Intraday Market Thoughts

AUD Unimpressed by Chinese Rate Cut

Mar 1, 2015 23:16 | by Adam Button

China surprised with a weekend rate cut but the move failed to spark an Australian dollar rally ahead of tomorrow's RBA decision. Early-week market moves are minimal. Weekly positioning data showed a jump in Aussie shorts.

China was the focus of the weekend as the PBOC cut the lending, savings and deposit rates by a quarter-point. The required reserve ratio was left unchanged but the odds of a cut are rising. The move prompted speculation that the official Chinese manufacturing PMI would be soft but at 49.9, it was slightly better than the 49.7 consensus.

The lack of response from the Australian dollar has two facets. The first is that markets are starting to worry if things in China are worse than they appear with this move coming hot on the heels of a November cut. The Fed may know more than it's letting on; in Yellen's testimony she cited international weakness as a risk and the first country she mentioned was China. So rather than buying AUD on the stimulus, the market is worried about the Chinese economy.

Second is that AUD traders are reluctant to react with the RBA decision just over 24 hours away. The futures market implied pricing suggests it's a 50/50 decision and that will overwhelmingly be the AUD driver in the day ahead.

In the shorter-term, the RBA may look at the TD Securities inflation report for February. It's due at 0030 GMT and the previous reading was up 1.5% y/y. Yen traders will be focused on the Q4 capital spending data 20 minutes later. Capex is expected up a healthy 4.1% and give the BOJ some room to breathe.

Commitments of Traders

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

EUR -178K vs -186K prior

JPY -48K vs -49K prior

GBP -22K vs -29K prior

AUD -63K vs -54K prior 

CAD -36K vs -33K prior

CHF -5K vs -6K prior

Specs are acting like they've sniffed out a second RBA rate cut after the soft capex data and jobs reports.

Act Exp Prev GMT
Markit Manufacturing PMI (FEB)
54.3 53.9 Mar 02 14:45
ISM Manufacturing PMI (FEB)
53.5 Mar 02 15:00
50.1 49.7 Mar 02 1:45
Former Fed's Bernanke speech
Mar 02 15:00
Philadelphia Fed's Plosser speech
Mar 02 15:00
TD Securities Inflation (FEB) (m/m)
0.1% Mar 01 23:30
TD Securities Inflation (FEB) (y/y)
1.5% Mar 01 23:30

Slumping Chicago PMI & ISM Implications

Feb 27, 2015 17:17 | by Ashraf Laidi

The 14-pt drop in the February Chicago PMI to 45.8 is the biggest decline since October 2008 and the lowest level since Jul 2009. The sharp fall is attributed to inclement weather conditions (North East) and port-related delays (West Coast). The last time the index fell by more than 10 points was in October 2008, when the financial crisis unleashed brought a standstill to manufacturing activity and jobs losses escalated in the months to follow. Full charts & analysis.

The Final Piece of the Fed Puzzle

Feb 26, 2015 23:30 | by Adam Button

The Fed is confident that low oil prices will only produce transient disinflation and they believe signals from the bond market about low inflation are wrong but one element of the inflation picture irks them – non-existent wage inflation.  Existing Premium trades remain in progress ahead of the last trading day of the month.

The economic models the Fed relies on shows that as jobs rise, wages should rise as well but that hasn't been happening and it's left many members of the Fed waiting 'patiently' for it to appear. The first sign may have come Thursday in the CPI report. The overall report was close to expectations but one number stood out: average weekly wages rose 1.2% in the month compared to the 0.3% consensus.

The data led to one of the largest US dollar rallies so far this year. The euro tumbled more than 1.5 cents to the lowest of the month as the dollar surged right across the board. 

The USD got additional fuel from the durable goods orders report. Core orders rose 0.6% compared to 0.4% expected to halt six months of flat industrial order growth.

Technically, cable made a move to watch. It stalled just ahead of the 2015 high and the 100-day moving average and then collapsed 150 pips to form an outside day. Cable had been one of the best trades of the month but it stumbled badly with only one trading day left in February.

Looking ahead, it's a very big data for economic data in Japan. The market continues to fret about what the BOJ will do next and these numbers may be a critical input. The first numbers hit at 2330 GMT including household spending and employment. At the same time, CPI is expected at 2.4% in the January national reading at 2.2% in the Feb Tokyo reading. But watch the core reading, which is forecast to rise 2.1%.

At 2350 GMT, the focus moves to industrial production and retail trade. To wrap it all up, BOJ leader Kuroda speaks at 0230 GMT and may offer his take on the data and what's next.

Act Exp Prev GMT
Durable Goods Orders (JAN)
2.8% 1.6% -3.3% Feb 26 13:30
Durables Ex Transportation (JAN)
0.3% 0.5% -0.8% Feb 26 13:30
Overall Household Spending (y/y)
-5.1% -4.0% -3.4% Feb 26 23:30
Industrial Production (JAN) (m/m) [P]
2.7% 0.8% Feb 26 23:50
Industrial Production (JAN) (y/y) [P]
1% Feb 26 23:50
Retail Trade s.a (JAN) (m/m)
-0.3% Feb 26 23:50
Retail Trade (JAN) (y/y)
-1.3% 0.2% Feb 26 23:50
FOMC's Mester speech
Feb 27 5:00

USD looking for month-end boost

Feb 26, 2015 19:30 | by Ashraf Laidi

USD bulls found more support in today's US inflation and durables data than USD bears did, leading to a squaring off in Friday's release of the revised Q4 GDP figures. More charts & analysis on Canada CPI & UK GDP found here.

Act Exp Prev GMT
Durable Goods Orders (JAN)
2.8% 1.6% -3.3% Feb 26 13:30
Durables Ex Transportation (JAN)
0.3% 0.5% -0.8% Feb 26 13:30
GDP Annualized (Q4) [P]
2.1% 2.6% Feb 27 13:30
GDP Price Index (Q4) [P]
0.0% 1.4% Feb 27 13:30
GDP (4Q) (q/q) [P]
0.5% 0.5% 0.5% Feb 26 9:30
GDP (4Q) (y/y) [P]
2.7% 2.7% 2.7% Feb 26 9:30
Bank Canada CPI Core (JAN) (m/m)
0.2% 0.1% -0.3% Feb 26 13:30
CPI (JAN) (m/m)
-0.2% -0.4% -0.7% Feb 26 13:30
Bank Canada CPI Core (JAN) (y/y)
2.2% 2.1% 2.2% Feb 26 13:30
CPI (JAN) (y/y)
1.0% 0.8% 1.5% Feb 26 13:30
124.3 124.5 Feb 26 13:30
CPI Core (JAN) (m/m)
0.2% 0.2% Feb 26 13:30

Draghi Seeing ‘Green Shoots’?

Feb 25, 2015 23:59 | by Adam Button

The turning point of the US financial crisis was a comment from Draghi that he was seeing 'green shoots' in the economy. Draghi made a similar comment Wednesday but didn't get the attention in the news or markets. Oil surged after inventory data while the US dollar lagged.  Our Premium subscribers have just received today's new GBP trade with 2 important charts, laying out the technical and fundamental arguments for the trade plan. Our 2 existing USDCAD shorts are currently netting a total of +280 pips, while the two AUDNZD shorts  are up a net +160 pips. Both GBPUSD longs are in the green, with a total of 260 pips. See Premium Insights.

Neither Yellen nor Draghi were able to jolt the market out of a slumber on Wednesday but a quiet trend of improvement in the European economy is emerging. French jobseekers fell by 19K compared to +8K expected and the ECB's Coene said GDP forecasts could be revised higher.

The larger statement may have come from Draghi, who said he sees the first signs of confidence returning to the economy. Certainly, the stock market has been seeing the same thing in the aftermath of the ECB QE announcement.

The euro also continues to stabilize. That's not particularly impressive after the recent swan dive but it's a start and with the speculative market still crowded into shorts, there is plenty of scope for a rebound.

On the topic of rebounds, crude initially plunged to a session low after an 8.4m barrel rise in US supply data but later jumped more than $2.50. The API data a day earlier had foreshadowed a large build and that led to a squeeze. The reversal traced out a bullish engulfing formation on the daily chart as well.

In the market, cable was impressive once again as it touched a six-week high at 1.5539. It's nearly wiped out YTD losses as the market increasingly believes the BOE will be the second central bank after the Fed to hike rates.

Looking ahead, two events in the coming hours are in focus. The first is Australian capex data for Q4 at 0030 GMT. It's expected to fall 1.6% after a 0.2% rise in Q3. Companies continue to slash spending in Australia so any good news would largely be shrugged off while a poor reading would solidify worries.

More interesting might be at 0200 GMT when New Zealand releases data on currency sales for January. Wheeler has intervened in the past 6 months and continues to jawbone. It would be a surprise if the RBNZ was still selling.