Intraday Market Thoughts Archives

Our impressions of Janet Yellen's audition for Fed Governor were mostly positive. The pound was the top performer but yen weakness was the major theme.

What Yellen said at her confirmation hearing was less important than what she didn't say. Most market watchers were expecting some strong words to discourage bets on ultra-dovish policy for the long term but she didn't deliver anything beyond the token nod that there are risks on both sides of QE.

We argued yesterday that market interpretation of her prepared statement was overdone and we saw that unwind a few hours later. In her Q&A the market was reluctant to make a strong move in either direction but stocks and risk trades found some support.

Yellen's preoccupation with the weak labor market was the takeaway from her speech and she hinted that 7.3% unemployment understates the problem. Although she said was QE data dependent, she added that it was important not to remove support too soon.

Traders were also watching to see how Yellen handled questions and she grew increasingly comfortable as the session continued. He style is plain-spoken but bland and she steered well-clear of the hazy points of current policy. Overall, it's difficult to imagine the Yellen Fed will be any less dovish than the Bernanke Fed.

Despite all the fundamental news, including slightly disappointing readings on initial jobless claims and US trading, the technical were in the spotlight. A major move could be underway in GBP/JPY as it broke out to a four-year high. USD/JPY also climbed through 100.00 and along with Nikkei strength points to a fresh round of yen weakness.

The pound was also impressive. Cable traded flat on the day but was able to easily recover from selling after a soft UK retail sales report – that's a good sign.

Yellen Passes Audition, Yen Slumps

Our impressions of Janet Yellen's audition for Fed Governor were mostly positive. The pound was the top performer but yen weakness was the major theme. The Asia-Pacific calendar is quiet.

What Yellen said at her confirmation hearing was less important than what she didn't say. Most market watchers were expecting some strong words to discourage bets on ultra-dovish policy for the long term but she didn't deliver anything beyond the token nod that there are risks on both sides of QE.

We argued yesterday that market interpretation of her prepared statement was overdone and we saw that unwind a few hours later. In her Q&A the market was reluctant to make a strong move in either direction but stocks and risk trades found some support.

Yellen's preoccupation with the weak labor market was the takeaway from her speech and she hinted that 7.3% unemployment understates the problem. Although she said was QE data dependent, she added that it was important not to remove support too soon.

Traders were also watching to see how Yellen handled questions and she grew increasingly comfortable as the session continued. He style is plain-spoken but bland and she steered well-clear of the hazy points of current policy. Overall, it's difficult to imagine the Yellen Fed will be any less dovish than the Bernanke Fed.

Despite all the fundamental news, including slightly disappointing readings on initial jobless claims and US trading, the technical were in the spotlight. A major move could be underway in GBP/JPY as it broke out to a four-year high. USD/JPY also climbed through 100.00 and along with Nikkei strength points to a fresh round of yen weakness.

The pound was also impressive. Cable traded flat on the day but was able to easily recover from selling after a soft UK retail sales report – that's a good sign.

The US dollar slumped Wednesday on expectations of dovish testimony from Yellen at Thursday's confirmation hearing. The comments were released early and led to a slump in the dollar. The pound was the best performer on the day after Carney said the recovery was taking hold.  

Yellen said the economy and labor market are performing far short of potential and the Fed has more work to do. Some market watchers interpreted that as saying the economy must improve before the Fed tapers but that's a stretch. She said a strong recovery will ultimately enable the Fed to reduce its monetary accommodation and asset purchases.

The word 'ultimately' probably dims faint hopes for a December taper but it don't kill the chance of action in early 2014 and remember that Yellen is speaking for herself, not the FOMC.

The main event for Yellen will be the grilling she gets from Congress. Yellen is well-known for reading from a script so the risks are high as she is forced to ad lib. The moves in the past 6 hours could be unwound if she doesn't deliver an ode to printing.

An impressive move on the day came from cable as it rallied as high as 1.6065 from 1.5885 in the largest jump in nearly a month. Strong claimant count data and upbeat comments from Carney drove the rally. It was given fresh life by broad US dollar weakness. Retail sales data on Thursday is the next major hurdle for the pound.

Up later, Japan releases its first reading on third quarter GDP and they're expected to show a sharp slowdown from Q2 when the economy grew at a 3.8% annualized pace. The consensus estimate is for a 1.7% pace but estimates range from 0.3% to 2.8%. A reading near the extremes could spark a reaction in yen crosses.

Fed members continue to hint that a December taper is a possibility although it's still a low-percentage possibility. The euro was the top performer while the Australian dollar lagged. Second-tier economic data is on the calendar for Japan.

The Fed's Lockhart said tapering could very well take place next month but his other comments suggested skepticism the economy will improve enough to make it a realistic possibility. He noted real concerns about the sustainability of jobs momentum, warned about low inflation and said policy should remain very accommodative.

Lockhart generally moves with the core of the FOMC and his lack of conviction is likely a reflection of how Bernanke and Yellen feel. Since the end of October, US dollar gains have been fuelled by rising expectations of a taper but anything beyond a roughly 25% probability of a December taper strikes us as out of line with Fed signals.

One Fed member who would like to continuing priming markets is Kocherlakota, who will be a voter in 2014. He reiterated his preference to expand forward guidance by lowering the unemployment threshold to 5.5%. He also criticized the people claiming the fall in the participation rate is demographic and argued discouraged workers are the primary factor.

Traders circulated a WSJ article about a former QE bond buyer. He made the argument that Fed buying and asset inflation is enabling the dysfunction in Washington. It's a sentiment we're increasingly hearing from market participants and could be a source of tapering pressure.

Early in Asia-Pacific trading an RBNZ report complained about the strong kiwi and that led to a quick 30-pip drop. Many traders have noted the textbook head & shoulders pattern on the NZD/USD chart. Up later, the focus shifts to Japan with September machine orders and the Oct CGPI on the docket at 2350 GMT.

Fed members continue to hint that a December taper is a possibility although it's still a low-percentage possibility. The euro was the top performer while the Australian dollar lagged. Second-tier economic data is on the calendar for Japan.

The Fed's Lockhart said tapering could very well take place next month but his other comments suggested skepticism the economy will improve enough to make it a realistic possibility. He noted real concerns about the sustainability of jobs momentum, warned about low inflation and said policy should remain very accommodative.

Lockhart generally moves with the core of the FOMC and his lack of conviction is likely a reflection of how Bernanke and Yellen feel. Since the end of October, US dollar gains have been fuelled by rising expectations of a taper but anything beyond a roughly 25% probability of a December taper strikes us as out of line with Fed signals.

One Fed member who would like to continuing priming markets is Kocherlakota, who will be a voter in 2014. He reiterated his preference to expand forward guidance by lowering the unemployment threshold to 5.5%. He also criticized the people claiming the fall in the participation rate is demographic and argued discouraged workers are the primary factor.

Traders circulated a WSJ article about a former QE bond buyer. He made the argument that Fed buying and asset inflation is enabling the dysfunction in Washington. It's a sentiment we're increasingly hearing from market participants and could be a source of tapering pressure.

Early in Asia-Pacific trading an RBNZ report complained about the strong kiwi and that led to a quick 30-pip drop. Many traders have noted the textbook head & shoulders pattern on the NZD/USD chart. Up later, the focus shifts to Japan with September machine orders and the Oct CGPI on the docket at 2350 GMT.

Trading was thinned by holidays on Monday but markets found a few reasons push ranges. The euro was the top performer on the day while the Australian dollar lagged on a day when moves were limited to less than 50 pips. Trading may pick up as liquidity returns to markets Tuesday and Japan releases several economic indicators.

The euro climbed steadily higher in early European trading, touching 1.3415 from 1.3360 at the end of last week. The rally continues the rebound after Friday's non-farm payrolls and the ECB rate cut a day earlier.

The euro remains more than a cent below pre-ECB levels and has posted two consecutive inside days on the chart. We cautiously look at the rebound as a standard bounce/consolidation so far. Macro traders will be looking for any strength to sell into.

The Australian dollar was modestly weaker throughout the day and fell as low as 0.9343 from Friday's close at 0.9480. Risk trades were marginally perky with the S&P 500 gaining 1 point and European stocks up 0.3-0.7%.

Coming up later, the focus shifts to Japan starting at 2350 GMT with the September tertiary industry index expected to rise 0.2%. Much later its Oct consumer confidence at 0500 GMT which is forecast to rise to 45.5 and then Oct preliminary machine tool orders report at 0600 GMT.

Weekend data from China was very close to forecasts with CPI fractionally lower than expected. The New Zealand dollar is slightly stronger to start the week while the yen lags in light trading. Japanese trade balance is on the agenda later with US and Canadian markets slowed by holidays.

Chinese weekend data gives early traders something to mull after the Australian dollar underperformance last week. Inflation ticked up to 3.2% y/y from 3.1% but it was softer than the 3.3% consensus. The government is targeting 3.5% so officials are likely comfortable with the current level.

The economy remains strong with consumers and factories expanding. Industrial production rose 10.3% y/y compared to 10.0% expected while retail sales rose 13.3% compared to the 13.4% consensus.

The market is complacent about liquidity and real estate risks to the Chinese economy, perhaps moreso than any time over the past two years. The confidence in Chinese growth may extend to fresh investment in resources.

The top item on the Asia-Pacific calendar at 2350 with is the release of September current account balance numbers from Japan. The consensus is for a 853-yen trade deficit in the month along with a 400B current account surplus. Neither report is likely to make waves in FX.

Another report to keep an eye on is Australian home loans at 0030 GMT with a 3.5% rise expected.

We send our deepest sympathies to the people of the Philippines and wish them the best.