Intraday Market Thoughts Archives

Another USD bounce proved short-lived and another pullback in stocks is swiftly reversed after US House of Rep Speaker Pelosi urged Republicans to join Democrats in meeting Trumps' last minute request to increase direct payments from $600 to $2000 per person.  Markets sustained a scare in early Asia Wednesday trade when Trump said he would not sign the $900 bn stimulus bill. GBP rallied across the board on reports of reaching an outline of a post-Brexit trade deal, while the finishing touches were being formed on fisheries. The charts below highlight major shifts already underway in USD and 10-yr bond yields, with crucial implications for next year.   EURUSD and XAUUSD remain well underpinned along the trendlines mentioned on Monday here. 

It will be important to watch those fixing times for the remainder of the year. Christmas Eve, Christmas, New Years Eve and New Years all fall on weekdays this year so that leaves only four proper business days in the year, including today. Importantly, Monday, Dec 28 is the final day of the year for tax loss selling so we could see extra flows and volatility around that date.

Stock and bond markets in most markets will close early on Thursday for the Christmas holidays. 

Mixed in with that will be ongoing Brexit talks. The more-transmissible strain of covid also bears watching with the UK reporting a record number of new cases on Tuesday.

Economic data also continues to surprise. US consumer confidence from the Conference Board was at 88.6 in December, which badly missed the 97.0 consensus. The market largely shrugged it off because US stimulus (which passed Tuesday) will give a jolt to consumer spending.

 

The US dollal is once again the top perfomer of the day as indices struggle anew amid fresh virus uncertainty. Ashraf has a few thoughts on XAU and XAG below. A new, more-transmissible covid variant circulating in the UK called B.1.1.7 gave markets a genuine scare to start the week but the subsequent recovery highlights the resilience of the recovery trade. A new premium trade was posted before Monday's NY cash close. The trade was issued last week to our WhatsApp Broadcast Group members. 

There are far more questions than answers about the new covid varient but top virologists are now more confident that it's more transmissible by 40-70%. It explains why UK cases have continued to surge despite the latest lockdowns and it's likely already spreading in many other countries.

The Spanish variant earlier in the year was first thought to be a similar problem but it turned out to be a result of luck and circumstance. It's now clear that the quick spread of that virus was a result of many people traveling to Spain along with some super-spreader events.

What's different this time is that this strain has 17 mutations compared to its most-recent ancestor. Scientists believe it incubated in a single, immunodeficient patient in a  long-term battle with covid.

Secondly, this strain is competing with other ones in the UK, where there have been a high number of cases -- and it's winning. On Nov 18, a total of 28% of London cases were this variant. That had risen to 62% by Dec 9.

On the economic side, it means that more countries will need to go into March-style lockdowns and that schools may close again. It risks a deeper contraction in Q1 GDP and a slower recovery, especially in emerging markets where vaccines are many months away.

What it's not likely to change is the vaccine. US officials Monday said 50m Americans could receive a first dose of the vaccine by the end of January. Other countries are also moving forward vaccine timelines. Given the strength of the bounce in risk assets Monday, the message is that so long as the vaccine is on schedule, the recovery trade is on.

That said, we will be keeping a close eye on UK cases in the coming days along with South Africa, where another variant may also be more transmissible.

Ashraf is closely watching the Gold/Silver ratio and whether it retests the 75 level of previous support-now-turned-resistance. Thus, any rebound from, 73 to 75 will mean fresh selling in XAUUSD (to 1863/4) and XAGUSD (towards 24.80s) until we hit the 75 ceiling in the Mint Ratio.  

A wild start for the week began in early Asia trading with news of fresh restrictions in the UK and resulting lockdowns in Europe, triggering sharp selloffs in oil and copper, extending to European and US indices as well as a jump in the greenback. But it did not last long. Sterling tumbled to start the week as a more-infectious strain of the virus in Britain causes alarm. The unravelling was also driven by clashing narratives (US stimulus deal, broadening lockdowns and travel restrictions & a new Covid-19 variant) That news compounded a lack of visible progress on a Brexit deal, wiping out half of last week's cable gain. CFTC positioning data showed dollar shorts trimmed slightly even as USD continued to tumble last week. The charts below highlight the swings in gold and EURUSD before both markets ended little changed, in a vocal manifestation of indecision from traders. Note those support levels also held up during the swings of FOMC Wednesday. A new Premium trade will be issued ahead of the US cash close. 

The horror film-like qualities of 2020 continued on the weekend as concern about a more-easily transmissible strain of covid-19 circulating in the UK led to some drastic actions.

A surge of cases and the new strain led to London and the southeast of England going into a Tier 4 lockdown, meaning that all non-essential shots including hairdressers and leisure most close. A new stay-at-home message was also introduced, urging people to work from home and mixing households is banned. Overnight travel of any kind is banned.

The Telegraph reports that that Tier 4 restrictions in the UK could last four months.

A multitude of countries have now banned all travel to the UK but there were confirmed cases of the new variant in continental Europe two weeks ago; raising the possibility that this winter will be even worse than feared.

The Brexit front also did no favours to sterling. Talks will continue but there was no breakthrough and time is running short. Fishing remains the main snag.

CFTC Commitments of Traders

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

EUR +142K vs +156K prior GBP +4K vs -6K prior JPY +44K vs +48K prior CHF +9K vs +10K prior CAD -16K vs -21K prior AUD -9K vs -10K prior NZD +14K vs +11K prior

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