Intraday Market Thoughts Archives

Few doubt that hiring will be high for the remainder of the year but the pace will mandate how quickly the Fed moves. ADP employment offered an early look at the state of the jobs market as the Fed begins its taper debate. The US dollar was the top performer on Wednesday while the yen lagged. GBP weakness deepened in Europe after BoE's Bailey said policy makers must not overreact to "temporary" jump in inflation. Ahead of the OPEC meeting, US crude oil hit $75 for the 1st time since Oct 2018. Jobless claims are next, exp 388K from 411K.

The early consensus on non-farm payrolls is 700K job in June. That should firm up after ADP employment rose 692K compared to 600K expected, though that report has a poor recent track record.

Whatever the employment number is on Friday, there is plenty of evidence that jobs are available. The issue is that workers aren't applying for low paid jobs the way they used to. Part of the reason is that in much of the country, jobless benefits will extend through August.

That's allowing workers to be picky in what work they will accept. In addition, families have an incentive to wait until after the summer when school restarts.

That thinking puts the Fed on a slow path to tapering but it could change if there is a surprisingly strong jobs report. In particular, the wage indications could convince some FOMC members that inflation risks call for more action.

For the dollar, the trade is straightforward around USD/JPY. It's testing the April 2021 highs and not far off the 2020 peak at 112.23. That's followed by a series of annual highs that stretch up to 115.00. Dominos will begin to fall whenever the jobs growth materializes.

As metals fall victim to surging quarter-end fluctuations and the extended broad bounce in cryptos, we take a look at the ECB side. The pushback against ultra-loose policy has started in Europe with the ECB's Weidmann calling for pandemic programs to be curbed. Although German CPI dipped to 2.2% y/y in June from May's 2.5%, Eurozone CPI is expected to continue accelerating at 2-year highs. This means we're unlikely to get diverging monetary policies between the US and Eurozone as occured in 2014/15 and highlighted in this video. US consumer confidence is due on Tuesday.

Bundesbank leader Weidmann cited a newly found Galapagos turtle in his speech on Monday. The species was thought to be extinct for 100 years but one was found last month in May. He said inflation has also been written off but it's not dead.

He warned that upside risks are now predominant in the eurozone. Most importantly, he said the preconditions for curbing pandemic emergency bond purchases have now been met.

Weidmann and other hawks are increasingly framing pandemic measures against the coming end of the pandemic. They argue that they agreed to measures during the pandemic but not afterwards. Doves want to let the programs run because of fears about repeating premature tightening following the financial crisis.

In the eurozone, the doves will undoubtedly win and that's why the euro was little moved by Weidmann. Globally though, the hawks are finding receptive audiences.

Much is different about this crisis. The financial crisis left scars and a legacy of austerity. This time, governments won't pull back quickly and that changes the calculus for central banks.

In its monthly manufacturing survey, the Dallas Fed had special questions on hiring. In June, 42.5% of companies said workers are looking for more pay than offered, which compares to 33.8% in April. Supply chain complaints have exploded as well with nearly half of companies expecting them to last for at least seven months.

To start the week though, the market was tentative with commodities and commodity currencies lower. Treasury yields also took back Friday's advance. It's month/quarter end so flows could be tricky through Wednesday.

USD regains strength after Friday's post-PCE slide. A series of inflation surprises left the market on edge ahead of the May PCE report but the numbers were in line and that led to some dollar selling, at least initially. All currencies are down vs the dollar, except for GBP. CFTC positioning emphasized the short-squeeze after the FOMC meeting. Make sure to watch & rewatch Ashraf's video on the tapering dynamics and how the conditions leading to the explosive USD rally of 2014/15 differ from today.  

PCE core inflation rose 3.4% in May, as expected. The headline number at 3.9% also matched estimates. The numbers come after CPI data hit 5% in a big surprise. The market eventually digested (and shrugged off) the high CPI reading but there's a limit to how many inflation surprises the Fed will tolerate.

The dollar sold off on the headlines but hours later it recovered, in part to a climb in Treasury yields. The bond market continues to be a key barometer. It's the single-most sensitive asset class to inflation and the Fed. With 10s at 1.52% the message about transitory inflation is clear but it will be tested repeatedly in the months ahead and a major repricing would have enormous implications for virtually every global asset class.

The new week starts with a strong rally in crypto, led by a 10% weekend jump in ethereum. The resolve of the bulls this month despite a battering has been impressive.

CFTC Commitments of Traders

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

EUR +89K vs +118K prior

GBP +18K vs +32K prior

JPY -53K vs -47K prior

CHF +14K vs +9K prior

CAD +43K vs +44K prior

AUD -17K vs -18K prior

NZD +3K vs +3K prior

This is the first look we have at post-Fed positioning and it highlights the likelihood that late-coming longs in EUR and GBP were squeezed out on the big USD rally after the FOMC.