبينار يوم الثلاثاء-- الساعة 18:00 لندن، 20:00 مكة المكرمة للتسجيل، الرجاء النقر هنا

Kuroda Keeps Options Open

Jul 24, 2016 23:02 | by Adam Button

The Fed will attract the most attention in the week ahead but the BOJ is the most intriguing central bank. The US dollar was the top performer last week while the New Zealand dollar lagged. CFTC positioning data showed growing bets against the euro and pound.

Kuroda attended the G20 and spoke to reporters on the weekend. He attempted to walk back comments ruling out helicopter money and made the same point we did last week – there are different definitions of what 'helicopter money' means. At the same time, he said the BOJ didn't discuss helicopter money at all.

The problem is that ruling out 'helicopter money' doesn't rule out any number of monetizing strategist the BOJ could employ.

Other reports now suggest the Japanese government may roll out a 30 trillion yen stimulus package. The rumours in the past two weeks have risen to 20 trillion from 10 trillion and continue to rise.

The weeks ahead are setting up the economic future of Japan and the legacies of Abe and Kuroda. It's a double-barrel all-in bet on fiscal and monetary stimulus. With other global central banks of the same path as Japan, whether it works or not is critical. At the very least, it needs to impress a skeptical market.

Several research notes we've read in the past week have advocated for fighting the BOJ/MOF and the market remains long yen but that's a dangerous bet.

Early in the week, the pound is climbing as fears about the weak PMIs fade. The Asia-Pacific calendar includes Japanese trade balance for June at 2350 GMT. The consensus is for a 11.3% drop in exports y/y and a 20.0% decline in imports.

Commitments of Traders

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

EUR -100K vs -88K prior JPY +39K vs +48K prior GBP -74K vs -60K prior CHF +4.7K vs +6.7K prior AUD +33K vs +16K prior CAD +17K vs +22K prior NZD +2.2K vs +1.0K prior

Yen longs have quickly scaled back from +64K two weeks ago as the market prepares for the BOJ. Meanwhile, AUD longs have risen by 28K in the past two weeks despite speculation about RBA cuts.

Draghi Punts, Trump Leaks on Trade

Jul 22, 2016 0:14 | by Adam Button

The ECB decision was a dud as it pushed the key decisions until September. The yen was the top performer after comments from Kuroda surfaced; the kiwi lagged. The speech from Donald Trump at the RNC is due later but a draft copy leaked early. There are 8 Premium trades, including 2 in metals and 2 in JPY.

Click To Enlarge
Draghi Punts, Trump Leaks on Trade - Usdx Weekly Jul 20 2016 (Chart 1)

The ECB didn't make any changes or tweaks to policy Thursday. Draghi said officials didn't even discuss rates or its QE program and will instead wait for new forecasts in September before acting.

The market sniffed out that nothing was coming when he used the early part of his statement to implore governments towards structural reforms. That was Draghi's way of saying the central bank has done enough and it's time for governments to do more. It's ground he's covered many times before but it's also symptomatic of the ECB waving the white flag and that led to a temporary 50-pip bounce in the euro.

Earlier in the day, the BBC published comments from Kuroda ruling out helicopter money. USD/JPY initially fell 130 pips but it recovered the majority of the losses when it was revealed the comments were five weeks old. Later, talk of mistranslations circulated to add to the confusion.

Another problem with all the 'helicopter money' chatter over the past two months is it's a poorly defined term. It certainly doesn't mean literally dumping cash from helicopters and most don't view it as widespread gifts to taxpayers. Yet something like the BOJ converting its holdings to perpetual zero-yield debt and ramping up buys along with government fiscal spending is closer to the gray area. That's essentially monetization and certainly yen-negative but not necessarily helicopter money.

Looking ahead, the highlight later is Donald Trump's nomination speech. A draft of his speech was leaked and the main theme is immigration but it's also heavy on trade. Most of it is broad and covers familiar ground but in one passage he takes square aim at China and its “outrageous theft of intellectual property” and “devastating currency manipulation.”

Other events on the calendar include the 0200 GMT release of the Nikkei Japan PMI for July and a 0325 GMT roundtable discussion between Chinese Premier Li Keqiang, Lagarde, Carney and others.

Capital Key to the Euro

Jul 21, 2016 3:22 | by Ashraf Laidi

The euro was calm ahead of the ECB decision but the reaction on Thursday will depend how Draghi tweaks bond buying. GBP was the top performer on the day while the yen underperformed all currencies. NZD took another tumble in early Thursday Pacific trade after the RBNZ signalled further easing in its latest economic assessment.

The calculator below shows NZD is the worst performing currency so far this week.

The ECB is running out of bonds to buy. The central bank has bought more than 900 billion euros in its various QE programs but its complex set of rules will need to be changed if it wants to hits its planned 1.7 trillion target.

Those rules are referred to as the capital key and various 'sources' reports suggest the ECB may tweak the rules on Thursday. Otherwise, the meeting is rumored to be focused on banking issues and a move on rates isn't believed to be on the table.

The problem at the moment is that the ECB can't buy sovereign bonds with a yield below the deposit rate of -0.4%. It also must buy bonds in ratios that correspond to the size of each Eurozone economy and no more than a predetermined ratio of each issue. What's limiting purchases is finding enough bonds to buy, particularly German bonds where maturities out to 7 years yield less than -0.4%.

There are constraints in other programs as well, such as supranational bonds and corporates. A main restriction is the ban on buying bank debt. Loosening that may solve financial sector problems and QE restraints but it could be seen as a backdoor bailout. The issue is that any solution to the shortage would create a liquidity or political problem.

The aim for Draghi will be to slowly expand the universe of buy-able bonds without creating a communications nightmare. It's a tricky task but it's also critical to his ability to go beyond the 1.7 trillion in promised QE.

The aim for Draghi will be a smooth delivery, rather than a combative approach. He may attempt to hide the changes in dull language but that's a dangerous game. If he can deliver some effective changes or lay clear groundwork to make them in the future, that should weigh on the euro.

Otherwise, the focus will be on his overall assessment of the economy. Watch for upbeat comments in-line with other central bank positivity as the Brexit panic recedes.

An interesting turn in GBP trading came Wednesday as the BOE's Forbes wrote an op-ed clearly arguing not to ease in August. It helped to lift the pound and threatens to undermine the market's near-certain belief in a move next month.

Technically, USD/JPY broke above the pre-Brexit high Wednesday. The gains came after a report the Japanese government could deliver a 20T yen stimulus budget. That's about double what had been rumored and another sign Abe and Kuroda are planning to go all-in.

Another central bank that's in focus is the RBNZ. Last week, they announced the special publication of an economic update. That was taken to be a sign of a downgrade in economic forecasts that will justify an August rate cut. The report is due at 2100 GMT.

Cable Clipped Again, AUD Sags

Jul 20, 2016 0:13 | by Adam Button

UK CPI data was a touch higher than expected but the pound plunged again anyway. The yen was the top performer while the Australian dollar lagged after the RBA minutes. More Australian data is due later with the skilled vacancies report. The latest Premium video, discussing our FX & metals trades is found below. It also includes a preview for Wednesday's UK jobs report and Thursday's ECB press conference. Last week's JPY trades has now been filled and is in progress.

Cable Clipped Again, AUD Sags - Videosnapshot Jul 19 (Chart 1)

The clearest sign of a bear market is when something can't rally on good news. UK core CPI rose 1.4% compared to 1.3% y/y expected led to a momentary rise in the pound but it crashed down soon afterwards. Steady selling continue throughout the latter half of the day and the pound finished down 170 pips and just below 1.31 at a one-week low.

The IMF weighed in on the Brexit vote by cutting its 2016 global growth forecast for the fourth time. They lowered the estimate to 1.7% this year from 1.9% and for 2017 to 1.3% from 2.2%. Those numbers remain a touch higher than consensus views but it's all highly changeable given Brexit uncertainty.

What stands out is how sanguine the market is on 2017 given some of the estimates. There may be a sense that Brexit won't happen or won't be that bad. That's a dangerous assumption.

Looking ahead, the lone main data point on the calendar is Aussie skilled vacancies at 0100 GMT. The market is increasingly pricing in RBA and RBNZ moves in August and that weighed on AUD and NZD Tuesday. Skilled vacancies are a lower tier indicator but the market is growing more sensitive.

Another sensitive topic is Donald Trump as the Republican primary continues. Betting markets give him a 30% of winning the Presidency. Financial markets are likely lower. If he is to make it a close race, it's imperative that the RNC avoid any further gaffes. We will also be paying close attention to how hard he rails against trade and or globalization for a sign of how he will steer his campaign.