Intraday Market Thoughts Archives

We mentioned the 3 reasons why Bernanke will not announce QE today. So how do we apply these expectations into tactical trades? Jackson Hole is simply a passing distraction prior to a series of important and closely scheduled events. Find out in our latest Premium Insights on how to manage the existing positions and the new ones for today and into early next week. http://ashraflaidi.com/products/sub01/access/?a=678 Non Subscribers can join here: http://ashraflaidi.com/products/

Speculation about a less-dovish Bernanke dominated ahead of his Jackson Hole speech, sending the US dollar broadly higher. On the day, JPY was the best performer while AUD lagged. The Asia-Pacific calendar is busy to wrap up the week with Japanese CPI and industrial production.

Economic data was slightly softer on Thursday but not strong enough to force more easing. Initial jobless claims rose to a one-month high of 374K compared to 370K expected. Personal consumption and PCE core inflation were both one tick lower than expected at 0.4% and 1.6%, respectively.

The primary reasons not to expect further Fed easing are inflation fears (especially commodities), the Fed wanting to conserve firepower if the outlook worsens and tentative signs of better growth since July.

That sentiment dominated ahead of the decision making euro and sterling longs especially nervous. The trigger for the sharp round of USD-buying were comments from the leaders of Spain and Slovakia.

See Ashraf's take on Jackson Hole & Beyond: http://www.cityindex.co.uk/market-analysis/market-news/54392012/onto-jackson-hole-beyond/

Spanish PM Rajoy said he will not make a decision about bailout funds until all the terms are clear. Market watchers were positioning for euro longs ahead of EU finance minister meetings in September but are now shifting to the Oct 19 EU summit and another newly-planned November summit. Both dates leave plenty of time for another euro downdraft.

The Slovakian PM pushed nervous euro longs over the edge when he said there is a 50-50 change of a euro breakup.

EUR/USD cratered to 1.2486 from 1.2560 and cable fell a full cent to 1.5770. The commodity bloc was also sensitive and AUD/USD fell below 1.03 for the first time in a month.

The major data from Japan will be released promptly. At 2330 GMT, Japanese unemployment is expected to remain at 4.3%. At the same time, the July national CPI is expected to fall 0.3% y/y, the worst level of deflation this year and something that clears the way for more action from the BOJ.

Twenty minutes later, July preliminary industrial production is expected to rise 1.7% m/m after a 0.4% rise in June.

Other highlights include Australian private sector credit, the China business sentiment indicator from MNI and Japanese household spending.

-AB

Here is why Bernanke will not announce QE3 in Jackson Hole or at the Sep FOMC meeting. Throughout this summer, I maintained that equities will see none of the declines of July-August 2011. If anything, I anticipated a neutral to positive display by G7 equities. As we head into a busy schedule of market and central bank events, it is important to put a few things into perspective. http://www.cityindex.co.uk/market-analysis/market-news/54392012/onto-jackson-hole-beyond/

The US dollar made broad, modest gains after upward revisions to Q2 GDP. The pound slightly outperformed the buck while the New Zealand dollar lagged. Japanese retail sales are the highlight of Asia-Pacific trading.

US GDP grew at a 1.7% pace in the second quarter, better than the 1.5% originally reported but in-line with the economist consensus. Trade and corporate profits were large positive contributors while business investment was revised down. Inventories were also a drag on growth but that clears the way for improvement later.

The euro edged lower throughout trading but at a modest pace, sinking to 1.2530 from 1.2560. The dollar was broadly bid but the moves werent large enough to suggest genuine jitters about Jackson Hole.

The Feds Beige Book report had little to chew on and markets had almost no reaction to the anecdotal report. It was more upbeat on retail sales but downcast on employment and manufacturing. Overall characterizations of growth were slightly lower than in July.

Pending home sales rose 2.4% compared to 1.0% expected.

In Europe, Merkel reiterated that treaties do not allow the ESM to have a banking licence.

At 2350 GMT, Japan will release July retail sales. Expectations are for a 0.5% m/m contraction building on a 1.2% fall in June.

Sales have been negative in three of the past four months and with the BOJ growth downgrade earlier in the week, the risks are to the downside.

That said, this report is unlikely to move USD/JPY so close to Bernanke.

-AB

The softest reading on consumer confidence since November heightened QE3 expectations ahead of Bernankes Jackson Hall speech. The euro was the top performer Tuesday while the New Zealand dollar lagged. The Republican convention and Q2 Australian construction work are the highlights of Asia-Pacific trading. Ashraf will issue a fresh edition of this week's Premium Insights on Wednesday.

US consumer confidence slumped to 60.6 in August on declining attitudes about the future economy. The consensus estimate was 66.0.

The euro and pound sterling made headway against the US dollar, erasing declines from earlier in the session. The euro tried several times to break 1.2580 but has stalled out each time. Cable fell early in the day but bounced beautifully from a cluster of support around the 100-day moving average and surged to 1.5835.

There were some positive signs on the US economy as well. The Case-Shiller house price index rose 0.5% compared to -0.1% expected. The Richmond Fed also edged ahead of expectations at -10 vs -9 expected.

Politicians attempted to jawbone oil lower with a co-ordinated G7 statement saying they stand ready to release strategic reserves. WTI was unimpressed and continued to move sideways at $96.20.

The market continues to build toward Jackson Hall on Friday even with Draghi cancelling his planned appearance due to a busy schedule.

The Republican convention will take over the US airwaves today as campaign rhetoric heats up. It is unlikely that anything market moving will come of it but risks remain. The lone item on the Asia-Pacific calendar is Q2 Australian construction work done at 0130 GMT. The consensus is for a 0.9% rise after a 5.5% decline in Q1.

-AB

The market is like the Florida coast as Tropical Storm Isaac approaches. It’s the calm before the storm of activity that will kick off with Jackson Hall speeches on Friday. In the meantime, market action has been lackluster. The lone indicator on the Asia-Pacific calendar is Australian home sales.

The UK holiday slowed already-stale trading to start the week. A highlight was a report from the WSJ that the ECB may adopt flexible bond yield caps. The program would be informal and focus on short-dated debt, probably less than three years, they reported.

The WSJ story is the third article suggesting a program to bring down yields is under consideration. When there’s smoke there’s usually fire. At this point, however, the process doesn’t appear far enough along to be introduced at the September ECB meeting.

There were minor bright spots in the US economy as the Dallas Fed manufacturing index improved to -1.6 from -13.2. The Chicago Fed Midwest manufacturing survey also ticked up to 95.6 from 93.9.

Risk trades edged lower though US trading. The euro slipped to 1.2494 from an open at 1.2527. Similar-sized moves were seen in other pairs as the US dollar found scattered bids.

The SNB’s Jordan re-affirmed its commitment to the peg but EUR/CHF remained glued to 1.2010.

Asia-Pacific trading is likely to remain subdued. The lone item on the calendar is 0100 GMT release of HIA new home sales. The prior reading was +2.8%.

-AB

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