Intraday Market Thoughts

OPEC Up To Tricks?

Sep 28, 2016 0:02 | by Adam Button

The long-anticipated special OPEC meeting will take place in Algiers on Wednesday, we look at the likely outcomes. The Australian dollar was the top performer  Tuesday while the euro lagged. China September consumer sentiment and comments from the RBA's Edey are due next. A new Premium video has been posted, charting the existing and futute charts.

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OPEC Up To Tricks? - Videosnapshot Sep 27 2016 (Chart 1)

The oil market has probably priced a 90% likelihood that the meeting in Algiers Wednesday won't result in anything. Several key OPEC members have explicitly said there will be no agreement. But almost in the next breath, the same members have hinted that they are still having discussions.

The urgency from some members to get a deal before the Nov 30 OPEC meeting is real. Many are worried that rising Iranian and Libyan supplies have left the market vulnerable to a sharp drop and that waiting too long isn't an option.

Yet the rift between Iran and Saudi Arabia remains. Lately, the Saudis have sounded open to more Iranian production but the exact battle lines aren't clear and equally important is a dispute about measuring and reporting output.

What's dangerous in the near-term oil trade is that even if the 'expected' outcome of no-deal happens tomorrow, then oil could tumble. In Nov 2014, when OPEC first broke down it was essentially pre-announced but when the actual headlines came, the bottom fell out of crude. We worry about a replay Wednesday.

At the same time, just in the past few hours Saudi Arabia has hinted that the gap is closing. A surprise deal to cap production could spark a brutal short squeeze.

In the middle, OPEC has the opportunity to try and talk down oil. After years of confused messages, leaders have improved their jawboning this year and they may try to hint at a future cut rather than just a freeze. Ultimately, it will all be semantics but in the frantic oil market, that could lead to a big intraday move.

In Asia-Pacific trading today, don't expect the speech from Edey or the 0145 GMT Westpac-MNI China consumer sentiment to be significant market drivers.

Act Exp Prev GMT
Fed Chair Yellen Testifies
Sep 28 14:00
FOMC's Bullard Speaks
Sep 28 14:10
RBA Assist Gov Edey Speaks
Sep 28 0:20
Eurozone ECB President Draghi Speaks
Sep 28 14:30

CAD on Canvas, Pres Debate Next

Sep 27, 2016 0:03 | by Adam Button

Not even an oil rally could undo the negative Canadian dollar sentiment on Monday in a sign of trouble ahead of the loonie. The yen was the top performer while USD lagged alongside CAD. Data on Chinese industrial profits are due next. 6 of 8 existing Premium trades are in the green, 2 are flat. 5 in FX, 2 in metals & 1 in equity index.

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CAD on Canvas, Pres Debate Next - Db Dax Sep 26 2016 (Chart 1)

USD/CAD is approaching some key technical levels ahead of Poloz's speech. All else equal, the pair should have fallen on Monday as oil prices climbed 2.6% and the US dollar generally softened. But all else wasn't equal and the weak Canadian data on Friday continued to hurt the loonie.

In addition, the first US Presidential debate takes place later Monday at 0100 GMT and with Trump climbing in the polls, the risks to Canadian-US trade deals and relations are rising and that could be a long-term CAD drag.

Speculation is growing that the Bank of Canada is readying the market for a dovish tilt, and perhaps another rate cut. In his most-recent appearance, Poloz said growth and inflation forecasts were likely to be revised lower.

At the moment, USD/CAD is approaching the 200-day moving average at 1.3244 and the July high of 1.3253. With spot only 20 pips below, Poloz could easily push the pair through or set the stage for a firm rejection.

Another item on the agenda in the hours ahead are the BOJ Minutes but note that it's for the July meeting, which was the preparatory meeting for last week's changes. It's unlikely to hold anything new or unknown.

The final event is the August Chinese industrial profits data at 0130 GMT. However, the fallout from the Presidential debate is likely to be the main trading topic in the day ahead.  

Act Exp Prev GMT
FOMC's Fischer Speaks
Sep 27 15:15

GBP Can't Shake off Brexit Reality

Sep 26, 2016 14:20 | by Ashraf Laidi

A sharp fall on Friday sent cable to the lowest close since August 15. The Canadian dollar also slumped badly on weak oil and soft economic data. CFTC positioning showed a GBP shorts slashed.

GBP is the weakest currency and JPY is the strongest as sterling is burdened by further reports that the UK won't be able to clinch any special treatment on its way out from the EU. JPY on fresh declines in equities brought by BoJ desperation and Deutsche Bank sinking to new lows.

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GBP Can't Shake off Brexit Reality - 20160926_Perf (Chart 1)

Euro powers ahead thanks to 2-year highs in Germany's IFO survey.

Comments from Larry Fink grabbed our attention last week; he's the CEO of Blackrock, which is the world's largest asset manager. He forcefully warned that the Brexit vote is having a larger impact than it appears. He warned that investment plans are falling, companies will not be hiring and that it will begin to hit in Q4.

Cable is certainly beginning to act like trouble is on the horizon. A two-day rally after the FOMC was wiped out Friday in a 130 pip fall.

In Canada, the story is similar with USD/CAD jumping on the combination of OPEC disappointment and weak numbers. CAD had been under pressure since Poloz warned about slow growth and inflation earlier in the week.

Friday's numbers underscored the point with July retail sales down 0.1% compared to +0.5% expected and CPI at 1.1% y/y vs 1.4% forecast.

On the week, oil finished higher despite the Friday swoon but with the Algeria meeting coming up, the risks for CAD and crude are high.

The Australian dollar was the top performer last week while its kiwi cousin lagged. Comments from Lowe suggest his RBA will push for more targeted measures rather than using monetary policy. Meanwhile the RBNZ continues to hint at near-term rate cuts.

Commitments of Traders

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

EUR -85K vs -81K prior

JPY +59K vs +57K prior

GBP -59K vs -83K prior

CHF +8.4K vs +1.3K prior

AUD +7K vs +36K prior

CAD +16K vs +17K prior

NZD -8K vs +5K prior

These numbers highlight positioning shortly before the Fed, BOJ and RBNZ decisions. There was a clear rush to unload cable positions despite a sharp fall last Friday. Otherwise, the trend was to buy the US dollar, especially against AUD. Ultimately, that proved to be a mistake as AUD gains on Wed and Thurs.

A new tactical Premium short in equity indices was added on Friday to the existing short.

Two Reasons For USD Strength

Sep 22, 2016 23:35 | by Adam Button

Politics in markets are overrated but it's now six weeks until the US election and with the Fed sidelined and the first debate due Monday, it's time to take a closer look. The dollar was generally soft Thursday but the Swiss franc was the top performer while the yen lagged. The Japanese manufacturing PMI is due next.   

The two reasons for USD strength are Hillary Clinton and Donald Trump. Oddsmakers give Clinton about a 65% chance to win but Trump has closed in the polls. In this environment, there is no telling what will happen but one theme permeates from both candidates – spending.

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Two Reasons For USD Strength - 2016 09 22 Perf (Chart 1)

The era of fiscal discipline is over in most countries but a divided government in the US has led to a standstill. No matter what happens on Nov 8, the winner will is likely to be handed a window to govern. Despite the usual chatter from the fiscal hawks, expect looser purse strings in 2017 and that's an upside risk to growth and inflation projections.

In the short-term, however, the election isn't yet a main market driver. On Thursday, initial jobless claims were at 252K compared to 261K expected but existing home sales were soft at 5.33m versus the 5.45m consensus.

The mode in markets remained 'buy everything' with stocks, bonds and commodities all picking up where they left off after the FOMC decision. The dollar slipped for most of the day but found a bid later and rebounded a half-cent against the euro. Keep a close eye on yields for a signal about what's coming next.

The economic calendar focuses on Japan as the Asia-Pacific week winds down. At 0030 GMT the Nikkei PMI for Sept is due. The August reading was 49.5. The all-industry index is also on the schedule and forecast to rise 0.2%.

8 Premium trades are currently in progress; 5 in FX, 2 metals and 1 in an index.
Act Exp Prev GMT
Flash Manufacturing PMI
52.1 52.0 Sep 23 13:45
Eurozone Flash PMI Manufacturing
51.5 51.7 Sep 23 8:00
All Industries Activity (m/m)
0.2% 1.0% Sep 23 4:30
Unemployment Claims
252K 261K 260K Sep 22 12:30