Intraday Market Thoughts Archives

The disjointed picture of the US economy is no clearer ahead of non-farm payrolls after mixed data on Thursday. The US dollar was the best performer on the day while NZD lagged. Expectations that the ECB will rescue the US economy were dealt a blow by Draghi.

After three disappointing readings, initial jobless claims improved to 365K compared to the 379K reading expected. On the other hand, the ISM non-manufacturing index fell to 53.5 compared to 55.3 expected. The employment component of the survey also deteriorated.

The euro fell below 1.31 for the first time in two weeks after the claims data but rebounded afterwards. The driver was a less-dovish than expected press conference from Draghi following the decision to leave rates unchanged. The ECB leader continued to stress downside risks to the economy but said inflation risks are broadly balanced and made no mention of rate cuts or extraordinary programs.

The initial reaction was a euro rally to 1.3180 but the lack of action also raised fears about European growth and EUR/USD drifted back to 1.3150. Other factors that jostled on the euro included rumours that Spain will announce a bad bank program on Friday and elections this weekend in Greece and France.

The short AUD/CAD trading idea that Ashraf introduced continued to perform well as the pair fell to a 5-month low before a drop in oil prices began to hurt the Canadian dollar.

The market is in a holding pattern ahead of non-farm payrolls and Japan remains on holiday but one release that may move markets in Asian trading is HSBCs China services PMI at 0230 GMT. The prior reading was 53.3.

-AB

The euro broke the key 4-week trendline on Wednesday as US employment worries upended concern about European manufacturing. The US dollar was still the best performer on the day while the euro lagged. Japan is closed for the remainder of the week but chatter is picking up about an ECB surprise. Tuesdays EURUSD shorts were not filled, while AUDCAD remain in progress. For the rest of Intermarket Insights. See below for more details.

The April ADP report showed the US adding 119K jobs, well short of the 170K expected. The prior was also revised lower by 8K. The euro bottomed shortly before the data at 1.3121 and drifted to 1.3160 afterwards. USD/JPY fell 30 pips on the report but held the psychological 80.00 mark.

Market participants are frustrated with range-bound markets but with so many central banks in a dovish mood, its difficult to get excited about any currency. Chatter about a surprise ECB move surfaced after the disappointing European PMIs. Expectations remain low but Draghi could open the door to more LTROs, ECB bond buying or a rate cut in his press conference.

Any of those options would inspire a mixed reaction from the euro. The knee jerk might be to sell euros on rate differential but German yields are already at ultra-low levels. The more-lasting trade is likely to be about improved growth and confidence in Europe due to ECB action. A more straight-forward trade might be to buy risk-sensitive currencies on better growth prospects.

Euro traders are also concerned about bank-capital ratios as leaders meet in Brussels to hammer out new regulations.

With Japan closed the focus is on the antipodeans. The New Zealand dollar fell more than a half-cent after the unemployment rate shot to 6.7% from 6.3% expected in the Q1 report.

For Tuesdays Intermarket Insights, click here http://ashraflaidi.com/products/sub01/access/?a=632 To subscribe, click here: http://ashraflaidi.com/products/sub01/

-AB

European manufacturing PMIs disappointed; labor market in Germany still strong but shows negative signs; UK construction PMI slowed but remained relatively strong; Swiss PMI dropped. Market turns to ADP and factory orders. The latest Intermarket Insights include latest Daily and Weekly charting on EURUSD and insights on AUDCAD. See below for more details.

The USD is stronger across the board in the ongoing session. European equities trade within -0.4% and +0.7% and the relative strength winner is CAD while NZD lags.

The common currency declined today after a slew of weak reports was released. French, Italian and Spanish manufacturing PMIs all disappointed and confirmed a faster pace of contraction. Even German April manufacturing PMI was revised lower to 46.2 from the initial estimate 46.3. The labor market in Germany showed only a little change as the number of unemployed people rose by 19K in April erasing the 13K decline from March but the unemployment rate remained steady at 6.8%.

Other news from Eurozone do not provide a reason for optimism either March unemployment rate ticked up to 10.9% from 10.8%; April manufacturing PMI was revised lower in April to 45.9 from 46; Greek manufacturing PMI fell to 40.7 and Italian jobless rate shot up to 9.8%. EURUSD fell from 1.3230 to 1.3135.

In contrast, UK construction sector continues to expand, albeit at a slower pace, as PMI printed 55.8 in April from previous 56.7. Moderate job creation continued, the input inflation reached the lowest level since 3/2010 and the confidence in 12 month outlook remained strong. UK mortgage approvals rose in March to 49.9K from 49K. EURGBP trades heavy near session lows just above the 0.81 level.

Swiss SVME PMI dropped to 46.9 in April from previous 51.1 which is the worst result since November 2011. CHF weakened slightly but against the EUR it remained just a dozen points above the 1.20 level. Worsening data is likely to bring back rumors that the SNB could move the EURCHF floor higher.

The NY session begins at 8:15 am ET with ADP report that is expected to decline in April to 178K from previous 209K followed by factory orders at 10:30 am that are forecasted to decline by 1.5% in March which would negate February's 1.3% gain.

Richmond FED president and FOMC member Jeffrey Lacker delivers a speech on economic outlook at 12:30 pm. His yesterday's comments were slightly hawkish.

Tuesday's Intermarket Insights include shorts in EURUSD and other trades on AUDUSD, AUDCAD, CADJPY and gold http://ashraflaidi.com/products/sub01/access/?a=632 To subscribe, click here: http://ashraflaidi.com/products/sub01/

Surprising strength at US factories boosted the US dollar on Tuesday. On the day, CAD was the top performer while AUD lagged on the RBA cut. The final HSBC China manufacturing PMI is the highlight of Asia-Pacific trading. Tuesdays Intermarket Insights are up. See below

The ISM manufacturing index for April was at 54.8 compared to the 53.0 consensus. The market was likely priced for a number even lower after disappointing regional manufacturing data. The details of the report were also positive with employment and new orders picking up.

Currency pairs went from one daily extreme to the other after the data was released. Moments before the figures, EUR/USD hit a session high of 1.3284 only to fall to a session low of 1.3204 minutes afterwards. The pound and Canadian dollar followed a similar pattern.

Fedspeak was the other theme of the day but the market gleaned relatively little from the six Fed speakers Evans, Lockhart, Lacker, Fisher, Wiliams and Plosser. The doves remain dovish and the hawks hawkish but everyone appears somewhat uncertain and eager to view incoming data. The market is the same way and that helps to explain the outsized reaction to the ISM data. Fridays non-farm payrolls report will be even more extreme.

The highlight the Asia-Pacific session is the final HSBC Chinese manufacturing PMI at 0230 GMT. The flash reading was 49.1 and yesterdays official manufacturing PMI stood at 53.3. Overall, dont expect a large reaction to this data point, the preliminary numbers are the bigger driver.

Japanese markets may be volatile because its the final trading day of the week ahead of holidays on Thursday and Friday. Data on Japans monetary base and labor cash earnings will not be market moving.

Tuesdays Premium Intermarket Insights include fresh trades & charts on EURUSD, AUDUSD, CADJPY, gold and oil. Click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=632

-AB

AUDCAD is down 6% from Februarys 15-year highs as the Reserve Bank of Australia continues its easing monetary policy, while the Bank of Canada readies to increase its rates later this year. Overnight, the RBA made a bigger than expected 25-bp cut in its overnight rate, slashing it by 50-bps to 3.75%, the lowest since February 2010. What does this mean for the AUDCAD cross? Are things so straightforward. See our latest Premium Intermarket Insights on AUDUSD, EURUSD, AUDCAD, gold and US crude. Direct Access to today's Premium Trades & Charts http://ashraflaidi.com/products/sub01/access/?a=632 Non subscribers can join here: http://ashraflaidi.com/products/

RBA Cuts; UK manufacturing PMI slowed. Market awaits ISM manufacturing following yesterday's disappointing Chicago PMI figures. We also have a few Fed speeches. Ashraf's Intermarket Insights will be released after the London Close.

USD Eases against all majors except the CAD following earlier strength. The weakest currencies are AUD and NZD.

Despite the fact that banks in many European countries are closed in observance of Labor Day, market volatility was not low. EURUSD climbed to 1.3277 before it sold off, GBPUSD was under pressure since the beginning of the London session and JPY crosses bounced slightly higher. FTSE 100 gained about 0.2%.

By the end of the Asian session, the AUD dropped from 1.0400 to 1.0310 after the RBA opted for a 50 bps cut to 3.75% surprising the market that had expected only 25 bps cut. Weaker economic conditions and inflation that is likely to be lower than previously expected were noted in the statement.

UK manufacturing PMI declined to 50.5 in April from 51.9 indicating slowing sector growth. New export orders that fell at the steepest pace since 5/2009 along with factory gate price inflation that rose to 7 month high contributed to the decline. GBPUSD fell to 1.6190 but has erased a portion of its gains.

The US session brings ISM manufacturing at 10:00 am ET which is expected to decline in April to 53 from previous 53.4. Note yesterday's release of the Chicago PMI showed a decline to 56.2 in April, far below the 61.0 expected and the worst reading since November 2009.

Construction spending which is due at the same time is seen higher in March at 0.5% from -1.1%.

Markets could also be influenced by a number of speeches today. FOMC member John Williams speaks at 11:00 am, FOMC member Jeffrey Lacker participates in a panel discussion at 11:30 am, FOMC member Dennis Lockhart delivers a speech at 12:30 pm and finally BOC governor Mark Carney speaks at 1:05 pm ET.

An unexpected fall in Midwest-area manufacturing continued the string of disappointing US data. The yen was the top performer while the Canadian dollar lagged. The RBA is widely expected to cut rates in the upcoming policy meeting but will it be 25 or 50 basis points?

The Chicago PMI fell to 56.2 in April, far below the 61.0 expected and the worst reading since November 2009. The Dallas Fed also dropped precipitously. The reports set the stage for a soft ISM manufacturing report on Tuesday.

The US PCE report was mixed with spending slightly below expectations and income slightly above. Core year-over-year inflation was in line with estimates at 2.0% y/y.

The Canadian dollar slumped after the February GDP report showed growth at -0.2% compared to a 0.2% rise expected. Shutdowns in the mining sector skewed the numbers lower but manufacturing was also soft. Increasingly, it looks as though Canada will face headwinds from a weaker-than-expected US.

The euro found some support from decreasing yields in Italy in Spain, the latter was especially encouraging because of wide-spread negative weekend commentary on its future. Spanish politicians also helped the euro, saying they are considering a bad bank for troubled loans.

The RBA decision will be rendered at 0430 GMT with 27 of 29 economists expecting a 25 bps rate cut. The remainder are expecting 50 bps. The market is priced more aggressively with a nearly one-in-three chance of 50 bps. Expect AUD to fall immediately on a 50 bps cut but further declines will depend on the statement. Even a 25 bps cut with a dovish stance may hurt AUD after an initial knee-jerk move higher.

S&P Downgrades Spanish Banks, German retail sales rose; Eurozone CPI eased less; golden week. Market turns to core PCE, personal income and spending, Chicago PMI and Canadian GDP. See in the link below Ashrafs Arabic & English interviews on Spains bad bank proposals, solvency vs. liquidity & US GDP.

USD is stronger across the board in the ongoing session. European equities are losing about 0.75% and the relative strength winners are USD and JPY while NZD is the weakest.

In an expected move, S&P lowered its rating on 16 Spanish banks just a few days after it lowered Spanish credit rating two notches to BBB+. Spain that continues to be in the center of attention published marginally better than expected GDP at -0.3% q/q and -0.4% y/y. 10 year yield is slightly lower today at 5.87%.

German retail sales rose 0.8% in March after February's -0.9% which marked the first positive month after four months of negative results. Nevertheless, EURUSD was unable to hold onto its gains from last week and declined from 1.3265 to 1.3208.

Inflation across the Eurozone eased less than anticipated in April as CPI rose 2.6% from previous 2.7% y/y. CPI has been above the 2% ECB target since January 2011 which is likely to continue to limit consumer spending.

Today marked the first day of the Japanese golden week holiday. Smaller volatility during the Asian session, especially on the JPY crosses is likely throughout the week.

The US session starts at 8:30 am ET with March core PCE price index expected higher at 0.2% from previous 0.1% (steady at 1.9% y/y). Personal income is seen higher at 0.3% from 0.2% but personal spending is anticipated lower at 0.4% from 0.8%.

Chicago PMI is due at 9:45 am ET and it is expected to decline in April to 60.9 from 62.2.

CAD traders await GDP that is due at 8:30 am and is seen higher in February at 0.2% from 0.1% m/m (2.1% from 1.7% y/y).

Ashrafs on CNBC http://youtu.be/LiPyvYzKzY8 and on AlArabiya (w/ English Synopsis below video) http://youtu.be/TPoxeOLHHdU

Ashraf on CNBC earlier today about on Spain's bad bank proposal & what are markets really concerned with? Austerity or Growth? It is difficult to simply tell CNBC that markets themselves are not sure what they really care about http://youtu.be/LiPyvYzKzY8

Ashraf's interview on AlArabiya TV explaining why the 2.2% GDP growth in US may have been the best of both worlds for the Fed, and talks about the types of QE as well as the lates on Spain's downgrade http://youtu.be/TPoxeOLHHdU