Intraday Market Thoughts Archives

Ashraf released a revealing poll on Thursday, it asks what you would do if forced to make three trades before the end of the month. See below about the insurance rate cut topic. I choose gold longs as one because even if the Fed cuts 25 bps and doesn't offer any clear guidance going forward, there is still a tailwind in gold that will blow for years. Comments from key FOMC members opened the door for a 50-bp rate cut in addition to Trump's announcement of US striking an Iranian drone approaching a US ship near the Strait of Hormuz-- caused the US dollar to post its biggest decline in nearly four weeks and gave silver its fastest increase in over six months. So what's next. Our 3 of USD Premium trades, 2 metals and 1 index trade are in progress and all in the the money.

25 bps or 50 bps?

NY Fed's John Williams sent markets on a ride after comment suggesting the Fed should act more aggressively on the dovish side to beat back low inflation expectations. Also weighing on the USD were remarks from Richard Clarida, the vice president of the Federal Reserve, that: "recent global economic data have been softer than expected. We've had mixed data, but I do think the global data has been disappointing on the downside. Disinflationary pressures, if anything, are more intense than I thought six weeks ago.”

Insurance Cut?

Another essential question is whether a rate cut this month will be an 'insurance' cut or the start of a cycle. I don't expect we'll get the answer this month because the Fed would want to see more data before making a decision in September or later in the year. Ashraf reminds us that the only time the Fed carried out an insurance easing was in autumn 1998, when it made 3 rate cuts of 25-bps each  to stem the liquidity and confidence crisis of LTCM collapse and EM crisis. Every other rate cut over the last 30 years was the start of a protracted campaign.

Both questions are relevant, but what's lost is that by cutting rates (25 or 50 bps), the Fed has essentially capped rates, confirming that the 2.25%-2.50% range shall be the top of the mountain for years.

So whether a big global slowdown comes now or later, the path of rates is eventually lower and it almost certainly ends in more QE, bigger deficits, more negative yielding bonds, more political instability and a high likelihood of a currency war. When that comes, it's a screaming buy for gold.

From a trading perspective, the timing is important but there is a positive technical setup as well. Last month, gold broke above the major $1380/$1400 zone and on Friday it climbed to a fresh six-year high.

تعقيباً على مقالي عن أداء القطاعات في المراحل المختلفة من الدورة الاقتصادية، نتابع الموضوع عن  كيفية أداء هذه الشركات في قطاعات البورصة وتأثير مراحل الدورة الاقتصادية على ازدهار أو انخفاض الأداء في الفيديو المفصل

Gold and silver are unsurprisngly getting much attention now, and everywhere you look there's a gold/silver ratio chart popping out. Here's an FT piece quoting me about the "Mint Ratio" from a while ago (see date). Useful to compare & contrast with today's case. Link

If you were given $10,000 in real money today with one requirement: You must place 3 trades between now and the rest of the month, what would you do? The choice is strictly among spot forex (currency pairs), gold, oil, DOW30, SPX500 or DAX30. Pick your choice here

http://ashraflaidi.com/forex-poll/what-would-you-do

A fresh report on Wednesday saying the US-China have failed to make any progress since the G20 hurt sentiment. Moreover, there is a growing sense that the conditions aren't right for a deal. GBP is the strongest currency on a combination of stronger than expected UK retail sales and comments from EU chief Brexit negotiator reviving hopes of reaching a compromise on the Irish border issue.See the notes on Alcoa, CSX and Netflix below. Euro lost ground on a report stating that the ECB may revamp its approach to inflation. Both of this week's newly added Premium trades are in the green. There are currently 6 trades open. The Premium Video titled "The Short Backed by All 3 Metrics" is out.

A WSJ report said US-China talks are hung-up on executing the US pledge to allow Huawei to buy US technology. Once that's sorted out, China has pledged to buy US agricultural goods. The problem is the White House is struggling to decide what to allow the Chinese telecommunications company to buy so everything has grinded to a standstill.

The inability to make any concrete progress after several indications of an agreement is a sign of trouble. Equity markets stumbled Tuesday after initial comments from Trump expressing displeasure and they fell further Wednesday on the report.

The economic backdrop also makes it tough to envision a deal. The US reopened talks in December after a 20% drop in stock markets; now they're at record highs. There are also signs that China's economy is surviving a pivot towards consumers with retail sales strong in the latest quarter.

G7 FX Chatter

Here is a tweet from Ashraf on the G7 meeting in Paris:

In other economic news, the Fed's Beige Book underscored a solid US economy with 'modest' growth. Commentary highlighted unease about trade but a 'generally positive' outlook and higher loan demand. Earnings continue to paint a slightly different picture. Railway operator CSX warned of softening demand Tuesday and aluminum giant Alcoa cut its global demand forecast Wednesday. Netflix tumbled 13% on news that it lost 130K US clients.

The US dollar rose Tuesday on the combination of stronger retail sales and Fed hints that cuts might not be so deep. The pound lagged and cable fell to the lowest since April 2017 on Brexit fears. CPIs for UK, Eurozone and Canada all came in within expectations, but GBP continues to focus on No-deal related remarks 6 days ahead of the revelation of the new PM. US building permits and housing starts fell by more than expected.  2 new trades were issued on Tuesday for Premium members, supported by 5 technical charts.

توضيح جديد عن الإسترليني و اليورو و الداو جونز

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From the Fed

Former St. Louis Fed President Bill Poole once argued that markets focus too much on the upcoming Fed meeting and not enough on themes and policies that will persist. At this point, a July 31 cut is inevitable. Retail sales were strong with the control group up 0.7% compared to the +0.3% consensus but minutes after the release, Powell brushed it off. He called the consumer and domestic economy solid but once again pointed to uncertainty on trade, business investment and inflation.

It's increasingly clear that the Fed thinks it has gone beyond neutral and needs to take back some rate cuts to boost inflation. Evans and Kaplan added more color Tuesday with Kaplan's comments giving a boost to the dollar by framing a cut as 'tactical' and not the start of a cycle. Evans continued to flirt with the idea of a 50 bps cut but was clear that he only sees 50 bps in total easing this year and whether it was all at once or in two parts was a matter of strategy.

Markets and the Fed are on the same page in terms of near term action but where the rhetoric and market pricing diverges is into 2020. There is a 45% chance of four or more cuts by this year priced into the Fed fund futures market. The implication is that there will be a deeper slowdown but the Fed and other central banks could engineer a soft landing.

Back to Politics

Of course, since it's 2019, it all comes back to politics. What markets are grappling with is Brexit and the US trade war. Johnson and Hunt both said they would need to tear up the Irish border backstop Tuesday and a leak suggested Johnson was serious about keeping out MPs around the Oct 31 Brexit deadline. That helped to send cable down 110 pips. On the US side, Trump took a less optimistic tone on China and talked about tariffs. That hurt equities.

Inflation will be the theme in the day ahead as the pound searches for a spark of life in a market that's betting heavily against it, according to CFTC data. The consensus is for a flat monthly reading and 2.0% y/y rise.

Earlier today, Canada's June CPI held at 2.2% (median core y/y) with the figures among the few spots showing an acceleration in inflation (and an acceleration in activity). The Canadian dollar remains by far the strongest currency so far this year as it is over the last 6 months.

USD is up across the board, while GBP is at new 2019 lows on fears of no-deal Brexit despite the strongest rise in UK earnings/pay in over 11 years. An important US data report is due shortly, followed by several Fed speakers including Powell (see below). Will Powell's speech present new resistance to the US dollar as it did last week (as is Shale doing to oil)? The rise of US shale has changed all the rules for crude oil and trading around hurricanes is no exception.  CFTC data showed an increasingly crowded GBP trade. Two new Premium trades are set to be issued this week.

WTI crude rose to the highest since late-May last week as it climbed above $60. There was some concern heading into the weekend with Hurricane Barry threatening the Gulf coast. It ultimately made landfall as a Category 1 stor and underperformed most forecasts.

The start of hurricane season is a fresh reminder that old rules for US crude may not apply. A decade ago, the US imported roughly 5 million barrels per day of crude via the Gulf coast that meant that any disruption due to storms would leave the market undersupplied and prices would rise.

But due to the shale revolution, Gulf net exports are now roughly zero. That could leave gluts points and drive down prices, especially if refineries are forced to close. At the same time, there will still be offshore production shutdowns so global supply could be curbed, but the mechanics are no longer nearly as straightforward as they once were and the trade is often to fade any storm-related spikes.

Retail Sales, Powell et al

Looking ahead, Tuesday's release of US June retail sales (control group) is expected to show a 0.3% rise from a downward revised 0.4%. Fed Vice chair Bowman speaks 15 mins before retail sales, followed by Fed Chair Powell in Paris at 13:00 Eastern (18:00 London). Chicago Fed's Evans will speak 2.5 hr later. 

CFTC Commitments of Traders

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

EUR -36K vs -31K prior GBP -73K vs -64K prior JPY -4K vs -1K prior CHF -10K vs -11K prior CAD +9K vs +6K prior AUD -54K vs -58K prior NZD -22K vs -24K prior

The general theme over the past few weeks is US dollar longs headed to the sidelines but that's not the case in cable as specs bet that whatever is troubling the US will be overshadowed by relentless Brexit uncertainty.

نلقي نظرة على قطاعات السوق التي تعرض أفضل أداء خلال أي جزء من الدورة الاقتصادية. يكون أداء بعض القطاعات جيداً خلال فترات التوسع الاقتصادي، بينما ترتفع قيمة القطاعات الأخرى خلال التباطؤ الاقتصادي والركود. التحليل المفصل