Intraday Market Thoughts Archives

EURUSD breaks below its 4-week trendline as the currency draws the bulk of risk-off trades upon the prospects that Thursdays rate cut would do little to tackle the Eurozones looming recession, especially if a 3rd LTRO is not announced at the new (low) refinancing rate. Failing to retest the $1.27 figure, EURUSD appears to be nearing the $1.20-bound path earlier than we had anticipated. Here are Friday's latest Premium Insights w/ charts on EURUSD & EURJPY as well as NFP, Jobless Claims & consumer Confidence. http://ashraflaidi.com/products/sub01/access/?a=664 Non Subscribers can click here: http://ashraflaidi.com/products/sub01/

Spanish 10 year yields 7%; UK input and output producer prices ease further; German industrial production rose; Swiss deflation more intense. Markets await US and Canadian labor market data. Ashraf has given a 99K forecast for NFP. A new set of Premium Insights shall be released after the US jobs report. See details below.

Markets are trading within relatively tight ranges ahead of the key US and Canadian labor market figures. European equity indices are losing about 0.5%.

Spanish and Italian 10 year yields continue to rise in the ongoing session after soaring yesterday. Spanish 10 year yield gained over 3.4% today, wiping out the post EU summit decline and currently trades at 7.0%. Italian counterpart trades around 6.05% and also erased a significant portion of the decline seen since the EU summit. Rumors of Spanish downgrade contributed to the rise.

UK Input PPI dropped 2.3% in June from 0% y/y while producer output prices eased to 2.3% from previous 2.9% y/y. Consumer inflation is therefore likely to ease further in coming months, in line with the BOE's forecast. EURGBP trades slightly lower around 0.7963 which helped to push GBPUSD higher to about 1.5545.

In other news, German Industrial production was above expectations as it rose 1.6% in May from previous -2.2% and Swiss CPI fell 0.3% in June after a flat reading a month earlier which points to more intense annual deflation of 1.1% from previous 1.0%.

June NFP which is due at 8:30 am ET is expected higher at 97K from previous 69K and the unemployment rate is seen steady at 8.2%. ADP and the employment component of ISM non manufacturing bested expectations while the employment of ISM manufacturing declined only marginally suggest a result in line with expectations. A strong print would lead to a drop in QE3 speculation and therefore underpin the USD.

Canadian employment that is also due at 8:30 am is seen slightly lower at 5.1K from previous 7.7K and the unemployment rate should remain unchanged at 7.3%. Canada will also release Ivey PMI that is anticipated to slow considerably to 55.4 in June from previous 60.5. Ivey PMI is due at 10:00 am.

EURUSD, GBPUSD & GBPJPY were all stopped out in the last latest Premium Insights, with USDCAD and AUDUSD hitting all targets. USDJPY and Gold remain in progress. A new set of Premium Insights will be released after NFP. http://ashraflaidi.com/products/sub01/access/?a=663 Click here to subscribe http://ashraflaidi.com/products/sub01/

The ECB followed up easing from China and the UK with a rate cut of its own. In the US, the ISM non-manufacturing index disappointed but indications on employment were better ahead of non-farm payrolls. The Australian dollar was the best performer while the euro lagged. Ashrafs piece on Central Banks farewell to inflation is below.

It was an action packed session that had the volatility to match. The ECB lowered the refi rate by 25 basis points to 0.75% and took the deposit rate to zero to encourage lending. Draghi said downside risks have materialized but quashed hopes for non-standard measures, hurting sentiment further.

The euro fell and closed below the June low of 1.2406, wiping out the EU Summit euphoria. The drop makes a technical case for a fall to the May bottom of 1.2286. EUR/AUD also fell to an all-time low. The market interpreted the near-simultaneous cuts as a sign of economic weakness rather than a move that will stimulate the global economy.

The most troubling signs were in the periphery bond market, which was begging for extraordinary action to lower borrowing costs. It didnt come and Spanish 10-year yields jumped 37 basis points to 6.78%. Italian 10s also crested above 6%.

Economic data was mixed. On the downside, the ISM services index slipped to 52.1 compared to the 53.0 consensus. The good news was that the employment component improved to 52.3 from 50.8. That coincided with a rise in ADP employment to 176K. That beat the prior reading and +100K consensus. Initial jobless claims were also better than expected.

The consensus estimate for NFP is +90K but the latest indicators point to a slightly higher reading. That could be balanced out by downward revisions and the unemployment rate is always a market-mover.

Given the broad market sentiment, an upside surprise will be viewed as an aberration while a weak reading will be interpreted as a warning that growth may fall below 2%.

The lone item on the Asia-Pacific calendar is the Japanese leading index for May. The consensus is for 95.0 after a 95.6 reading in April but it is a lower-tier indicator.

Ashrafs piece on the rapid convergence between Chinese and UK infkation rates and the implications for risk and central bank armory. http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

The BoE left interest rates unchanged at 0.5% and increased the asset purchase facility by GBP 50 bln to GBP 375 bln despite suggestions by some that lowering the bank rate might be a better option than putting more money into the system. The surprise of the day (so far) is the decision by the Peoples Bank of China to cut lending/deposit rates by 25-bps at the same time of the BoE decision.

EURUSD trades near lows of the day at 1.2490s, while gold pushes near the highs at 1620. Equities could push further up as the ECB adds the next dosage of central bank stimulus.

Markets will focus on the ECB that will announce its rate decision at 7:45 am ET. Most analysts expect 25 bps cut to a record low 0.75% but some are suggesting even 50 bps cut or an introduction of new non standard easing measures.

European data calendar was limited to UK Halifax HPI that rose 1% in June from previous 0.4% and German factory orders that rose in May 0.6% after upwardly revised April's -1.4%.

The fact that the path to a European banking union is unlikely to be without major obstacles is represented by a story published by MNI in which top German economist Hans Werner Sinn called decisions at the EU summit "wrong" and called for public protests against a banking union.

In other news, the first Spanish post EU summit auction was mixed. The average yields declined but cover fell as well and Spain was able to sell EUR 3.001 bln vs. 2.5-3.5 bln target. The Eurogroup announced that it will meet on June 20th to discuss developments in Greece and Spain.

WTI trades higher after Statoil started to prepare to halt production on the Norwegian continental shelf and after Iranian media reported threats focused on Israel and the US military bases across the Middle East amid continued testing of ballistic missiles. WTI reached above yesterday's highs and touched 88.70 before falling to current 88.05.

The US session starts at 8:15 am ET with ADP report that is anticipated to decline in June to 103K from May's 133K. The ECB press conference will start at 8:30 am along with jobless claims that are seen marginally lower at 385K from 386K. ISM non manufacturing is due at 10:00 am and it is seen lower at 53.1 in June from previous 53.7.

The latest technicals on US Crude (WTI), gold, copper and silver

http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

Here is the link to Ashraf's Monday night webinar with Fari Hamzei (market timing on stock indices) and George Cavaligos (Bonds & Bunds). Ashraf opens up the webinar . https://www.hamzeianalytics.com/Educational_Webinars.asp

Pent up optimism and improved US economic data sparked risk assets ahead of the US holiday. Sizable gains in oil made the Canadian dollar the best performer while the yen lagged. The focus will be on AUD following the RBA decision and with retail sales data on deck. Tonights Premium Insights look at quadruple tops in Gold/Oil ratio & the resulting quadruple bottoms in equities. See more below.

EURUSD slumped to 1.2560 early in US trading but quickly rebounded on upbeat factory orders and auto sales. May factor orders climbed 0.7% compared to +0.1% expected. In the same report, durable goods orders were revised higher.

Throughout the day, US manufactures released stronger-than-expected sales figures that pointed to a better report on Thursday when retail sales figures are released. As US stock markets rose, the euro climbed as high as 1.2629 before closing near 1.26.

The IMF downgraded its US growth forecast for 2012 down to 2.0% from an already-modest 2.1% and Lagarde pushed lawmakers to tackle the fiscal cliff before its too late.

The largest mover on the day was oil, climbing $3.80 to $87.55 on reports that the US is building up forces in the Middle East in order to deter Iran from blocking the Strait of Hormuz.

France also unveiled plans for sweeping tax reforms while lowering the official 2012 growth forecast to 0.3% from 0.7%.

Markets are likely to be quiet for the next 24 hours in anticipation of the ECB and BOE decisions and with the US closed on Wednesday for a holiday.

At 0130 GMT, Australian May retail sales data will be released. The RBA held rates as expected yesterday so this report will be less of a market mover. The consensus is for a 0.2% rise after an equal sized fall in April.

At 0230 GMT, HSBC releases its China services PMI for June. The prior reading was 54.7.

Equities are already gaining as we made the case for risk-on in last nights webinar using the Gold/Brent ratio. Do triple tops really work? Or is that a quadruple top in the G/B ratio the mirror image of the Quadruple Bottom in Higher Lows in equities? Find out the latest Premium Insights for these trading ideas here: http://ashraflaidi.com/products/sub01/access/?a=663 Non subscribers can join here: http://ashraflaidi.com/products/sub01/

-AB

Equities are already gaining as we made the case for risk-on in last nights webinar using the Gold/Brent ratio. Do triple tops really work? Or is that a quadruple top in the G/B ratio the mirror image of the Quadruple Bottom in Higher Lows in equities? Find out the latest Premium Insights for these trading ideas here: http://ashraflaidi.com/products/sub01/access/?a=663 Non subscribers can join here: http://ashraflaidi.com/products/sub01/

AL

RBA keeps rates steady; UK construction PMI fell and mortgage approvals declined; Eurozone PPI dropped; Spanish and Italian yields lower. Market turns to factory orders. Premium Insights in progress for EURUSD, USDJPY, USDCAD, GBPUSD and gold. See more below.

AUD remains stuck at the confluence of the 100 & 200 DMAs after the RBA left rates unchanged at 3.5% as expected. Most economists now forecast rates to remain on hold in August as well. In the statement the RBA noted stronger economy than predicted, unchanged inflation outlook and further weakness in Europe. AUDUSD trades around 1.0260.

UK construction sector contracted for the first time since 12/2010 as the construction PMI dropped to 48.2 in June from previous 54.4. This was the sharpest fall in construction since 02/2009. Employment declined for the first time in four months and new orders fell as well. Other news from the UK confirmed that total lending to individuals reached GBP 1.3 bln in May from April's GBP 1.4 bln and that mortgage approvals declined to 51.1K in May from previous 51.6K. GBPUSD is slightly weaker around 1.5675.

Eurozone PPI declined 0.5% in May from previous 0.1% m/m and eased to 2.3% from 2.6% y/y which is the lowest rate since 03/2010. EURUSD continues to trade around 1.2590 in about 50 pip range, perhaps because traders do not want to initiate new positions ahead of Thursday's rate decision. Market implied probability of a 25 bps cut currently stands around 38%.

Spanish and Italian 10 year yields continue to decline, currently trading around 6.33% and 5.69% respectively.

US data is limited today to factory orders that are expected to rise 0.1% in May after declining 0.6% in April.

Fridays Premium Insights are in progress for EURUSD, USDJPY, GBPUSD,USDCAD, AUDUSD and gold, while GBPJPY has been stopped out. Direct access is found here: http://ashraflaidi.com/products/sub01/access/?a=661 non subscribers can click here: http://ashraflaidi.com/products/sub01

Now that the US manufacturing ISM survey has finally succumbed to contraction territory (sub-50) already seen by the Purchasing Managers Indices (PMIs) of the eurozone, Germany, UK and China, we await further declines in the survey as well as a confirmation in services survey.

THE TREND REMAINS CLEARLY NEGATIVE especially as the latest Philly Fed survey fell to -16.6 (lowest since August 2011), latest Empire State Manufacturing survey dipped to 2.3 (lowest level since November 2011) and last weeks release of the Chicago PMI hit 52.9 (just above prior months 32-month low). SEE MORE BELOW : http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

Ashraf will be part of a TRIPLE WEBINAR presentation this evening (Monday 17:00 ET, 22:00 BST), with Fari Hamzei (stock indices) and George Cavaligos (Bonds & Bunds). Ashraf will go cover is latest macro-technicals and the implications on FX, gold, equity indices and gold. He will also cover todays sub-50 contraction in US manufacturing ISM and the implications for equities. Click here to REGISTER. https://www1.gotomeeting.com/register/862498377

AL

Now that every major nations PMI is at or below 50, all eyes are on the US manufacturing ISM. ESM bond buying in question; UK manufacturing PMI improved; German and Eurozone manufacturing PMI revised higher; Eurozone unemployment rate rose. Market turns to ISM manufacturing. Registration details on Ashrafs webinar this evening are found below. Fridays Premium Insights on EURUSD & GBPUSD are in the final paragraph.

Markets were consolidating large Friday moves with a slight bias toward USD weakness. A few hours after the London session started, the greenback regained lost ground on reports that Finland and Netherlands will block ESM bond buying in secondary markets which was one of the novelties that was agreed upon during the summit last week. The USD is little changed and European equities are gaining about 0.75%.

UK manufacturing sector contracted again in June but the pace decelerated as PMI improved to 48.6 from previous 45.9. Incoming new business declined for the third month in a row despite cost pressures that fell sharply as input prices dropped at the fastest pace in three years. Employment level also declined. GBPUSD trades little changed around 1.5680.

German final manufacturing PMI for June was revised higher to 45 from initial estimate of 44.7 while the Eurozone's counterpart was revised to 45.1 from 44.8. However, the improvement was negated by Eurozone unemployment rate that ticked higher in May to 11.1%f from previous 11.0% which is new euro era high. Euro is little changed against the USD around 1.2630 but is weaker against the GBP as it trades around 0.8055.

In other news, Swiss data bested expectations today as retail sales soared 6.2% in May from previous 0.2% y/y and June SVME PMI improved to 48.1 from 45.4. Spanish manufacturing PMI worsened to 41.1 from 42.0 and Italian PMI declined to 44.6 from 44.8. Spanish and Italian 10 year yields initially declined but started to recover again. Currently they are around 6.28% and 5.74%.

Markets await ISM manufacturing that is due at 10:00 am ET and is expected to decline in June to 52.1 from previous 53.5.US manuf ISM is the only G10 ISM remaining in expansion territory. Here is a CHART on how soon US ISMs will fall below 50 following the Philly Fed, Chicago PMI & NY Feds Empire survey http://www.ashraflaidi.com/content/images/p_sub01/Philly%20Fed%20NY%20Fed%20Chicago%20Jun%2021.JPG_640W.gif

The volatility could heighten also at 1:15 pm when San Francisco FED president and the FOMC member John Williams participates in a panel discussion on monetary policy.

ASHRAFS WEBINAR THIS EVENING is part of a TRIPLE WEBINAR, with Fari Hamzei (stock indices) and George Cavaligos (Bonds & Bunds). Ashraf will go cover is latest macro-technicals and the implications on FX, gold, equity indices and gold Click here: https://www1.gotomeeting.com/register/862498377

Fridays Premium Insights are in progress for EURUSD, USDJPY, GBPUSD,USDCAD, AUDUSD and gold, while GBPJPY has been stopped out at http://ashraflaidi.com/products/sub01/access/?a=661

The focus shifts from European policy makers to central banks this week with decisions from the RBA, BOE and ECB. On the weekend, the Chinese PMI was slightly higher than estimates. Fridays CFTC data showed a renewed rise in EUR shorts but it was likely wiped out after the rally on Friday. Fraday's 150-pt rally in EURUSD puts back the stabilization track ...for now. Fridays latest Premium Insights are found here: http://ashraflaidi.com/products/sub01/access/?a=661 Non subscribers can click here to join. http://ashraflaidi.com/products/sub01/

The surge in risk trades on Friday leads into a week of critical decisions from central banks and the US non-farm payrolls report.

The official Chinese PMI slipped to 50.2 from 50.4 but surpassed the 49.9 consensus. New orders and export orders declined. Chinese officials and press reports continue to hint at further stimulus via interest rate or reserve ratio cuts.

Merkel attempted to ratchet down speculation about easy money for bond buys from the bailout fund on Friday. She said countries will be required to meet existing EU recommendations for reforms. Merkel also said the size of the ESM would remain the same.

Late on Friday, US Congress approved rules that prevented an unwelcome rise in student loan rates in a transportation bill. In the UK, chatter is increasing about a referendum on its role in the EU.

Asian trading opens with the Q2 Japanese Tankan manufacturing sentiment survey. The 2350 GMT release is expected to remain at -4. The non-manufacturing index is forecast to improve to +7 from +5.

At 0030 GMT, the TD/MI measure of inflation expectations will be released. The prior reading was a benign +1.8%. A further decline could push the RBA toward lowering rates but a cut this week is highly unlikely as officials wait to assess the impact of recent cuts.

At 0230 GMT, the final HSBC China manufacturing PMI is due. The flash reading of 48.4 was below expectations and the final reading tends to slow further because of its bias toward more small businesses.

-AB