Intraday Market Thoughts Archives

The US has set October 17 as the date when the debt ceiling would most likely be breached. Treasury Secretary Lew said:  “If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history…the results could be catastrophic.” More analysis here

The market is struggling for direction as Washington grapples with the budget and the debt ceiling. The dollar was the top performer alongside NZD while the yen lagged. Next up is Japanese CPI.

Congress is facing two deadlines: on Monday a government shutdown begins due to the lack of a budget while around Oct 17 the government will hit the debt ceiling. Republicans are trying to use both measures to fight Obamacare while Democrats are refusing to negotiation, gambling the public would blame their counterparts for any economic impact.

With politicians willing to sacrifice the economy to win elections, there is no telling what will happen but most observers expect along with some last-minute drama. The anxiety could weigh on markets in the day ahead.

Economic data was upbeat Thursday but the market was skeptical. Initial jobless claims improved to 305K compared to 325K and the BLS said there were no special factors. In the previous two weeks, a lack of reporting from California pulled down the reading.

US Q3 GDP was unrevised at 2.5%. The Fed's Stein also said tapering was a 'close call' and that indicates a potential taper in Oct or Dec.

In Asia-Pacific trading the focus will be on Japanese August CPI. The national reading is expected up 0.8% y/y but down 0.1% excluding food and energy. The soft inflation readings give the BOJ plenty of cover to expand QE but so far they are planning to wait and see how previous actions filter through.

Some non-Asian events also take place. First, at 2305 GMT, the UK GfK consumer confidence report for Sept is expected to improve to -11 from -13. Later, at 01015 GMT, the Fed's George speaks about the economy.

At 0130 GMT, China releases YTD industrial profit data. Through July, profits were up 11.1%.

US budget and debt ceiling worries sent stocks lower for the fifth consecutive day and hurt the dollar, The pound was the top performer while the kiwi lagged. Australian job vacancies are the lone regional report ahead of UK GDP later.

The market has turned its glare to Washington where partisan squabbles threaten to undermine the US economy once again. Congress has until Monday to pass a budget or a government shutdown will begin. At best, it looks as though some sort of provisional bill will kick the can. Democrats are taking a hard line on Obamacare and some Republicans are in no mood for compromise.

The market isn't in a mood for compromise either and it has responded with a seven-day losing streak for the S&P 500 – the longest since last year's Congressional fiscal cliff imbroglio. The dollar felt some pressure as well. Ten-year yields are at a five week low at 2.61% and there are rumors of quarter-end buying of bonds and the dollar.

Gold cheered the impasse in Washington and would stand to benefit greatly in the event of an extended shutdown or a failure to raise the debt ceiling. Treasury Secretary Lew warned of that Oct 17 is possibly D-day for the debt ceiling.

Economic data gave the Fed no fresh reasons to taper. Core durable goods orders rose 1.5% in August compared to 2.0% expected.

Notable on Wednesday was the resilience of cable. A day earlier it slumped to 1.5956 but the break of 1.6000 was hardly the signal of a broader retracement. Instead, the pair climbed to 1.6080 today. Partway through the trading day the dollar regained its footing but cable remained bid in a positive sign.

The lone indicator on the calendar in the Asia-Pacific region is Australian job vacancies for September. A month earlier, job openings fell by 7.3%. Yesterday's report from DEWR on skilled vacancies showed a 0.3% rise in the month.

US data was soft on Tuesday and that kept earlier USD gains to a minimum. The dollar made slight gains across the board and the high-flying kiwi was cut down. Australian job vacancies and Japanese small business confidence highlight a quiet calendar.

The US dollar headed into New York trading with some momentum but it stalled after middling economic data. Consumer confidence slipped to 79.7 from 81.8 in the previous month. The Richmond Fed was flat compared to a +12 reading expected.

Shortly after the data, USD/JPY fell to a session low of 99.48. Treasuries were also heavily bid in the session with 10-year yields falling to a five-week low of 2.65%.

Overall, the market struggled for direction. USD/JPY rebounded to 99.00 as stocks showed some buoyancy midway through the session and then fell back to 98.73 as the S&P 500 closed down 0.3% and below the psychological 1700 level.

The Canadian dollar got a momentary lift from stronger retail sales for August but there was no appetite to push USD/CAD below 1.0270 and the pair quickly rebounded above 1.0300. It's a sign that the downtrend might be nearing exhaustion.

In the upcoming session, the New Zealand dollar could take a further hit on trade balance figures at 22:45 GMT. NZD/USD was the only significant mover on the day and the break comes after three days of malaise, a technical pattern that often signals a larger move.

Later, at 0100 GMT, the focus shifts to the DEWR skilled vacancy report for Australia. In August, vacancies rose 0.7%. At 0500 GMT, Japan releases the report on small business confidence for September. The prior reading was 49.7. It's unlikely either report will leave a lasting impression on markets. Instead, look towards US durable goods orders later.

Almost as quickly as the Fed's Bullard put an October taper on the table, Lockhart took it off. Risk trades were soft to start the week with the yen leading and euro lagging. The Asia-Pacific schedule is mute.

Lockhart is seen as a centrist at the Fed so his comments are a good barometer for what's next. The problem, he said, is that the October FOMC meeting is close and it's unlikely there will be enough evidence to dramatically change the picture.

On Friday, Bullard talked about a 'live' meeting in October and fuelled speculation of a taper when most people had shifted expectations to the December meeting.

The euro wrestled with dovish talk from the Fed and the ECB. Draghi reaffirmed an accommodative stance and said rates will be low or lower for an extended period. The Fed's Dudley, meanwhile, said it would take a considerable time to reach 6.5% unemployment.

Economic data was secondary but the September Markit PMI was soft at 52.8 compared to 54.0 expected.

Technically, many eyes were on EUR/CHF as it closed below the 200-day moving average for the first time since Nov 2012. It also broke psychological support at 1.2300.

One rumored event this week likely won't happen. Reuters reports that Yellen is the leading candidate for the Fed job but that no announcement will be made this week.

In the hours ahead, the market could struggle to find a theme. Japan returns from a holiday but there is no meaningful economic data on the calendar.

Last week's blow to “Taper Mania” by the Fed decision to go taperless despite explicit hints at scaling down purchases in September by Chairman Bernanke and notable declines in jobless claims and the unemployment rate, will highlight the Fed's division during this week's upcoming public appearances by Fed presidents and board governors.  Yellen's postponement of a speech to the NY Economic Club scheduled for Oct 1st suggests that she will have received the nomination by then, which would oblige her to delay any public appearances until confirmation hearings are finalized in Congress. More analysis here

The days of strong German leadership from Angela Merkel may be over as her coalition failed to win a majority. The euro took the news in stride and there have been minimal moves to start the week. Japan is on holiday but Chinese markets re-open after several days of holidays.

Merkel's party produced a much-stronger-than-expected result in German election, securing 42% of the vote. Unfortunately, a large portion of the strength came at the expense of her coalition party, which did not reach the 5% threshold to enter parliament.

The anti-euro party also narrowly missed the threshold but it will take some time to determine for sure. Alone, Merkel's party will be very close to a majority but governing with a 1 or 2 seat majority in the 600-person parliament is a difficult proposition so Merkel will likely have to forge a grand coalition.

As details of a coalition become clear the euro could react but for now the market is sanguine. Down the road, however, softer leadership could undercut German negotiating positions in a fractured Europe.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR +32K vs +12K prior JPY -89K vs -95K prior GBP -6K vs -38K prior AUD -27K vs -60K prior CAD -19K vs -31K prior CHF +1K vs 0K prior NZD +5K vs flat prior US Dollar Index longs at 22K vs 21K prior

The positioning numbers add some insight into the outsize AUD and GBP strength over the past two weeks. Shorts have been scrambling to the exits, squeezing those pairs higher than they might have otherwise climbed.