Intraday Market Thoughts Archives

The recording of Ashraf's webinar featuring FORECASTER. Video.

The 2.9% US GDP figure in Q3 was the highest since Q3 2014 mainly thanks to the biggest positive contribution from next exports in nearly 3 years and a surge in inventories replenishment. Since personal consumption expenditure more than halved in Q3 to 2.1%, excluding volatile inventories from the headline GDP report would show a 2.3% increase in final sales, lower than 2.6% in Q2 and well below the 8-year high of 4.7% attained in Q3 2014. For an economy to register robust growth mainly from a bump up in next exports raises concerns about the continuity of such positive source, especially when the consumer—long acting as the crucial source of growth is faltering. The evidence is in the charts below—Personal consumption expenditure, charts of the Americas' favourite retail stocks (Home Depot, Best Buy and Amazon) and finally weakening breadth in the all-important S&P500, showing the percentage of members trading above their 200-DMA fall by half when the index is only 3% below its record high. We let the charts do the talking. There are 4 existing trades in equity indices currently open in the Premium Insights.

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Inflation fears flashed on Thursday in a move that sent global bond yields sharply higher. The US dollar was the top performer while the Australian dollar lagged. Japanese CPI is up next. A new tactical GBP trade has been issued in the Premium Insights after Thursday's beat in UK GDP and ahead of next week's key BoE inflation report.

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Global sovereign yields moved up 6 to 10 basis points on Thursday in a sign of a market that's growing uneasy. It was tough to see a single catalyst but the combination of central banks increasingly cautious about QE risks and small signs of higher inflation were factors.

It's important to keep in mind how vulnerable the bond market is. If yields move up 50 bps globally, it would undercut years of returns. If the move higher is because of inflation, it would undermine the central bank argument for QE as well in what could develop into a viscious circle.

Everyone in the bond market knows this and is playing a game of chicken. Eventually, there will be a rush to the exits and many episodes of jitters are likely in the interim.

In terms of ECB buying, Nowotny added some clarity. He said the December ECB decision will be about to what extent to prolong QE, not on whether or not to extend it. At minimum, the path forward will be a taper beginning in April.

In terms of economic data, the US dollar continued to defy weak reports. Core durable goods orders fell 1.2% in September compared to -0.1% expected. It's the first decline in three months.

That was the final major release before Friday's first reading on Q3 GDP. Estimates range from 1.3% to 3.6% with the Atlanta Fed tracker at 2.1%. Look for a big market reaction when the numbers hit but keep in mind that it's a series that's almost always revised in a big way.

Before that comes the Japan Sept CPI report at 2330 GMT. The consensus is for a 0.5% y/y drop in the national CPI and +0.1% y/y ex food and energy. It's a reminder that the BOJ hasn't defeated deflation, despite claims otherwise.

It's also a reminder that despite some bond market jitters, we are still a long ways from any kind of runaway inflation.

Tonight's webinar with Ashraf starts in a few hours from now (Oct 27th, 5 pm Eastern, 10 pm London time). Ashraf will walk you through his view on global markets, using the mechanics of a new game-changing software. Register for the webinar here.

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A newswire report said more ECB bond buying after March is a done deal but more broadly the US dollar was solid. GBP was the top performer while the yen lagged. New Zealand trade balance is up next. There are 4 Premium trades in equity indices currently open. The rest are in FX and commodities.

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A Reuters report citing central bank sources said the ECB will continue purchases after the March deadline and tweak the rules in order to do so. Whether QE remains at 80 billion euros per month or slows down depends on the interim economic data, the report said.The euro hardly moved on the report and that's a clear indication that the market has priced in a dovish leaning wait-and-see from Draghi. On the day the euro finished slightly higher.

The pound gained for a second day in a row and gained 50 pips to close the gap from Wednesday's sharp decline.

The pound rose despite a theme of general US dollar strength that was driven by upbeat data. The Sept advance goods trade balance was a deficit of $56.1B compared to $60.5B expected; wholesale inventories were up 0.2% compared to 0.1% expected; and the Markit services PMI was at 54.8 vs 52.5 expected.

Those numbers all gave the dollar a modest lift.

Elsewhere, yet another bullish US oil inventory report sent WTI crude immediately 80-cents higher but it faded by the end of the day in a sign that the climb higher in oil might be tired.

Overall, ranges were limited on the day.

Looking ahead, the economic calendar tapers off after New Zealand trade balance early. Exports are forecast at $3.53B and imports at $4.68B. The data is due at 2350 GMT.

A midday reversal lower in the US dollar Wednesday may be an early sign that the buy-the-dips dollar trade is due for a break. The Australian dollar was the top performer and GBP lagged but it was an intraday rollercoaster in New York trading. Australian CPI is up next. A new Premium trades has been opened in a 3rd major equity index.

(فيديو للمشتركين فقط) اين قاع اليورو، الذهب و ذروة الدولار

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The US dollar rode high into New York trading but finished near the lows of the day. USD/JPY climbed to 104.85 before falling to 104.20. EUR/USD fell to a session low before reversing to a session high.

Most impressive of all was cable, which crashed 120 pips below 1.2200 and touched the lowest since the flash crash before rebounding nearly all the way back.

In the grand scheme of things, the reversals were small. In the past, we have talked about looking for USD dips to buy and it's been a solid strategy but the speed of the turnaround Wednesday and the impending calendar gives us pause.

The Fed has entered the pre-FOMC blackout period with the market pricing in a 17% chance of a hike next week. That's low but not insignificant. So there is a risk of dollar disappointment on the result.

More importantly, it's the beginning of a series of dollar unknowns. The Oct jobs report is next week and the election is now less than two weeks away. Some of those may turn out to be dollar-positive events but the trade in the interim will be to square positions and with dollar longs in the CFTC report at the most extreme since January, that argues for selling.

In addition, economic data lately has been modest like Tuesday's fall in consumer confidence to 98.6 vs 101.5 expected. Corporates, like economic bellwether Whirlpool also talked about US softness.

Another spot to watch is the Australian dollar. The market is pricing only a 28% chance of a cut through Q1 2017 but that could rise dramatically on today's inflation report. The Q3 data is expected to show the trimmed mean up 0.4% q/q and 1.7% y/y. A miss to the downside would send AUD spiralling lower.

Get ready for something different in Thursday's webinar (Oct 27, 5 pm Eastern, 10 pm London time). Ashraf will walk you through my view on global markets, using the mechanics of a new game-changing software. Register for the webinar here.

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A handful of Fed speakers today underscored market pricing for a high probability of a December hike but the ECB plan remains murky. The Canadian dollar was the top performer while the yen lagged. The Asia-Pacific calendar is light. The latest Premium video below focuses on key dynamics shaping USDX, gold & EURUSD, highlighting the high-probability turning points ahead. 

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A poll from Reuters caught our attention today. They surveyed 17 traders and found that 11 of them don't believe Draghi will add any stimulus this year or next. That's in stark contrast to economists who almost universally believe more QE and/or lower rates are coming.

In sum, there is a roughly 1 trillion euro gap in expectations about how many bonds the ECB plans to buy. To us, that could represent a tremendous skew in market outcomes. If that isn't fully priced in and the ECB continues to buy, it's only likely to keep sovereign yields pinned at or slightly lower than current levels. There truly is a limit to how low you can go.

On the flipside, if 1 trillion euros of buying is priced in and the ECB doesn't deliver, yields could rise significantly and the euro along with it.

At the moment, however, euro longs are a no-go zone. Technically, EUR/USD broke down last week to the lowest since March. The time to make a decision will be closer to the December ECB but in the meantime, we will be watching for hints like Nowotny on Monday who said that one of the lessons from the crisis is that liquidity matters. He also refrained from making any dovish comments, which itself may be a signal.

The opposite central bank seems to be the Fed. There is a 71% chance of a December cut priced into Fed fund futures and that's a clear and transparent (and agreeable) number.

On Monday, the Markit PMI beat expectations at 53.2 vs 51.5 expected and that gave the US dollar and those Fed numbers a bump.

The Asia-Pacific calendar is very light in the hours ahead.

مقابلتي على قناة العربية عن استراتيجية ماريو دراجي، والارتباك داخل الاحتياطي الفيدرالي

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Soft data on Friday added another reason for the Bank of Canada to cut rates sooner rather than later. The loonie was the weakest performer last week while the kiwi led the way. Japanese trade data kicks off the new week. A new note on USD will be issued to Premium subscribers ahead of the Asian session.

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The surprise from the BoC last week was that it actively discussed an immediate rate cut. The market had priced in just a 2.5% of a move so it would have come as a shock. Even the chance of a cut this year on in Q1 2017 was priced as a longshot so the market is doing a complete re-thinking on Poloz.

Now, there is a 13% chance of a cut priced in for December and 25% by the end of Q1. That may rise higher if economic data continues to disappoint. On Friday, Canadian retail sales fell 0.1% compared to +0.3% expected. The September CPI report was also low at 1.3% y/y vs 1.5% expected.

To compound it all, the Canada-EU trade deal looked to have broken down Friday but a new deadline was set for late Monday as a holdout Belgian region threatens a deal that took seven years to negotiate and was scheduled to be signed this week.

The inability of the EU to get the deal done is another black eye for the region and the European project. EUR/USD broke down below the June lows on Friday to the worst levels since March. The market is increasingly confident that QE will be extended and that the US is headed for a December rate hike. At some point, the risks of those ideas unwinding may be higher than the rewards of betting on them, but we're not there yet.

Commitments of Traders

EUR -93K vs -93K prior JPY +37K vs +46K prior GBP -91K vs -95K prior CHF -16K vs -9K prior AUD +30K vs +26K prior CAD -14K vs -12K prior NZD 0K vs -8K prior

The overall US dollar net long is at the most extreme since January as the market piles into euro shorts and continues to quickly pare back wages or yen strength.

Even though euro shorts are now in triple-digits, it's still a long way from the -190K extremes from last December.