Intraday Market Thoughts

Central Banks Dominated Q1

Mar 31, 2015 23:36 | by Adam Button

We take a look at how various assets performed in Q1 and mull the big questions in the quarter ahead. The pound was the top performer Tuesday while the euro lagged. Asia-Pacific Q2 trading starts off with a band with the China PMI, Japanese Tankan and Australian building approvals on deck. Today's Premium Insights added a new trade on CADJPY.

Q1 was all about central bank surprises but the one that stands out most was the SNB removing the cap on the franc but looking at Q1 moves as a whole, CHF wasn't as strong as it might have appear. The Swiss franc was the top performer in the quarter but only gained about 2.25% against the dollar and 2.5% against the yen.

It was truly euro weakness that forced the SNB's hand as the market began to anticipate ECB quantitative easing. The euro fell 11.2% against the dollar in the quarter and was easily the worse performing major. The FX weakness led to some outsized gains in Italian and German stocks but much of the upside was erased in USD terms.

Adjusting for FX, the Shanghai composite was the top performer followed by the Nikkei. Those weren't two particularly strong economies but China may be benefiting from anticipation about further easing and continued momentum.

Another major story in the quarter was commodity weakness. WTI crude fell 10.6% in the quarter but base metals, wheat and some soft commodities also sank, along with iron ore. Gold started off the year with a nearly 10% rally but gave it all back to finish the quarter virtually flat.

The story so far this year has been interest rate surprises and central banks will likely stay in focus with the market now pricing a 74% chance of an RBA cut at the April 7 meeting.

Japan is beginning to see some better signs but it still very early and the tone could quickly change so data bears close watching. The quarter begins with the all-important Tankan survey at 2350 GMT. The large manufacturing index is expected to rise to 14 from 12.

At 0030 GMT, the focus shifts to Australian building approvals for February. The consensus is for a 4.0% m/m decline after a 7.9% surge in April. Every data point is big for the Aussie.

A half-hour later it's China in focus with the official manufacturing and non-manufacturing PMIs on schedule. The factory number is expected to slip to 49.7 from 49.9. Ashraf warns that the prevailing market reaction of each disappointment in Chinese figures has been USD-positive and that a soft reading could weigh on AUD.

Act Exp Prev GMT
Chicago PMI (MAR)
46.3 51.8 45.8 Mar 31 13:45
Markit Manufacturing PMI (MAR)
55.1 Apr 01 13:45
ISM Manufacturing PMI (MAR)
52.5 52.9 Apr 01 14:00
Nomura/ JMMA PMI Manufacturing (MAR)
50.4 51.6 Apr 01 1:35
SVME - PMI (MAR)
47.2 47.3 Apr 01 7:30
PMI (MAR)
49.3 49.9 Apr 01 1:00
PMI (MAR)
53.9 Apr 01 1:00
PMI (MAR)
50.7 Apr 01 1:45
Eurozone Markit PMI Manufacturing (MAR)
51.9 51.0 Apr 01 8:00
Italy Markit PMI Manufacturing (MAR)
52.2 51.9 Apr 01 7:45
Germany Markit PMI Manufacturing (MAR)
52.4 51.1 Apr 01 7:55
Building Approvals (FEB) (m/m)
-4.0% 7.9% Apr 01 0:30
Building Approvals (FEB) (y/y)
9.1% Apr 01 0:30
AIG Performance of Manufacturing
46.3 45.4 Mar 31 22:30
AIG Performance of Manufacturing (MAR)
45.4 Mar 31 23:30
Tankan Large Manufacturing Index (Q1)
14 12 Mar 31 23:50
Tankan Large Manufacturing Outlook (Q1)
16 9 Mar 31 23:50
Tankan Non - Manufacturing Index (Q1)
17 16 Mar 31 23:50
Tankan Non - Manufacturing Outlook (Q1)
17 15 Mar 31 23:50

Previewing Tankan & China’s PMI

Mar 31, 2015 18:01 | by Ashraf Laidi

Before previewing tonight's key market-moving date from Asia, namely Japan's quarterly tankan survey and China's PMI readings, it's worth mentioning the unexpectedly upward revision in UK Q4 GDP and the continued (but slow) improvement in Eurozone CPI. Full charts & analysis

Act Exp Prev GMT
Markit PMI Manufacturing (MAR)
54.4 54.1 Apr 01 8:30
Nomura/ JMMA PMI Manufacturing (MAR)
50.4 51.6 Apr 01 1:35
PMI (MAR)
49.3 49.9 Apr 01 1:00
PMI (MAR)
53.9 Apr 01 1:00
PMI (MAR)
50.7 Apr 01 1:45
Eurozone Markit PMI Manufacturing (MAR)
51.9 51.0 Apr 01 8:00
GDP (4Q) (q/q) [F]
0.6% 0.5% 0.5% Mar 31 8:30
GDP (4Q) (y/y) [F]
3.0% 2.7% 2.7% Mar 31 8:30
Eurozone CPI Estimate (MAR) (y/y)
-0.1% -0.1% -0.3% Mar 31 9:00
Eurozone CPI - Core (MAR) (y/y) [P]
0.6% 0.7% 0.7% Mar 31 9:00
Tankan Large Manufacturing Index (Q1)
14 12 Mar 31 23:50
Tankan Large Manufacturing Outlook (Q1)
16 9 Mar 31 23:50
Tankan Non - Manufacturing Index (Q1)
17 16 Mar 31 23:50
Tankan Non - Manufacturing Outlook (Q1)
17 15 Mar 31 23:50

Canadian Dollar Crossfire

Mar 31, 2015 0:31 | by Adam Button

Two events in the day ahead could make for a volatile day of trading in the Canadian dollar. As the quarter began to wind down on Monday, the US dollar was in heavy demand to lead the way while the Australian dollar lagged. Japanese labor cash earnings and Australian private sector credit are due up next.  New Premium trades for the week will released on Tuesday.

USD/CAD rallied for a second day on Monday but it was largely driven by broad US dollar strength. What happens in the day ahead will be critical for the loonie.

The major geopolitical event takes place in Switzerland where negotiations about curbing Iran's nuclear program face a self-imposed deadline on Tuesday. A US State Dept spokeswoman said the chance of a deal is 50/50 but murmurs from other corners suggest the likelihood is higher.

The details or the agreement will matter over time but it's basically a question of 'deal or no deal' for Tuesday oil trading. A positive resolution, even one that doesn't bring Iranian oil fully back into the market for more than a year, will spark immediate crude oil selling. In turn, that will pressure the Canadian dollar and boost USD/CAD toward 1.2800.

The other factor is the January GDP report. Canada is one of the few countries to report on GDP monthly. It's not always a big market mover because it lags but the BOC has been warning about soft growth. On Monday, Poloz said the first quarter of 2015 will look 'atrocious' in the third such warning from the BOC in the past week. Maybe they're trying to prepare markets for a soft reading Tuesday.

In the event of a soft report and a nuclear deal, the level to watch in USD/CAD is 1.2835, which was the cycle high set earlier this month.

In the shorter-term, we urge traders to be careful of a thin market with Japan's fiscal year wrapping up and the quarter coming to a close. The first highlight on the calendar is Fed vice chairman Fischer speaking at 2115 GMT but the topic is shadow banking so it could be low key.

AUD traders show focus on Feb private sector credit numbers due at 0030 GMT. The consensus is for a 0.5% m/m rise. An hour later, wage inflation numbers from Japan are due; labor cash earnings are expected to rise 0.7% y/y. A higher reading would add to the case for tentative JPY longs.

Act Exp Prev GMT
Labor Cash Earnings (FEB) (y/y)
0.7% 1.3% Mar 31 1:30
Private Sector Credit (FEB) (m/m)
0.5% 0.5% Mar 31 0:30
Private Sector Credit (FEB) (y/y)
6.2% Mar 31 0:30
GDP (m/m)
-0.2% 0.3% Mar 31 12:30
Fed's Lacker speech
Mar 31 12:00
Fed's Lockhart speech
Mar 31 12:50
FOMC's Mester speech
Mar 31 13:00
Fed's George Speech
Mar 31 19:00

Yellen Focused on Jobs

Mar 30, 2015 0:51 | by Adam Button

The late-Friday speech from Yellen was notable because she shifted the focus back to jobs and away from wage inflation. The best performers last week were JPY and CHF while AUD lagged. We also look at the weekend news and note that CFTC positioning shows euro shorts at a record.

Yellen delivered a speech late on Friday and the unusual time left less time (and perhaps energy) for market participants to analyse the text. The main headlines were that a rate rise may well be warranted later this year but the bulk of the speech was a call for waiting for more data.

Specifically, Yellen continues to be focused on jobs even though market participants are keyed in on inflation and wage growth. “An important factor working to increase my confidence in the inflation outlook will be continued improvement in the labor market,” she said.

Yellen followed that up by saying a significant pickup in readings on core inflation is not a precondition for an initial hike and that wage inflation is often skewed. The US dollar hardly reacted to the speech and early-week moves are nil.

The main weekend event was the Swiss summit on Iran's nuclear program. The self-imposed deadline for a deal isn't until Tuesday but negotiators appear to be making progress and Russia said there was a much better than 50% chance of a deal. Oil and CAD will certainly be affected by the outcome.

Comments from PBOC leader Zhou could be good news for commodity currencies and risk assets. He said China needs to be more vigilant about deflation and that inflation is slowing a “little too quick.” That could be setting the stage for more hikes but the signals are mixed. Just a week earlier Zhou warned that excessively loose monetary policy could but structural reforms at risk.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -221K vs -194K prior JPY -46K vs -48K prior GBP -39K vs -38K prior AUD -28K vs -29K prior CAD -33K vs -33K prior CHF -4K vs +2K prior

Ashraf wrote about the extreme in euro shorts on Friday. It's often a contrarian indicator but we note that euro shorts rose after the euro bounced to 1.10. That may show a high level of confidence and aggression from shorts that's usually not evident at a turning point.

Act Exp Prev GMT
Fed's Stanley Fischer speech
Mar 30 23:15

Net euro shorts hit record high after 3-year wait

Mar 27, 2015 20:35 | by Ashraf Laidi

Excessive speculative longs and shorts are often used by traders as contrarian sign, but deciding upon what determines “excessive” is debatable.  Full charts & analysis.


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