Intraday Market Thoughts Archives

Now that each of our 3 indices trades hit their final target this week (DOW30, SPX500 & DAX30), matters could become a little less straightforward for swing traders. The next 3 weeks will be dominated by data-watching and volatility following for any hints regarding the Fed's October 30th decision. Some say we could retest 2967-70 on the SPX, others are focusing on 26570s on the DOW30. The urgency for an October rate cut (raised by ISMs) was removed by today's mixed US jobs report. The urgency for a cut was removed, but the possibility very much remains. At this point, a violent surge in volatility & resurfacing trade threats from Trump are more likely to trigger the October rate cut than are macro news. Technically, the charts below (from Sep 26) are a reminder that technicals do work, when backed by other relevant technical and sometimes fundamental factors. So far, we have 2 existing Premium Insights trades.

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A second soft ISM reading ended talk of a pause from the Fed and placed rate cuts back in play. Expect prolonged fluctuations today (fake breakouts & reversals) in the midst of today's US US non-farm payrolls (NFP, earnings & revisions), a speech  from Powell and a high likelihood for Fed-related tweets from Trump. NFP (more below) and hawish dissenter Rosengren are due at 8:30 Eastern (13:30 London), followed by Powell's crucial speech at 14:00 Estern (19:00 London). Below is the weekly English Premium Video clarifying the next positioning after the 3 indices trades hit their targets.

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The ISM non-manufacturing index fell to a three-year low just days after the manufacturing survey hit a 10-year low. It was at 52.6 compared to 55.0 expected and much worse than low-estimate of 54.0.

The initial market reaction was a continuation of the 'risk off' rout from Tuesday's poor manufacturing survey. Shortly afterwards, it morphed into a USD selloff and a rebound in equities. That was helped along by higher pricing for Fed cuts. The US 2-year fell to cycle lows at 1.366% and Fed fund futures pushed to price in an 85% chance of an Oct 30 and a 60% chance of another cut in December.

Fed hopes and the typical buy-the-dips mentality quickly swung a 55-point low-to-high turn in the S&P 500 and that helped to pare some of the declines in USD/JPY. More broadly, the dollar stayed under pressure.

Overall, it was a tougher day to put together a coherent narrative. There is a delicate balance in equities at economic turning points. There is always the hope that the Fed will save the day. At this point in 2008, US equities were hitting record highs on the belief that Fed cuts would save housing and boost the economy. At other times, that bet has been a good one but it will come down to how much economic damage the trade war has done, or will do if it escalates after meetings next week.

In Brexit news, the mood is souring as the EU and Ireland edged towards rejecting the Conservative offer. For Johnson, however, it has given him some credibility and that could translate into a better election showing. If he can command a large majority, that would put the EU in a tougher spot down the road and raise a true possibility of a no-deal Brexit.

Looking ahead, the employment component of the services ISM survey was an ominous sign for Friday's non-farm payrolls report. It fell to 50.4 – the lowest since Feb 2014 -- from 53.1 last month. It has a mixed record on forecasting the jobs report and September is notoriously tricky, but it adds another risk. The consensus for the 145K but the market has likely moved to something 20K lower.

Markets wilted again on Wednesday as the market increasingly sours on the global economy. The US was given the OK from the WTO to impose $7.5 bn in retaliatory tariffs on the EU. The USD was lower across the board yesterday on resurfacing odds of a 25-bp rate cut later this month following the slumping services ISM. All eyes turn to today's release of the services ISM for proof on whether the US services sector continues to escape the miserable fate of the manufacturing sector. One day after the DOW30 short was closed for 480-pt gain, both Premium shorts in the SPX and DAX30 hit their final targets for a gain of 79 pts and 350 pt respectively.

فيديو المشتركين: ماذا بعد تحقيق للأهداف؟

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Global equity sentiment crumbled on Wednesday for the second day. US stocks fell nearly 2% while European markets sank around 3%. There wasn't a particular catalyst, rather it was a continuation of worries following the weak US ISM non-manufacturing survey on Tuesday.

The US tariffs that will be authorised by the WTO on the EU will take effect on Oct 18. Their aim, according to Trump, is to persuade the EU to reach a negotiated settlement.

On the Brexit front, Johnson delivered his proposal to the EU and it included a call for the Northern Ireland assembly to vote on border deals every four years. It's a sort-of democratic backstop but doesn't answer the question of what happens if they suddenly reject a deal. The initial EU and Irish reception was chilly but not completely dismissive. A memo from 10 Downing leaked that suggested calling the EU 'crazy' if it didn't accept the deal in a sign that Johnson may be angling more for an election rather than a deal. On the flipside, a report said as many as 25 Labour MPs will back the deal.

The pound was relatively stable but that might be more an indication of the broader market turmoil than a reflection of Brexit developments. Much hangs in the balance in the day ahead. If a deal begins to look possible, the pound could jump. GBPUSD remains supported above the 55-DMA, but has yet to make a lasting  break above the 100-DMA. Ashraf has issued a Premium trade in cable last week, highlighting a crucial analog.

In terms of economic data, the September ISM non-manufacturing index will be a major event to watch at 1400 GMT (15:00 London). The consensus is for a modest slide to 55.1 from 56.4 in August. Anything above 54.0 could help to stabilize sentiment or prompt a turnaround.

The US decoupling story from the weakening global economy is dealt a severe blow after Tuesday's ugly US economic reports. Global equity indices resume their sell-offs as the ISM manufacturing survey slumped to 10-year low, raising fresh questions on whether the division inside the Fed could jeopardize markets. SPX and DOW30 futures are currently below their 100-DMA at 2918 and 26380 respectively. The US ADP employment report is due later today. The Premium short trade in DOW30 was closed for a 480-pt gain, while 2 other trades in indices remain deep in the green. Ashraf tells me several clients had questioned the decision to issue three different trades in indices (all shorts) at a time when the market was lifting higher.

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Markets had initially been off to a solid start in October with sentiment steadily improving. The solid mood was underscored by the final Markit manufacturing PMI. It was bumped to 51.1 from 51.0 in the preliminary reading and it helped to solidify expectations for a solid reading in the ISM survey to be released shortly afterwards. The result was anything but solid. It sank to 47.8 from 50.0 expected and to the lowest level since 2009. New orders and employment were particularly soft.

The data flipped the script on theme in the markets as USD/JPY dropped to 107.55 from 108.45, while US 2-year yields fell 13 bps intraday in hint that the Fed may have to ease sooner rather than later. US crude oil has reversed all of last week's gap, hitting $53.05.

The sudden weakness puts an extra focus on this busy week of US economic data starting with the ADP report at 12:15 GMT (13:15 London). The survey has been a poor predictor of non-farm payrolls lately, so the effect may be more muted, even on a wide miss from the +140K estimate. Other data still to come this week includes the services PMIs, factory orders and non-farm payrolls.

Euro tumbles below 1.09 amid softer than expected German CPI. Global indices are recovering from Friday's late session selloff after the US denied claims it was exploring steps to block US equity listing of Chinese companies. Weekend comments from the DUP hinted at progress on Brexit as Johnson faces the defining moment of his political career. The Canadian dollar was the top performer last week while the pound lagged. Loonie outperformance came at the same time as CAD-longs were racing to the exits, according to CFTC positioning data below. Since the start of the Asia Monday session, all currencies are down against USD with the exception of GBP.  A 5th Premium trade was opened on Friday. There are currently 3 trades in indices, 1 in commodities and 1 in FX. 

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The ebb and flow of Brexit news has completely dominated GBP trading trading this year. Stepping back, it's left semi-permanent investment gaps in the UK and has resulted in a re-rating of all UK assets, including the currency. The longer it lasts, the larger the risk that there is a structural impairment of the UK economy.

Currently, the bigger question is whether there is a political impairment of the country. Boris Johnson has held steadfast in promises to take the UK out of the EU on Oct 31 despite a deep divide in his party. One glimmer of hope came on Sunday from the DUP's Foster who said there has to be a willingness at flexibility and creativity to find a solution to the Northern Irish backstop. If the DUP can be convinced of supporting a deal, it would bring many MPs onboard.

As for the broader deal, Michael Gove on Sunday said it would have to be substantially different from the deal Theresa May presented earlier this year. That's a tall order given the tight deadline. He also alluded to the prospect of the EU having to negotiate with yet-another Prime Minister; a subtle hint at his aspirations for the 10 Downing Street Game of Thrones.

Elsewhere, note that China Monday was the only trading day this week in China. The market is closed through the weekend for holidays. That could bring calm to markets but festivities will include many speeches from top policymakers and the topic of US-China relations is sure to come up.

CFTC Commitments of Traders

EUR -61K vs -69K prior GBP -81K vs -86K prior JPY +13K vs +24K prior CHF -11K vs -5K prior CAD +5K vs +20K prior AUD -47K vs -54K prior NZD -36K vs -30K prior

The erosion in oil prices following the Saudi spike and the looming election uncertainty chased out Canadian dollar longs. In terms of overall moves, the dollar bid strengthened modestly but there as no genuine theme. That underscores the broad wait-and-see theme in markets.