Intraday Market Thoughts Archives
Displaying results for week of Jun 21, 2020Polling Points, Stress Tests & Tech Issues
Trump's only consistent message is that he will not or cannot afford to leave the negotiating table with China. Trump reiterated today that the phase-one trade deal with China was “fully intact” after his adviser Peter Navarro caused panic for 5-7 minutes earlier this week when his remarks were misinterpreted that the Trade deal was off. This means that technology stocks could be the first to gain from a confirmed resumption in talks.
Stimulus replaces lockdown
Another positive emerges from reports of discussions between the Trump administration and Congress about another stimulus package. Ashraf mentioned that the administration's willingness to resist any lockdown despite record cases could be offset with delivering a new stimulus package in July. These would be considered a double-positive shock for the economy. Or at least an attempt to do so.
Polling Thoughts
The market has plenty to focus on at the moment and the US election isn't until November 3 but there are some themes worth watching. There is a clear shift towards Biden in a series of polls, with some major ones showing a lead as wide as 14 points with some showing him losing in Republican strongholds. No one needs a reminder of the polling surprises in recent years so pricing in policies is premature.
The risk here is the polls themselves. Trump is highly attuned to polls and the near-term risk is that he grows desperate. It's unclear how that would manifest itself but ramping up the trade war against China, or some kind of military action can't be ruled out as a tail risk.Bulls Reclaim Despite Virus Spread
Just as the weight of the continued rise in US virus cases finally pulled down risk trades on Wednesday, the key price levels held up;
- DOW30 held up atop the start of the down gap from March 6.
- SPX tested the 200-DMA before closing well above it.
- VIX fell 5 points after failing to cross the 100-DMA.
- US crude oil remained underpinned babove the 37 lows.
- DAX found persistent support above the Mar 18 trendline support.One narrative to keep an eye on is masks. Some US leaders are increasingly coming around to the idea that masks are imperative to spark any kind of recovery. VP Pence was seen in a mask Wednesday in a rare shift. Business leaders are talking more about masks as a way to restore confidence and a major upside risk is that talk resonates with Trump. It would be a major U-turn for the President but his poll numbers are dropping and his re-election depends on successful restart of the economy.
At the same time, the true level of economic activity is murky. There is an increasing focus on high-frequency data like hours worked from Homebase. It shows a recent dip in hard-hit US states and that poses a big risk for the reopening story.
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Poster Child of FX Technicals
بين المضاربة و التداول الاستراتيجي
We wrote earlier this week about the case for unique dollar selling outside of the risk trade and we saw some of that Tuesday. USD/JPY was hit particularly hard even as risk trades advanced. There was talk of Softbank flows related to the divesture of T-Mobile shares but USD was soft on nearly all fronts. The lone exception was CAD, which was hit by new aluminum tariff talk and a dip in crude.
Economic data was mostly positive as European PMIs roundly beat expectations. The US Markit data was less upbeat with manufacturing at 49.6 compared to 50.0 expected and services at 46.7 compared to 48.0 expected. However new home sales were significantly stronger than anticipated.
EURUSD has so far respected a technical trend seen during the 2017 bull market, when the average daily increase exceeded the daily declines, while the latter remained below 1.0% on average.
The early mood in the market was good. There were dips in sentiment as virus cases rolled in but it wasn't until late in the day when California and Texas hit records that sentiment began to dip. Importantly, the S&P 500 also failed at 3155, which was the June 19 high. DOW30 failed its 200 DMA, coinciding with a well known TA formation in the hourlies. (more in the video).
The Texas data is particularly troubling because along with a record 5489 cases – up from 3280 the day before, the hospitalization rate rose 10.3% day-on-day. Houston-area officials are warning that ICU beds are nearing capacity.
In general, US markets managed to look past virus data but – like in Feb/March – there is a limit. This time, though it's a uniquely US situation and whether that leaves an outsized mark on the US dollar is a theme worth watching closely.Dollar Disconnect
The rules of the FX game have been clear for years and the playbook is to buy the US dollar in times of financial trouble. The global need for liquidity in times of high stress was underscored in mid-March when the dollar even surged against the yen.
Yet, we must be careful. The rule may not always hold and a disconnect could emerge as USD underperforms. The last 12 years saw witnessed periods of stress and optimism but the general trend remained for the US economy/US assets – especially tech stocks – to outperform. That and surging demand for USD financing compounded the US safe haven.
COVID-19 is breaking so many rules and one could be the flight to the US dollar. Yes, in a scenario of severe market stress, the dollar will remain a haven, but in a moderately negative period of USD and US asset underperformance, the dollar could easily struggle. We saw this in at the peak of the USD relative in 2007-2008, when global currencies hit long-term highs vs the greenback.
Why mention this now? Because it's increasingly clear that the coronavirus is out-of-control in parts of the US while it grows increasingly under control in other G10 countries. If that divergence intensifies--along with the rebound of the long-beaten EU asset valuations, don't rule out capital flows away from the US and the US dollar. For now, it's not in play but is something to keep in mind as we watch US cases continue to climb.
Ashraf reminded me that we could also mention how the twin US deficits are surging far and above their EU and Japanese counterparts with no yield to compensate for that deterioration or with US holdings of US treasuries sustaining their bigest fall in 3 decades. But we won't get into that now.
There are currently two USD-related trades in the Premium Insights, 1 of which is long USD.
CFTC Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.EUR +117K vs +96K prior GBP -16K vs -24K prior JPY +22K vs +17K prior CHF +2K vs +2K prior CAD -25K vs -26K prior AUD -7K vs -37K prior NZD -9K vs -11K prior
AUD net positioning has been short for two years but with the short-covering last week, the net position is the least-short since June 2018.
