Intraday Market Thoughts Archives

The Fed is no longer the only firefighter in town. Draghis OMT does for the markets what Bernankes QE was trusted to do (See more below).

The August jobs report was the opposite of the July report, as both Non-Farm Payrolls and unemployment declined after both increased in July. Non-Farm Payrolls not bad enough for September QE3. For more, read here . . . http://www.cityindex.co.uk/market-analysis/market-news/59362012/non-farm-payrolls-overlooked-as-draghi-fills-qe3-void/

UK manufacturing and industrial production rose sharply; UK producer inflation higher; German industrial production rose; Swiss unemployment rate steady. Market awaits US and Canadian labor market data. The 1.2745 that Ashraf referred to in yesterdays piece is near target. See final paragrpah for more.

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Draghi induced rally continues as the common currency touches 11 week high at 1.2700. However, the greenback is holding up relatively well against the other majors, especially GBP that trades near session lows about 50 points below today's high.

UK manufacturing production bested expectations in July as it soared 3.2% erasing the 2.9% loss seen in June. Industrial production rose 2.9% from previous -2.4% which is the sharpest monthly increase since 1987. However, because of the Jubilee celebrations data has been skewed so more information is needed to form a better view.

UK PPI output prices ticked higher in August to 0.5% from 0.1% m/m and to 2.2% from 1.8%. The first increase in half a year came on the back of higher petrol and chemical prices. Input prices rose significantly over the past two months so output prices are likely to continue to rise. GBPUSD initially jumped to a recent high of 1.5984 but rising EURGBP pushed it back to 1.5930s.

In other news, German industrial production rose 1.3% in July; trade balance declined to EUR16.1 bln from previous 16.3 bln and Swiss unemployment rate was steady in August at 2.9%.

Spanish and Italian 10 year yields are declining along with the shorter term yields. Spanish 10 year fell below 6% for the first time since May and currently trades around 5.75% while the Italian equivalent fell to 5.1%.

Much awaited August NFP report is due at 8:30 am ET and it is anticipated lower at 125K from July's 163K. The unemployment rate is seen steady at 8.3%.

Canada also releases its labor market data at 8:30 am. The employment is expected to rise 9.9K after a sharp fall to -30.4K seen in July and the unemployment rate is seen unchanged at 7.3%. Ivey PMI due at 10:00 am is projected to weaken in August to 61.2 from 62.8.

EQUITY TECHNICALS & ASHRAFS PRE-NFP ANALYSIS

http://www.cityindex.co.uk/market-analysis/market-news/58972012/pre-nonfp-post-uk-ip-indices-technicals/

Here is the recording of Ashraf's Thursday night webinar on FX, gold, oil and Pre-NFP strategies. http://eduwebs.hamzeianalytics.com/FH_AL_090612.wmv If this is your FIRST TIME HamzeiAnalytics Webinars, most likely you may need to first install the G2W codec on your PC get it here https://www1.gotomeeting.com/codec

Better readings on three key US metrics heightened expectations ahead of Fridays non-farm payrolls report and sent stocks to a four-year high. The Australian dollar was the top performer while the yen lagged. The calendar is light in Asia. Premium longs in CADJPY & Silver hit all targets after todays market moves. See more below.

ADP employment rose 201K compared to 140K expected, sending USD/JPY and other risk trades soaring. The momentum continued when jobless claims slipped to 365K from 370K and the ISM non-manufacturing index improved to 53.7 vs 52.5 expected.

USD/JPY climbed above 79.00 for the first time since the FOMC minutes raised QE3 expectations on Aug 21. Those expectations are dwindling and talk of further BOJ deflation-fighting measures are weighing on the yen.

The bond-buying plan from Draghi was exactly as expected, leading to a 50-pip slide in the euro as those who bought the rumor turned around and sold the news. Some details were also disappointing, like news that the ECB wont immediately buy Irish and Portuguese bonds. ECB growth forecasts were also scaled down.

In any case, the periphery bond market cheered the news, even beyond 3-year maturities. Ten-year Spanish yields dropped 38 basis points and fell below support to 6.03%. Italian 10s fell a quarter-point to 5.26%.

Cable touched the highest since May and closed above the 61.8% retracement of the summer decline for the first time.

Risk trades surged and closed near the highs even with the threat of the always-volatile non-farm payrolls report (exp +130K). The S&P 500 closed at the highest since Jan 2011 and the NASDAQ at the highest since 2000.

Look for mild position squaring in Asia as risk is pared ahead of NFP. At 2130 GMT, Australia will release trade balance numbers for July. The consensus is for a A$300m deficit; in June, there was a $9m surplus.

At 2330 GMT, we get the AiG performance of construction index. The prior reading was 32.6.

Premium longs in CADJPY & Silver hit all targets after todays market moves. See more below. Direct access to these Premium Insights is found here: http://www.ashraflaidi.com/products/sub01/access/ ?a=679 NonSubscribers can join here: http://www.ashraflaidi.com/products/

Draghi succeeds in reducing the relevance of the Bundesbanks opposition to bond purchases by making bond-purchases dependent upon ESM conditionality. And by integrating the conditionality of the ESM/EFSF plan into the much-needed bond purchase program, Draghi has also firmly sent the ball back into court of national governments. Here is more on ECB, ADP & EURUSD Technicals http://www.cityindex.co.uk/market-analysis/market-news/58462012/draghi-delivers-for-now/

Australian unemployment rate fell but employment declined; Spain and Italy to request aid; BOE steady. Market focuses on the ECB rate decision and press conference, followed by the Aug ADP & Aug ISM non-manufacturing. For trading ideas ahead of todays ECB rate decision, ADP report, services ISM and tomorrows job number, see details below.

Australian labor market data were mixed as employment declined 8.8K in August from previous 11.7K growth but the unemployment level ticked lower to 5.1% from 5.2%. AUDUSD initially fell to 1.0166 but bounced sharply higher and the short covering rally that followed sent the pair to session highs around 1.0240.

MNI reports that Spain is prepared to request aid in early October as long as the attached conditions do not go beyond what the government is committed to. Meanwhile, FT reports that Italy could request ECB bond buying that would require hard reforms before the year end.

BOE left the official bank rate unchanged at 0.50% and did not announce any new easing as new QE approved during the July meeting is still going through the system.

The ECB will announce its minimum bid rate decision at 7:45 am EST. While most participants expect a 25 bps cut to 0.50% some media imply that a rate cut is not on the agenda today. The much awaited press conference follows 45 mins later.

The US session will start at 8:15 am ET with August ADP report that is expected to decline to 142K from previous 163K. Jobless claims that come 15 minutes later are seen lower at 369K from previous 374K will be completely overshadowed by the ECB press conference that begins at the same time. Because of yesterday's leaked details, market is firmly expecting open ended, unlimited and unsterilized bond buying.

ISM non-manufacturing is due at 10:00 am and it is seen marginally lower in August at 52.5 from previous 52.6. Mario Draghi's speech at 12:30 pm in Potsdam at the M100 media award is not likely to have a significant impact on the markets.

Direct access to last nights Premium Insights is found here: http://www.ashraflaidi.com/products/sub01/access/?a=679 NonSubscribers can join here: http://www.ashraflaidi.com/products/

The substance of Thursdays ECB decision was leaked, boosting the euro but stealing any potential surprise ahead of the announcement. The euro was the top performer while the Canadian dollar lagged. The highlights of the upcoming session is Australian employment and comments from the BOJs Shirakawa. Thursdays Premium Insights are geared ahead of Thursdays ECB decision, including weekly and monthly charts of GBPUSD to back up the latest trading idea. More below.

The ECB will pledge to buy unlimited, sterilized bonds out to 3 years for countries who seek aid. Yield caps will not be made public. The plan is said to have broad support except for Bundesbank leader Weidmann.

Reuters later confirmed the details and added that an interest rate cut is not up for discussion this month.

The leak today is really an aggregate of leaks over the past month. The three-year timeline and seniority were already known while sterilization was always a high likelihood. The leak confirms them and no rate cut is mildly EUR bullish.

The Bank of Canada held rates at 1.00% as expected and continued to maintain a hawkish bias, but without any signs of an imminent rate hike. Officials noted the unanticipated slowdown in China.

EUR/CHF jumped to 1.2040 on a rumor the SNB will hike the floor to 1.25 after the ECB decision. Europe is leaky but even if this rumor were true, the SNB would delay the plan once it was leaked.

At 0130 GMT, Australian employment expected +5K after a +14K in July. The unemployment rate is expected to pick up 5.3% from 5.2%. As always, the part-time/full-time breakdown will be important.

At 0340 GMT, BOJ Governor Shirakawa will also speak but is not expected to highlight any potential bond buying programs.

Nikkei reports that PM Noda will seek re-election but he might not even get the chance with his party mulling other candidates.

Wednesdays Premium Insights are set ahead of Thursdays ECB rate decision and press conference as well as the ADP report. Ashraf added a weekly and monthly chart on GBPUSD to back up his outlook. Direct

access to these Premium Insights are found here: http://www.ashraflaidi.com/products/sub01/access/?a=679 NonSubscribers can join here: http://www.ashraflaidi.com/products/

-AB

EURUSD is breaking back higher towards the $1.2600 figure on reports that more ECB sources are said to back a bond-buying plan with no limited amounts. The purchases will continue to be sterilized (offset weeks later). It seems that the majority of market participants expect the ECB to cut its refinancing rate to 0.50% from 0.75%. Here are the latest Premium Insights for the day http://www.ashraflaidi.com/products/sub01/access/?a=679 NonSubscribers can join here: http://www.ashraflaidi.com/products/

Australian GDP slowed; yield cap unlikely; Eurozone retail sales weakened; Swiss CPI flat. The market awaits non farm productivity and unit labor cost. Key event is BOC policy decision. A new Pemium Insights edition is due later today

AUDUSD downtrend continued throughout the Asian session after Q2 GDP slowed quarterly to 0.6% from 1.4% and annually to 3.7% from previous 4.4%. Another factor that increased the pressure on the Aussie was Chinese HSBC PMI services that fell to 52.0 in August fro 53.1 which is one year low. The pair fell to 1.0166 in London and now trades around 1.0185.

Traders have been focusing on an article in German newspaper Frankfurter Allgemeine Zeitung that quoted unnamed ECB official that yield cap is very unlikely to be a part of the ECB new bond buying program. The story did add hat any bond purchases will continue to be sterilized.

Eurozone retail sales declined 0.2% in July erasing 0.2% gain seen in June while the annual print weakened to -1.7% from previous -0.9%. German economic resiliency appears gone as the country is being drawn deeper into the Eurozone troubles. German retail sales fell 0.9%. EURUSD declined to 1.2502 and bounced to 1.2535.

Swiss CPI was flat in August month over month from previous -0.5% and on annual basis rose to -0.5% from previous -0.7%.

The US session will start at 8:30 am ET with Q2 non farm productivity that is expected to be revised higher to 1.8% from 1.6% and unit labor costs that are seen lower at 1.5% from 1.7%.

CAD traders await the BOC at 9:00 am which is widely expected to keep the overnight rate steady at 1.00% where it has been since 09/2010. While the key rate is likely to remain at current level well into 2013 we could see a softening of the language in the accompanying statement as Canadian reports, especially from the labor market, have been on the weak side recently.

A soft ISM manufacturing reading highlighted the challenges in the US economy on Tuesday but the US dollar was resilient on inflation worries. The US and Canadian dollars were the top performers while NZD lagged. The market will focus on Australian GDP later. Both longs in silver and EURUSD hit all targets, & so did long US crude, while USDJPY, CADJPY and AUDUSD remain in progress and short gold was stopped out.

The ISM manufacturing index fell to 49.6 vs 50.0 expected. It was the worst reading since 2009 and showed contraction for the third consecutive months. Metrics on new orders, employment and order backlogs point to continuing weakness.

Another surprise from the report was prices paid, which surged to 54.0 from 39.5 on rising raw materials costs. Commodity-price inflation is a critical factor in the QE3 equation and signs of rising pipeline inflation will keep the Fed sidelined.

The US dollar initially weakened after the report but the inflation concerns stopped the move with EUR/USD remaining above 1.2550. Overall market moves were small but the antipodeans continued lower on concerns about China.

At 0130 GMT, Australian releases second quarter GDP data. The consensus estimate is for a healthy 0.7% quarterly growth but a deceleration from 1.3% in Q1.

An hour later, the Chinese services PMI from HSBC will be released. This is the least-important Chinese PMI but a fall from 53.1 prior reading could add to worries about a significant slowdown.

Another risk on the calendar is the Quebec provincial election. The separatist PQ party is leading in the pools and a win may spark fears of a Canadian breakup. We see that as an extremely low probability event and expect CAD to quickly rebound from any selling. Polling results will begin to be released after 0030 GMT.

Ashraf's piece on the ISM, QE3 & the Fed

http://www.cityindex.co.uk/market-analysis/market-news/57152012/prices-stand-in-the-way-of-qe3/

-AB

Last week we said a major reason for no QE3 in September was the avoidance of further oil price hikes. Todays release of the Prices Paid index from the August Manuf ISM confirms this obstacle. The 14.5 point jump in the August Prices Paid component to 54 was the biggest monthly increase since September 2005. Read further . . . http://www.cityindex.co.uk/market-analysis/market-news/57152012/prices-stand-in-the-way-of-qe3/

RBA kept rates at 3.5%; UK construction PMI lower; Swiss GDP disappointed; Eurozone PPI rose; Periphery yield curves steeper. Markets await ISM manufacturing. The link to Ashrafs Thursday webinar is below.

The greenback is marginally stronger across the board in the ongoing session except JPY. European equities are slightly weaker.

AUDUSD moved higher to 1.0287 after the RBA left rates steady at 3.5% in line with expectations. The accompanying statement did not surprise either as the RBA continues in its wait and see approach. The currency subsequently lost its gains and fell back to 1.0240.

UK construction PMI fell back below the 50 level in August and printed 49.0 from 50.9. The sector recorded the sharpest decline in new orders since 4/2009 and the commercial activity dropped for the first time in over two years. GBPUSD failed at the 1.59 level and currently trades around 1.5870.

Swiss Q2 GDP disappointed as it came in well below expectations. The economy contracted 0.1% after previous growth 0.5% q/q and slowed to 0.5% from 1.2% y/y.

Eurozone PPI rose 0.4% in July from previous 0.5% decline m/m while the annual print remained unchanged at 1.8%. Higher energy prices contributed the most to the increase.

Periphery yield curves are steepening amid speculation that the ECB will on Thursday present a framework that would help to push down the funding costs of Spain and Italy. 2 year Spanish and Italian notes are sharply lower losing nearly 8.6% and 7% respectively. They trade around 3.21% and 2.40%.

US reports are limited to ISM manufacturing due at 10:00 am ET that is expected to rise slightly in August to 50.0 from previous 49.8.

Details of Ashrafs Thursday Webinar http://yjtsolutions.visibli.com/share/1XwQc8

The euro climbed after Draghi solidified expectations that officials are putting together a comprehensive bailout plan. The pound sterling was the best performer while AUD and NZD lagged. The RBA is expected to leave rates at 3.50% in the upcoming session. See the latest from Fridays Premium Insights below.

Draghi spoke in a closed-door session at European Parliament but news organizations received an audio-recording of the meeting where he said periphery bond buys would be legal under the ECB treaty, even out to three years.

The euro rallied after the headlines, climbing as high as 1.2611 from 1.2575. German Fin Min Schaeuble also added to the optimism, saying he is sure the German constitutional court will approve the ESM bailout mechanism.

Overall, the session was very quiet due to holidays in North America.

At 0430 GMT, the RBA cash target is expected to remain at 3.50%, where it has been since June. Economists are unanimous in saying there will be no rate cut but the OIS market is pricing in a small chance. The market will also look for a more explicit dovish shift and comments about the Chinese economy.

Earlier, at 0130 GMT, Australia is expected to announce a current account deficit of A$12.2 billion for the second quarter. At the same time, Japanese labor cash earnings are expected to decline 0.5% for July.

For the latest of Fridays Premium Insight, Both 2 Premium EURUSD longs hit all targets, 1 remains unfilled, 1 cable is few pips away from all targets, 1 of 2 silver trades hit all targets with the other in progress. Gold stopped out. 1 of 2 AUDUSD stopped out. get direct access here:

http://ashraflaidi.com/products/sub01/access/?a=678 Non Subscribers can join here: http://ashraflaidi.com/products/

-AB

Chinese manufacturing PMI fell & services PMI rose; Australian retail sales decline; UK manufacturing PMI rose; Swiss retail sales slowed and PMI disappointed. US celebrates Labor Day, market focus on Draghi's speech. So far on QE3, SEK, CAD, NOK & JPY are the top performing currencies vs the USD, while DKK, EUR & CHF are the worst performers.

With Jackson Hole symposium out of the way, markets will focus on this week's rate and policy decisions from the RBA, BOE and the ECB. Currencies traded in relatively narrow ranges throughout the London session and European equity indices are gaining about 0.5%.

The AUD along with the NZD have been under pressure since the Asian session after Chinese HSBC manufacturing PMI fell in August to 47.6 from previous 49.3. Chinas official manufacturing PMI fell to 49.2 from 50.1 vs expectations of 50, while official services PMI rose to 56.3 from 55.6. and Australian retail sales declined 0.8% in July after growing 1.2% in June. AUDUSD and NZDUSD trade near session lows around 1.0245 and 0.7980 respectively.

GBP trades higher across the board after UK manufacturing PMI bested expectations in August and rose to 49.5 from July's 45.2. The pace of contraction for production, new orders and new exports eased sharply and input prices continued to decline. Despite the improvement, the underlying picture has not changed as the sector remained in a contraction following a steep decline in July. GBPUSD rose to 1.5890 and EURGBP fell to 0.7910.

Swiss retail sales slowed in July to 3.2% from previous 3.3% y/y, SVME PMI declined in August to 46.7 from 48.6 and SNB chairman Thomas Jordan predictably reiterated that the SNB will continue to enforce the minimum exchange rate against the EUR.

Spanish manufacturing PMI reached in August the highest level since March at 44 from previous 42.3. On the other hand Italian PMI fell to 10 months low at 43.6 from 44.3. Spanish 10 year yield declined from 6.91% to current 6.84%.

US and Canadian banks are closed today in observance of Labor Day. There are no reports due during the US session but markets are likely to respond to the ECB president Draghi's testimony before the economic committee in Brussels at 9:30 am ET.

Here is Ashrafs piece looking onto BEYOND Jackson Hole.

http://www.cityindex.co.uk/market-analysis/market-news/54392012/onto-jackson-hole-beyond/

The US dollar slumped after Bernanke walked a fine line in his Jackson Hole speech that leaned toward more easing. The Canadian dollar was the leader on the day after strong GDP numbers while its AUD commodity cousins lagged alongside the buck. Weekly CFTC data showed further shifting away from US dollars. Both of those 2 Premium EURUSD longs hit all targets. 1 remains unfilled. For the latest of Fridays Premium Insights see below, as well as a diary of the more important events over the upcoming 2 weeks.

The market was caught in a whipsaw after Bernanke called the labor market a grave concern and the economic situation far from satisfactory but refrained from an explicit hint at further stimulus.

The US dollar initially rallied approximately 50 pips on most pairs but later fell to session lows. The choppiness continued as analysts failed to agree on whether the speech made it more likely that QE3 is coming on Sept 13.

FX was mixed but the gold and bond markets were definitive. Gold shot to a 5-month high of $1691, gaining $40. US 10-year yields fell 7 basis points to 1.55%.

One caveat from Bernankes speech that argues against further easing was the potential for asset purchases to impair the proper functioning of the market.

The market will likely decide in the coming week with non-farm payrolls, the ISM reports and the ECB meeting among many important events on the calendar. These include the following:

September 6: ECB decision: theres a 20% possibility of reducing the refinancing rate to 0.50%

September 7: US August jobs report: the key in influencing Septembers FOMC decision

September 12: German Constitutional Court Decision on the European Stability Mechanism and EU Fiscal Compact

September 13: FOMC decision: will likely pave the way for an October QE3 in the event of sub-100K non-farm payrolls

The euro's gains were limited late in the day by a downgrade of the Spanish region of Catalonia to junk by S&P. EUR/USD fell to 1.2560 after touching 1.2637.

The volatility was very high in general after Bernanke, with the FX and stock markets unable to make a lasting move. Bonds and gold were more decisive, rallying on expectations for QE3.

The Canadian dollar was boosted by Q2 GDP at 1.8% compared to 1.6% expected. The Chicago PMI was slightly soft while the final University of Michigan consumer sentiment was slightly better than the preliminary reading.

Weekly CFTC Data

The Commitments of Traders report showed a general shift out of US dollars.

EUR net -102K vs -124K prior

JPY net +22K vs +11K prior

GBP net +2K vs +8K prior

AUD net +78K vs +87K prior

CAD net +61K vs +51K prior

For the latest of Fridays Premium Insight, get direct access here: http://ashraflaidi.com/products/sub01/access/?a=678 Non Subscribers can join here: http://ashraflaidi.com/products/

-AB