Intraday Market Thoughts Archives

Whether the Fed decides to buy another $15 billion in bonds through November is immaterial in dollar terms but it sends an extraordinarily powerful signal. Bullard hinted the Fed could delay ending the taper at the FOMC meeting at month-end. The comment reversed the rout on risk assets Thursday.  

Bullard said it would be logical for the Fed to delay the taper because metrics of inflation expectations – like 5-year breakevens at 1.47% -- have changed the outlook.

The idea wasn't even circulating in markets before the comment and that it came from a Fed hawk like Bullard was a shock that instantly sent stocks higher, bonds lower and the US dollar down. Over the remainder of the day, the US dollar sagged around a cent on most crosses.

The sudden change re-establishes the idea that the Fed will forever back-up risk assets and tirelessly work to prevent any kind of shakeout or scare. Essentially, it's the Yellen put.

At the same time, evidence continues to show the US economy improving. Initial jobless claims and industrial production both hit post-crisis highs in reports Thursday while the Philly Fed was a touch stronger than expectations. If anything, Wednesday's soft retail sales report has been the outlier.

The underlying story is that Europe is slowing and once the shakeout is complete, markets will refocus on that theme.

In the meantime, a mini-bomb hit early in Asia-Pacific trading after the RBNZ inadvertently republished the report saying NZD moves are unjustified and unsustainable. The erroneous report sent NZD a half cent lower before it bounced on the retraction. These are volatile days.

Otherwise, the Asia-Pac calendar is quiet.

You know there's something inherently wrong with markets when each of the few recent rallies week was strictly caused by the Fed. Today's remarks fron St Louis Fed's Jim Bullard suggesting the Fed ought to consider delaying the end of QE is not a joke. Greek spreads are back and the yields dwontrend remains intact. Full charts & analysis.

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Markets came unhinged in one of the wildest days in years. We're entering a period of exceptional volatility in markets and it's a reminder to manage risk because major moves will continue to hit. We examine what today's price action says about what's next. All 4 EURUSD & USDCAD Premium longs hit their final targets, while the USDCHF trades were stopped out, leaving NZDJPY and AUDUSD in progress.

The short version of what happened in markets Wednesday was that US retail sales were soft, with the control group at -0.2% compared to +0.4% expected. The Empire Fed added to the sentiment a 6.1 compared to 20.5 expected.

Sentiment was hanging by a thread after two weeks of elevated volatility and these reports sparked a full-on flight to safety. Traders rushed into bonds with 10-year yields falling as low as 1.86% after a break of 2.20%. Stocks went into a near-panic with the S&P 500 down by more than 50 points at the lows and turning negative for the year.

The story in FX is that Fed rate hike expectations have fallen to a 14% chance of a hike by July from 53% a month ago. That weighed heavily on the US dollar right across the board.

Notably, interest rate differentials trumped the demand for safety in FX. In general, a currency like NZD would lag on a day like Wednesday but it was the leader on higher rates. In addition, a solid milk auction underpinned the kiwi.

Looking ahead, every headline is a major headline in this environment. Sentiment will change by the minute and that makes preparation and defining risk/targets critical elements in trading. We urge our readers to remain confident but stay prudent.

In the near-term, the economic calendar is quiet but one event to watch is Australian consumer inflation expectations at 0000 GMT. The implied pricing for an Australian rate cut has risen to 50% for July 2015 and continued troubles would push that higher and sooner.

As the Dow plunges 445 pts, and the S&P50 drops 50 pts, or 2.7% --its the biggest percentage daily decline since September 11, 2011., it's time to remind of that treacherous "January history cycle". Full charts & analysis.

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Correlations come and go but one thing remains intact; yen is the best performing currency over the last 24 hours, last 5 days and since the start of the month as stocks fall hard.  This explains why we picked GBPJPY and GBPUSD shorts in our last 4 trades.  Full charts & analysis

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The vocal minority at the Fed continues to push for rate hikes but it's clear that a majority wants to wait and see some real economic growth and signs of inflation before liftoff. The yen was the best performer last week while the US dollar lagged after 12 weeks of gains. Weekly CFTC data showed a jump in Australian dollar shorts. As yen crosses resume their damage in Asian-Pacific Monday trading following Friday's US selloff, our GBPJPY and NZDJPY Premium trades are nearing their final targets, with 110 pips in GBPJPY, while the AutoTrade-CopyTrade in GBJPY has been closed at 57 pips.  EURUSD, USDCHF,  USDCAD and AUDUSD remain in progress. Volatility rose to the highest in 8 months in stocks as a 40 point intraday rally Wednesday was followed by a 40 point decline today. The yen was naturally the best performer but it failed to gain 100 pips on any cross.

On Monday, the US bond market will be closed for Columbus Holiday, while stocks will open as normal. The bond market is paring back the chance of a rate hike in the first half of the year. Fed fund futures now imply just a 39% chance of a hike by July compared to 59% in mid-September. That could have major implications for the dollar.

Two Fed speakers who usually remain mum weighed in late in the week. Vice-Chairman Fischer said tightening will start only when expansion is well underway. Governor Tarullo emphasized downside risks, especially from abroad.

It's growing increasingly clear that the Fed hawks – Plosser, Fisher, George and Bullard – are isolated and with the first two on that list retiring in early 2015, there are no guarantees. The long end of the Treasury market continues to rally in a sign that hikes may be delayed and that the terminal top may be lower than 3-4% the Fed projects.

Early in the week, the yen is higher once again. There were many headlines on the weekend but what stood out was Chinese officials expressing reluctance on more stimulus.

The new risk in the US economy is the stock market. The end of QE is nearly here and the rout in stocks at the end of last week could begin to damage confidence.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -146K vs -138K prior JPY -113K vs -120K prior GBP -1K vs +3.5K prior AUD -26K vs +2K prior CAD -7K vs +4.5K prior CHF -12.5K vs -12.5K prior NZD 0K vs +0K prior

In mid-September, the net AUD position was at a 16-month high of +50K and it's dived to -26K. That kind of speculative selling pressure can push a currency to overshoot. But when the Aussie had a chance to bounce last week, it tumbled anyway so it's probably too soon for a bounce.