Intraday Market Thoughts Archives

The market continues to use its imagination surrounding US stimulus negotiations, but at some point fear will creep in. The Australian dollar was the top performer while the Swiss franc lagged. The July non-farm payrolls report is due up next. Ashraf has come up with a Bottom-Top approach to updating a Time-Price call on gold, silver and USD in a new English-Arabic video below for Premium subscribers. He dissects the triangularity of USD-pairs, USDX and gold with a time-based spin. 

Shortly after the jobs report on Friday, the market will shift to focusing on US stimulus talks. As we wrote about earlier in the week, the market is sensing the strong hand that Pelosi has and her determination to push through extended employment benefits.

Republicans have proposed a $1 trillion package that includes a drop in special benefits to $200/week from $600/week, but Democrats are pushing for no change through year-end. Initially the thinking would be that they would split the difference, but Pelosi believes she has the leverage to get nearly everything Democrats want. She estimates voters will blame the President and his party if a deal isn't struck.

So far that's led to a deadlock. Pelosi said there will be a deal at some point but she doesn't appear to be in any rush to lower her demand from $3.4 trillion in spending. Meanwhile, the White House is planning an executive order to delay payroll tax collection in an attempt to appear proactive, or to handcuff Democrats into making the waiver permanent when it ends.

There's no doubt the lack of benefits is already hitting consumer wallets and it could quickly sap overall spending. How much patience does the market have? If the jobs report is weak, it could run out quickly.

Gold blasted to an all-time record of $2055 for the first time Treasury yields hit record lows earlier in the session. US crude oil closed well above the top of its March gap to print +42 for the first time in 5 mths, but still closed below its 200-DMA. The franc was the top performer while the JPY lagged but still outperformed USD. US services ISM beat expectations, despite some disappointment on employment, while ADP survey showed a plunge to +167K vs expectations of 1.2mn. If NFP shows similar disappointment, USD will quickly dive into the next selling wave. Below is Tuesday's Premium video for susbcribers. A new Premium trade was issued moments ago.

If gold is competing with bonds for investment then the equation is moving into bullion's favour. Treasuries now pay nearly nothing with 5-year notes falling another 2.8 bps to just 0.19% on Tuesday. US 10s also hit 0.503%, a record closing low.

But it's not just yields that are boosting precious metals and other commodities. It's increasingly clear that House Democrats led by Nancy Pelosi are playing hardball on stimulus talks. She wants $600 extra payments to continue to until February as part of a $3.4 trillion package.

Republicans have balked at the measures but Pelosi may have calculated that voters will blame Trump if there's no deal and payouts are cut. She risks overplaying her hand and some concessions will need to be granted but odds are increasing that spending will be closer to $3 trillion than $1 trillion. It's another huge hole in the deficit that makes the case for precious metals ever-stronger.

Backsliding coronavirus data and scant progress on an extension of US coronavirus stimulus are the themes early in the new week. Markets will await the ongoing US negitiations regarding the next stimulus ahead of key ISM data and NFP on Friday. The pound was the top performer last week while the New Zealand dollar lagged. Early on Monday the China Caixin PMI rose to the highest since 2011. US manufacturing ISM is due next. Here is another look at those August seasonals. 

The area around Melbourne, Australia moved into a phase 4 lockdown on the weekend that includes 8 pm curfews and no leaving the house except for essentials. It comes after officials revealed 760 virus cases in the region where they don't know the source of infection. The new rules will last for six weeks.

The Philippines also put on stronger restrictions in Manila and nearby provinces with cases spiking. There is backsliding elsewhere on the virus as well so this could be a preview of what's to come. There's increasingly clear evidence that shortly after restrictions are eased, cases begin to pickup. That paints a back-and-forth picture of the recovery rather than the V-shaped rebound some called for.

The economy will be a big focus in the week ahead with US non-farm payrolls coming Friday. The consensus has been sliding from +2m and now sits at +1.578m. Goldman Sachs was out with a notable weekend call, saying its real-time metrics suggest 1m jobs lost.

In China, however, the picture is better as officials aggressive clamp down on outbreaks. The better-than-expected PMI Monday is a reminder that it was massive Chinese stimulus that dragged the global economy out of the rut in 2009.

Note that after the big runup in Chinese equities to start July the market has consolidated and may have carved out a double bottom.

Although economic data will be important this week, it will be overshadowed by US government stimulus negotiations. The only thing both parties can agree on so far is another $1200 cheque. The longer the stalemate goes on without a sign of progress, the more likely markets are to sour. Keep a close eye on 10-year yields and a potential break of 0.53%.