Intraday Market Thoughts Archives

US stock indices are nearing record highs on a combination of bullish remarks from the US Trade Representative regarding the progress of US-China talks and increased expectations the Fed will cut rates next Wednesday. Don't forget Thursday's speech from US VP Pence toning down the China economic rhetoric also helped sentimentm -- in a true sign that the US wants a deal. Gold and silver extended their gains as the Fed doubled up on its daily repo operations, while NZD is the weakest currency of the day. Both GBP and EUR are lower after the EU deferred its decision on Brexit extension to next week (more on this below). A new Premium Trade was issued yesterday evening, now in the green. And dont forget to adjust your European clocks this Sunday ahead of a big trading week. London is now equal to GMT & 4 hours ahead of New York during all of next week, until US/Canada turn back their clocks on Nov 3rd and London reverts to the usual 5 hrs ahead of NY.  

فيديو المشتركين الآن جاهز تفسير صفقة أمس و آخر تطورات بركزيت

Just over a year ago, Pence set the stage for an escalating trade war with a fiery speech that took Chinese officials aback. The sequel on Thursday continued themes criticizing human rights but the economic rhetoric was less aggressive. Pence said Trump was not looking to decouple from China and that if China ends unfair trade, the US is ready for a new future.

This was combined with news that China had strengthened laws on technology transfers and intellectual property, along with committing to $20B in agricultural purchases in phase one of the deal. The words and actions show tentative signs of sincerity and are a genuine reason for optimism.

Adding Elections to the Mess

In the UK, optimism about a near-term Brexit deal is fading fast. Conservatives will attempt to call an election on Monday. That initial move will probably be defeated but reports suggest the government will go 'on strike' and pull the planned budget in a continued effort to force an election. This is a surprise given how close they appeared to getting a Brexit deal but – as we warned – Boris Johnson is riding high in the polls and is attempting to push his advantage. Labour has consistently said they will support an election once Brexit is extended but there are signs the party is divided.

The base case on an election is that Conservatives win a larger majority and then pass the Brexit deal. The solid position should also help them to stimulate the economy and negotiate the future relationship with the EU. But elections are inherently unpredictable. Theresa May thought the same thing when she called an early election and that ended in disaster. Voters are less predictable than ever and the nightmare scenario is that we're left with an even-more divided and paralyzed parliament. That's a recipe for a pullback in the pound. Of course, with the EU still undecided about the extension timeline, the trade is extremely fluid and headlines will continue to dominate. The 2-month downfall in EURGBP is finding suppport at its 200-WEEK MA, touching it for the first time the 2016 referendum.

Brexit hangs in the balance as EU politicians put off the decision on a Brexit extension. The pound was the top performer once again while the yen lagged. GBP is now the 2nd best perfomer since the start of the year (behind CAD). The final ECB decision of Draghi's Presidency is due next (more below). A new (4th) Premium trade will be issued after/during Draghi's press conference.

The pound found a short-term bottom at 1.2840 and rebounded modestly in another sign of dip-buying or short-covering as the Brexit clouds part. Yet uncertainty still remains high as the EU sends mixed signals on what kind of extension it will offer. Talk of a UK cabinet meeting will be held at 3 pm London time.

France is pushing for the shortest of extensions in the hope of ending the saga while Tusk, Germany and others are more inclined to a three-month extension to avoid the perception of playing politics. A longer extension may spark an election and that might cause some short-term GBP selling while a shorter extension would pave the way for a deal and boost the pound.

Looking to today, the main event is the ECB decision. Expectations for any kind of change in policy or guidance are nearly nil. The ECB made their move last month and will now play a game of wait-and-see. If anything, Draghi may try to put some positive spin on the economy as he departs. In all likelihood the market isn't going to react to it because data continues to struggle. On Wednesday, eurozone consumer confidence fell to -7.6 compared to -6.7 expected – that's the worst since January 2018.

Looking back at Draghi's term, he will be remembered as a great central banker who was dealt a terrible hand. He faced down the eurozone crisis, Brexit and austere fiscal policy and did everything he possibly could to combat them, while remaining an effective communicator throughout. Time will tell on whether the ECB pushed to far into experimental policy but at the very least he bought eurozone politicians years of time to make structural changes. Lagarde will have a tough act to follow.

The pound gave back a chunk of gains on Tuesday after PM Boris Johnson failed to win a vote to fast-track Brexit legislation, but he's increasingly finding himself in a win-win situation. The path for the currency, however, remains more complicated. The long GBPUSD Premium Insights trade was closed moments before yesterday's votes for 135-pip gain. A new trade was posted with 2 charts. A negative outlook from Texas Instruments is weighing on microchips & techn, while Boeing continues to weigh on the DOW30. The English Premium video, focusing on indices and GBP is posted below. A post-script on the Canadian elections is added below.

Johnson is on his way to losing the battle to Brexit by October 31, but is making steady progress in the Brexit war and his personal political campaign.

GBP traders are rightfully fixated on UK political headlines at the moment. The pound jumped to 1.30 as the Brexit withdrawal bill won a healthy 329-299 majority with the help of valuable Labour votes (the first successfully passed vote Brexit withdrawal bill ever) but the gains evaporated to 1.2850 when he lost a vote 308-322 to fast-track the bill.

The debate now centers on the duration of the extension. Conservatives are threatening an election if it's anything more than a short, 10-day technical extension with no threat of anything beyond that. That has some EU leaders uneasy about getting being dragged further into playing politics in the UK.

For Johnson personally, there probably isn't a bad outcome. His Brexit deal success, along with growing public Brexit exhaustion public have boosted him in the polls. This would be a good time to fight an election. Alternatively, a short extension followed by a deal would be a minor loss on the timeline exchange for a major political achievement that could ultimately vault him even higher up the polls.

Pound bulls are viewing a Deal-Brexit to be only a matter of time. An election in the interim would add an unwanted round of uncertainty as well as disappointment with a solution within grasp but, would be a setback for the ascendant pound, not fatal blow.

Final Thoughts on the Canadian Election

The contrast with Brexit and Canadian politics was almost surreal in the past day. We're experiencing +70 pip moves on every Brexit rumor and yet Canada just experienced a significant change in government – majority to minority – and we struggle to identify any more than a 10 pip move on the vote.

We're increasingly used to seeing politics make waves in markets every day but you don't have to go too far back to a time when politics hardly mattered. Canadian election night was like a timewarp.

Canada may one day splintering towards the extremes like many other democracies but for now, Canada is holding in the center. Canada is a 'boring' country and in a strong global economy, that means it's forgotten about. But when the trouble comes, boring is good and it will be good for the loonie

Canadian Prime Minister Justin Trudeau held onto power Monday but his party was diminished to a minority, raising fresh questions at a later time, but for now the loonie remains at three-month highs. Later in the day, CAD traders turn focus to the BoC's business survey (15:30 London time).  GBP dropped by a full cent on reports the govt theratened to pull the Brexit withdrawal and call for elections an election by year-end if parliament votes again for delay and the EU offers to delay Brexit until January 31. US Sep existing home sales are due next, exp -0.7% from +1.3%. All 3 Premium Insights trades currently in the green. A new trade will be released before the London close. Care to guess the analog mystery chart below?

Canada's governing Liberals will fall about a dozen seats short of the majority they previously held, but fared better than many were expecting. Trudeau will now try to govern with a minority and he's likely to cobble together a coalition from issue to issue, rather than trying to form a formal coalition. This also means none of the opposition parties will have any appetite to bring down the government and trigger another election. Trudeau is safe for at least 12 months and has a good chance of finishing the 4-year term barring any major scandal or drop in the economy.

The market reaction so far has shown that Canada is one of the dwindling number of countries where politics remains a small part of the trading landscape. There are true differences in the parties but nothing so meaningful that it will scare away or attract capital to Canada.

One exception is oil and gas. The market will be watching closely for signs on how a minority government will manage the resources sector, and how energy companies will react to the results. In the short term there are some downside risks for the Canadian dollar but the rule of thumb on every election is to buy the dip and that will prove true again.

Downing Street Threatens Elections 

GBP traders were fixated on parliament as it holds a first vote on the Brexit bill Tuesday. Barring any fresh last-minute amendments or changes, the vote will take place at 1800 GMT (19:00 London) and it's likely to set off a large move in GBP. The latest indications show that Johnson may have a majority by fewer than 5 votes but some MPs want to slow down the process and could balk, at least for now.

Canadian voters head to the polls on Monday with USD/CAD trading near an 11-week low. We scope out how to trade it, especially as CAD is the strongest currency since the start of the year. GBP is trading at 1.2980s after printing 1.3012 earlier this morning ahead of a meaningful vote request at 15:30 London time. Even if the request is voted down, there is optimism that PM Johnson's deal will be passed in Parliament later this week. MPs delivered a setback to Johnson on Saturday after voting to defer approval of his Brexit deal. But traders remain confident that his withdrawal agreement will pass by a tight majority. CFTC positioning data continues to show a massive pound short; and it's surely feeling the squeeze.

USD/CAD fell to the lowest since July on Friday as it broke the September low of 1.3134 and the July trendline support. Is that a sign? Perhaps--But it's probably a reflection of broad USD weakness and positive sentiment in commodity currencies. If anything, the loonie has been suppressed in the run-up to the election. It has trailed AUD and NZD by about 1% since the start of the month, although some of that is also explained by oil weakness.

The election playbook is generally similar to all elections in stable democracies – Buy (counter) the uncertainty. Fear and worry take over ahead of all elections but once the smoke clears, there is always some sense of relief and money goes back to work.

In Canada, the stakes are low. Polls show Trudeau's governing Liberals and the opposition Conservatives in an dead heat, but both are relatively centrist parties. The wider distribution of the Liberal vote, last-minute incumbency effects, and better coalition options makes Trudeau the betting favourite to remain Prime Minister at about a 65% probability.

In the event of a surprise ---and/or Conservatives win a majority, that would be the most CAD-positive outcome, as it re-establishes optimism on crude exports especially via corporate tax cuts. A Liberal majority may also be a modest CAD-positive because it lowers some of the tail risks and because it would add four years of relative stability.

Neither party is likely to win a majority, in which case uncertainty may a few days and CAD weakness. The main fear is that the Liberals would be forced to work with two or more other parties, who would demand pipeline construction shutdowns. Those fears are overdone but could lead to a 1-2 cent fall in the loonie that would ultimately be a buying opportunity. The question is: Considering the resulting uncertainty, the timing of CAD's recovery remains unclear, especially as equity indices' gains are primed for a pullback.

On election night, the trade is to buy CAD on a Conservative majority or any dip on a Liberal majority. Otherwise, wait for better levels or a wild overreaction. Results will begin to cross at about 0030 GMT but it probably won't be until the West coast votes 3-4 hours later that we get any kind of clarity.

CFTC Commitments of Traders

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

EUR -75K vs -75K prior GBP -73K vs -73K prior JPY +7K vs +11K prior CHF -13K vs -11K prior CAD +13K vs +5K prior AUD -48K vs -46K prior NZD -40K vs -38K prior

The numbers only cover through the close last Tuesday but cable had already climbed more than 500 pips from the lows so it's a surprise there was virtually no short covering. If you're long, it means there is still potential for a significant squeeze.