Intraday Market Thoughts Archives

Our latest article on the much-discussed peak in equities, with charts on global bond yields, Dax, S&P500, LEI, ISM & Philly Fed. http://ashraflaidi.com/articles/how-long-more-for-equities.asp

Equity indices may be selling off after 3 consecutive rising days, but this weeks shrugging of poor data by equities cannot be ignored. Equities resilience to pervasively negative economic data (US and abroad) is taking a life of its own. 9-month lows in the US June leading economic indicators index, 8-month lows in US existing home sales and double digit negative reading in the June Philly Fed indexall on the back of the 3rd consecutive monthly decline in US retail sales should be sufficiently negative for equities. Here is a look at he indicators to watch: http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

Risk turning gradually off. Chatter making the rounds that doves at the Fed are trying to drum up support for further QE . This is likely to become a more recurring rumor as data goes from bad to wrse. German PPI fell; UK PSNB declined; World Bank president calls for restoration of stability; Eurogroup conference call; Spanish 10 year continues to rise. Canada CPI was on the soft side. More developments in latest Premium Insights below.

USD is gradually creeping higher as indices deepen in the red and EURUSD drops below 1.2180. Gld drops back below 1580, while oil tests 91.00.

Latest reports showed that German PPI fell 0.4% in June after printing -0.3% in May and UK public sector net borrowing declined in June to GBP 12.1 bln from previous GBP 16.1 bln. Market reaction to both reports was minimal and EUR with GBP traded in a narrow range. Later in the session, EURUSD came under pressure falling to 1.2225 while GBPUSD retraced to 1.5686.

In his first speech, the new president of the World Bank Jim Yong Kim called European policymakers to take necessary steps to restore stability as falling growth could erase the significant achievements in fight against poverty of the past decade.

Eurogroup conference call started today at 6 am ET and the approval of an agreement to lend Spain up to EUR 100 bln is widely expected. The exact details regarding the loan will be determined after bank stress test results are published in September. Meanwhile, the Spanish 10 year yield pushed to 7.11%.

Canadian CPI fell 0.4% in June, vs the expected 0.2%, for +1.5% y/y from 1.2% in May. Core annual CPI at 2.0% from 1.8% in May.

1 of the 3 remaining EURUSD shorts hit 1.2180 target, while the remaining EURJPY short hit its final target. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=667 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

A weak Philly Fed sparked a US dollar sell off on expectations the Fed will come to the rescue. The Australian dollar was the best performer while the euro lagged. The final day of Asia-Pacific trading for the week is light but typically features a drift higher in risk assets. Yesterdays longs in Aussie, cable, USDCAD and US crude oil were not filled even though their stated targets were all hit shortly after publication. See more below on those in progress and status of the unfilled trades.

The Philly Fed manufacturing index was at -12.9 in July compared to -8.0 expected. It was better than the -16.6 reading in June but the employment component fell to the lowest since Oct 2009 and hours worked declined as well.

Manufacturing has been a source of strength in the US recovery but lack of overseas demand is causing production slowdowns.

Initial jobless claims also rose to 386K compared to 365K. A high reading was expected due to the difficulty of seasonal adjustments as auto plants temporarily close to re-tool.

EURUSD slumped to 1.2229 early in US trading but reversed after the Philly Fed on expectations the FOMC will introduce QE3 later this year. EUR/USD slowly marched to 1.2276.

The risk on appetite fuelled larger gains in cable and AUD/USD, which hit 1.5730 and 1.0430, respectively.

The calendar is light with a speech from the RBAs Kent in Sydney at 2315 GMT. Later, at 0135 GMT, MNI releases its Chinese Current Business Conditions index for July. The June reading was 53.21, the lowest since December.

3 of the 4 EURUSD shorts are in progress, while USDCAD, cable & oil were not filled. Gold remains unfilled. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=667 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

-AB

Spanish weak auction; EFSF to buy Spanish bonds; UK retail sales below estimates; Swiss trade surplus lower. Jobless Claims rose by 34K. Existing home sales and the always important Philly Fed survey is next. Yesterdays longs in Aussie, cable, USDCAD and US crude oil were not filled even though their stated targets were all hit shortly after publication. See more below on those in progress and status of the unfilled trades.

USD weakness is diminishing somewhat ahead of key US data. EURUSD is 90 pips below its 1.2324 session high. US equities are up across the board but beware of the impact from the Philly Fed survey, which last hit 1-yr low.

Spain had a weak auction today as it sold EUR 2.98 bln vs. 2-3 bln target. Average yields rose and cover declined substantially. The 10 year yield jumped through the 7% level and continues to trade near session highs around 7.03%. EURUSD lost over 40 points as it fell to 1.2265 when the result was announced but spiked higher later on reports that the EFSF will set aside funds to buy Spanish bonds on the primary as well as the secondary market. EURUSD continues to trade around the 1.23 handle.

UK retail sales were below expectations as they grew mere 0.1% in June from 1.5% in May. Core sales rose 0.3% from previous 1.0%. The wettest June since 1910 is partially blamed for the weak result. GBPUSD initially pushed lower to 1.5635 but quickly reversed and trades around 1.5685.

Other reports showed that Swiss trade surplus narrowed in June to CHF 2.25 bln from previous 2.52 bln and that Eurozone current account surplus rose to EUR 10.9 bln in May from EUR 5.5 bln in April.

Focus is still on German parliament that will vote on EU help for Spain and on Italian lower house that votes on the ESM approval. The fiscal compact has already been ratified by the lower house. Market attention will shift to tomorrow's Eurogroup teleconference as a final step to the approval of the Spanish aid program.

US jobless claims rose by 34K to 386K vs an expected 365Kprevious 350K followed by existing home sales due at 10:00 am that are seen higher in June at 4.64M from previous 4.55M.

Philly FED index that is also due at 10:00 am is anticipated to improve to -7.9 in July after plunging to -16.6 in June.

3 of the 4 EURUSD shorts are in progress, while USDCAD, cable & oil were not filled. Gold remains unfilled. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=667 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

US traders continue to favor risk trades in the FX market despite continued signs of economic weakness. The Australian dollar was the top performer while the euro lagged. The upcoming session features second-tier data on the Japanese all-industry index. Today's Premium Insights include EURUSD, Oil, Gold, and more.

Bernanke continue to stress downside risks to the economy and the Beige Book showed a loss of momentum but optimism reigned in US trading. The euro recovered the losses in European trading and the Australian dollar rallied to a six-week high.

The second day of Bernankes testimony was uneventful but he offered a skeptical outlook for Europe, saying the continent is not close to long-term solution to the crisis. He predicted volatility will continue until leaders there settle the issue.

The Beige Book showed growth slowing in many regions and lower retail sales and manufacturing pointed to a soft patch ahead.

None of it mattered as the market bid up risk trades and carry trades. Oil climbed to a six-week high and the S&P 500 gained 0.7% to 1373. One positive signal came from housing where new starts climbed to the highest since October 2008.

Ashraf points to speculation about Chinese stimulus and coordinated global intervention as risks.

The calendar is relatively light in Asia. At 0130 GMT, NAB reports on second quarter Australian business confidence. The previous reading was -1.

At 0430 GMT, its the Japanese all-industry index for May. The lagged data is expected down 0.3%. Another report will be at 0530 GMT with Japanese department store sales for June. The previous reading was -1.0%.

Overall, data will not be a large driver but headlines about USD/JPY could be a risk, given the fall below 79.00 in US trading.

Today's Premium Insights include ideas on USDCAD, with new trades on EURUSD, EURJPY, AUDUSD, gold, silver and oil. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=667 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

-AB

In our July 3 piece Why Gold & Oil Point to Higher Equities? we made the case for further gains in the major stock indices on the rationale that a decline in gold relative to oil prices paves the way for an improvement in risk appetite (more favourable for energy prices than for metals). Since then, Gold/Oil Brent ratio has declined 7% and major equity indices are 2-3% higher after an interim decline in July 5-9. But WHAT ABOUT GERMANYS DAX? Here are the latest technical developments in the German equity index http://www.cityindex.co.uk/market-analysis/ashraf-laidi-blog.aspx

Ashraf Laidi

The loonie shows more broadening strength in its weekly stochastics vs. USD & JPY, after the Bank of Canada continues to see GRADUAL interest rate hikes through 2014. Although the BoC lowered its growth outlook , it kept the door open for a rate hike. The BoC is now the only major central bank to not having entered an easing bias in fact it is the only one maintaining a hawkish bias. This is paving the way for selling the bounce in USDCAD in the medium term as well as buying the dip in CADJPY also in the medium term (weekly charts). Todays Premium Insihts include ideas on USDCAD, with new trades on EURUSD, EURJPY, AUDUSD, gold, silver and oil. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=667 Non Subscribers click here: http://ashraflaidi.com/products/sub01/

The Fed Chair offered no indication he is ready to initiate QE3 in testimony Tuesday, sparking a sharp rally in the US dollar that was later reversed. The Australian dollar was the top performer while the yen lagged. Latest developments in latest Premium Insights on EURUSD, EURJPY, AUDUSD gold, oil and silver are found below.

Bernanke reiterated the recent line that the Fed is prepared to act but he declined to specify any details. The impression was that the Fed will wait and see how the economy develops beyond the Aug 1 FOMC meeting. That will give the two more employment reports to ponder. If theyre weak, the Fed will almost certainly take action.

The disappointment of no promise to ease immediately was reflected in a broad USD rally. The euro fell nearly a cent to 1.2188, cable fell to 1.5500 and gold fell $20 to $1571.

Bernanke remained downcast throughout his testimony, saying indications point to Q2 growth below 2%. After the knee jerk reaction, the US dollar quickly began to lose ground, eventually giving up the entire move with the euro rebound to 1.2290, cable to 1.5650 and gold to $1590.

Economic data pointed to continued low inflation with June CPI at +1.7% y/y, as expected. A positive surprise came with a jump in the NAHB home builder sentiment survey to 35 from 30.

The other main event of the session was the Bank of Canada decision. Policymakers held rates at 1.00% as expected but in a surprise, officials did not back down from the promise to hike rates if conditions improve. The BOC had been expected to shift to a neutral or dovish stance.

The upcoming session features the Bank of Japan June 14-15 meeting at 2350 GMT. At 0030, Westpac releases the Australian leading index for May and at 0130 GMT, China releases June property prices for 50 cities. This number rarely moves markets but its a tremendous way to glean insight into the market.

Politics in Japan may also be in focus after Kyodo reported that another 3 politicians have resigned from the ruling DPJ in addition to the 49 who recently quit to protest the consumption tax. An election may be near.

US crude hit final 88.80 target, AUDUSD stopped out, both EURUSD & 1 EURJPY in progress. Long cable & short EURJPY hit all targets. Long gold nearing 1600 target. Silver awaits. For direct access to these Premium Insights, click here: http://ashraflaidi.com/products/sub01/access/?a=665 Non Subscribers can please click here: http://ashraflaidi.com/products/sub01/

-AB

Ashraf Laidi tells AlArabiya Fed Chairman Bernanke resorted to the familiar method of reiterating the Fed's willingness to do more if required by the labour market without necessarily signalling any imminent action. Euro was the biggest victim of Bernanke's silence, losing nearly a full cent to reach $1.2205 after Bernanke's text hit the wires. Short of an aggressive round of outright asset purchases from the Fed and a 3rd LTRO (this time at 0.75%), the single currencys days above $1.20 may become numbered. The question then remains, to what extent will any central bank-driven euro bounce remain short-lived? And with a stimulus package from China becoming more imminent, chances for coordinated global interventions become inevitable. CLICK HERE FOR THE INTERVIEW: http://youtu.be/rvYVzXSzRHQ

Markets are trading within relatively narrow ranges ahead of Bernanke's testimony. Also must watch the Bank of Canadas interest rate announcement and any notable shift in rhetoric with regards to its outlook. European equities remained within -0.3% to 0.4% range. Latest developments in latest Premium Insights on EURUSD, EURJPY, AUDUSD gold, oil and silver are found below.

Data during the Asian session showed that New Zealand CPI was below expectations at 1.0% from 1.6% y/y which is the lowest since 1999. AUD meeting minutes noted low inflation, rates being at an appropriate level and slower global growth. Both AUD and NZD moved higher but so far failed to break through 1.03 and 0.80 resistance levels.

GBPUSD sold off after UK CPI eased in June to 2.4% from 2.8% which is the lowest level since 11/2009. Core CPI eased slightly to 2.1% from 2.2%. GBPUSD weakened to 1.5609 while EURGBP move higher to 0.7874.

European data disappointed again as German ZEW economic sentiment declined further in July to -19.6 from previous -16.9 and the Eurozone counterpart fell to -22.3 from -20.1. EURUSD struggles at the 1.23 level.

The US session starts at 8:30 am ET with June CPI that is expected to ease to 1.6% from previous 1.7% while the core figure is seen at 2.2% from 2.3% on annual basis. Monthly CPI is seen flat after previous -0.3% and core is anticipated steady at 0.2%.

The much anticipated semi-annual FED chairman Bernanke's testimony before the banking committee in Washington DC starts at 10:00 am. Markets are waiting for a hint of an additional stimulus as data continues to deteriorate. The last time markets were bracing for some QE hints from Bernanke, they were disappointed. And so if the Fed Chairman once again refrains from indicating towards the prospects of further QE while Operation Twist is in play, then the US dollar may well get a fresh boost.

The BOC will announce its overnight rate decision at 9:00 am and the majority of analysts see rates unchanged at 1%. Given the ongoing uncertainty, hawkish bias is likely to be gradually removed.

US crude hit final 88.80 target, AUDUSD stopped out, both EURUSD & 1 EURJPY in progress. Long cable & short EURJPY hit all targets. Long gold nearing 1600 target. Silver awaits. For direct access to these Premium Insights, click here: http://ashraflaidi.com/products/sub01/access/?a=665 Non Subscribers can please click here: http://ashraflaidi.com/products/sub01/

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A soft US retail sales report sparked speculation that Fed Chief Ben Bernanke will indicate the willingness to do more in Tuesday's testimony The yen was the best performer while the Canadian dollar lagged. The RBA minutes are the highlight of Asia-Pacific trading. Ashraf has shown in todays piece how employment in the retail trade industry began to peak before the retail sales in the last 2 recessions. Details on the latest Premium Insights are show below.

US retail sales contracted 0.5% in June, much worse than the +0.2% consensus estimate. Excluding autos, gas and other volatile numbers revealed similar weakness. The June decline marked three consecutive months of negative readings for the first time since 2008 and in a sign that has almost always pointed to a recession, historically.

After the report, numerous analysts downgraded Q2 and Q3 growth projections with many falling below the 1.5% stall speed that will surely worry the Fed. In addition, the IMF lowered the global 2013 growth forecast to 3.9% from 4.1%. No major economies escaped lower forecasts with some European and emerging markets hit particularly hard.

Rather than a round of risk aversion, the US dollar sold off on the news. USD/JPY fell below 79.00 and EUR/USD rebounded to 1.2290. The euro gained further support from a WSJ story that concluded that the ECB is likely to lose a battle to force Spanish banks to take debt haircuts in exchange for bailouts.

The sentiment overwhelmed the lone upbeat indicator the Empire Fed. The manufacturing index rose to 7.39 compared to 4.00 expected.

In the upcoming session, the focus shifts to minutes of the most recent RBA meeting, which will be released at 2130 GMT. The RBA will likely emphasize the wait-and-see attitude of the statement but comments on inflation, growth and housing will also be worth watching. In addition, any insight into the true strength of the Chinese economy could roil broader markets.

1 of 2 EURJPY shorts & the lone cable long hit all targets. All other 8 Premium Insights trades remain in progress. For DIRECT ACCESS to these Premium Insights, click here: http://ashraflaidi.com/products/sub01/access/?a=665 Non Subscribers can please click here: http://ashraflaidi.com/products/sub01/

-AB

You have all heard of 1-month option volatility in EURUSD (a concept first introduced on here in spring 2011). You may also have heard of golden & death crosses. Now, here is a our take on the latest technicals on EUR volatility for our Premium subscribers. http://ashraflaidi.com/products/sub01/access/?a=666

The main take-away message from todays release of US retail sales is that they have shown their longest losing streak (declines) since late 2008, at the centre of the financial crisis. But what pundits do not tall you is that US retail sector EMPLOYMENT have tended to peak out BEFORE the top in retail SALES in the last two recessions. Click to here to view the chart evidence

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

ECB changes stance on bond losses; Eurozone CPI steady and surplus rose; Swiss industrial production lower; Spanish and Italian yields rise. Market turns to retail sales, empire state manufacturing and Canadian international transactions. 1 of 2 EURJPY & cable hit all targets. All other 8 trades are in progress.

The greenback trades stronger against all majors except for JPY. Major European equities trade about 0.25% lower and the relative strength winner is JPY while EUR lags.

With Tokyo closed in observance of the Marine Day, the FX market traded in a narrow range throughout Asia. When London traders got to their desks they started to buy the USD and sent the euro back to below 1.22. Commodity dollars are also weaker but to a smaller degree. USDJPY fell below 79.00.

Weighting on the common currency was a story published on WSJ that suggests that the ECB now favors imposing losses on senior bondholders if Spanish troubled savings banks were liquidated. In case of Ireland, senior bondholders were protected. The ECB declined to comment.

Eurozone annual CPI was steady and in line with expectations in June at 2.4% and core CPI stayed at 1.6%. Eurozone trade surplus rose to EUR 6.3 bln in May from downwardly revised Aprils EUR 4.5 bln as exports rose 6% while imports were unchanged. EURUSD trades near session lows around 1.2190.

In other news, Swiss industrial production only rose 1.4% in Q1 y/y after growing 3.6% in previous quarter and Spanish and Italian 10 year yields are trading near session highs at 6.75% and 6.09% respectively.

The US session starts at 9:30 am ET with June retail sales that are expected to rise 0.1% after declining 0.2% a month earlier. Core sales are also seen higher by 0.1% from previous -0.4%. Empire state manufacturing is anticipated at 3.9 in July after June's 2.3 and business inventories at 10:00 am are expected at 0.2% in May after 0.4% in April.

Canadian international securities transactions are due at 8:30 am and are seen higher in May at CAD 13.5 bln from previous CAD 10.2 bln.

1 of 2 EURJPY shorts & the lone cable long hit all targets. All other 8 trades are in progress. Both EURUSD shorts, 1 AUDUSD short and the silver, gold and oil trades remain in progress. For DIRECT ACCESS to these Premium Insights, click here: http://ashraflaidi.com/products/sub01/access/?a=665 Non Subscribers can please click here: http://ashraflaidi.com/products/sub01/

The euro carved out a fresh two-year low then snapped back on Friday, jumping nearly a cent. The pound sterling was even stronger, gaining 1.5 cents while the US dollar slumped. Weekly CFTC positioning data showed increasing euro shorts. Fridays GBPUSD long hit all targets. Silver, gold and oil were added to Thursdays Premium Insights. See more below.

EUR/USD fell as low as 1.2161 early in US trading on talk of negative ECB deposit rates. The euro then abruptly shot to 1.2258. Rumors of an large Australia trade followed the move and talk of options-related buying and a short squeeze added to the mystique but there was no clear catalyst for the move.

The bounce blossomed into a broad risk rebound with the US dollar falling across the board. The S&P 500 climbed 1.7% to wipe out the weekly loss.

Economic data was downcast as the University of Michigan consumer sentiment survey fell to a 7-month low of 72.0 compared to the 73.4 expected.

Fed policymakers continue to lean dovishly. Lockhart said current calibration of policy is untenable unless the economy reverses its recent slide. He said most members of the committee are concerned about slowing growth.

The Commitments of Traders report increased euro shorts but overall position remains some distance from the -214K spring low. Other data in the CFTC report:

EUR net short increases to 165K from 146K

JPY net longs increase to 9K from 4K

GBP net shorts increase to 8K from 5K

CAD net longs decrease to 4K from 9K

AUD net longs increase to 19K from 9K

NZD net longs increase to 5.5K from 4K

Fridays GBPUSD long hit all targets. Silver, gold and oil were added to Thursdays Premium Insights For DIRECT ACCESS to these Premium Insights, click here: http://ashraflaidi.com/products/sub01/access/?a=665 Non Subscribers can please click here: http://ashraflaidi.com/products/sub01/

-AB