Intraday Market Thoughts Archives

Mixeds global indices as a result of more bad news on the Corona front, partly offset by positive findings that Gilead's remdisivir virus treatment is associated with a 62% decline in death risk vs standard care. As the SPX shows a Golden Cross in its 55/200 MA cross, here's more on the golden EURUSD and death cross in USDX below. and golddenRelentless dip-buying in tech supported equities Thursday but the bond market painted a more-troubling picture. CAD is the weakest of the day alongside AUD-- despite an upside surprise in Canada's employment as market foscused on a higher than exp jobless rate. JPY and GBP lead the day, with cable revisiting Thursday's 1.2660s high, keeping Thurday's Premium long in cable +160 pips in the green. Below is today's content from Ashraf's WhatsApp Broadcast Group (open for VIP members of the Premium Insights service) --How the low was called in DOW30 and NASDAQ on Thursday evening and the subsequent call to go long in DOW30, DAX30 and EURUSD. 

At 17:30 Friday London, Nasdaq is down -0.2%, while DOW30 and SPX are up more than 0.5%. Risk trades soured Thursday on stubbornly high US unemployment claims and troubling virus signs but after a minor rout, Nasdaq dip-buyers stepped in once again to limit the damage. However it was a different story in the bond market as 10-year Treasury yields fell 5 bps and 30s fell 8.6 bps as the steepener trade unwound. Long bond yields are now at the lowest since May 15 in a growing sign of the demand for safety.

One of the things market bulls frequently cite is the low US mortality but that's showing troubling signs as well. California and Florida both reported record one-day highs. It all sets up for another battle on Friday, a day where virus testing and positive cases often hit new highs in the US.

 

Another day, another slide for the US dollar as risk appetite remains neutral to positive and the Fed manages to put out any fires from heightend USD funding. USDX sustained 4 straight monthly declines, the last 3 of which are the "worst triple" since autumn 2017.   Wednesday's Canada deficit numbers were a reminder that this market isn't concerned with runaway fiscal spending. GBP is the day's top performer, while the US dollar lagged as it continues to struggle. US weekly jobless claims are up next and are forecast to remain above 1 mln. Two Premium FX trades were issued yesteday, one of which is GBPUSD --already +140 pips in the green. Ashraf explained in yesterday's Premium video why he would issue the GBPUSD long at 1.2520.  

Leaks suggesting a +$300B fiscal deficit in Canada late Wednesday were borne out as finance minister Bill Morneau reported a shortfall estimate of $342B, smashing records. The numbers were wholly unexpected but the way the loonie shrugged off the deficit was a surprise. Morneau also offered no commentary on when a return to something resembling a balanced budget would come.

USD/CAD fell a full cent on the day to hit a two-week low. It also briefly broke the 200-dma near 1.3500.

The fresh 9-year high in gold at $1808 also underscored the market's attitude towards deficits. There is no end in sight to government spending anywhere. In the UK Wednesday, Chancellor Sunak rolled out another round of targeted stimulus.

The broad market shrugged off a record number of virus cases in the US as well. Tech remains in a roaring bull market and Chinese shares – particularly Chinese tech – are doing the same. If the positive sentiment can last through Friday then the case for more easy-money trades will be strengthened.

Up next is the main US economic release is weekly initial jobless claims. The consensus is for another 1.375m applications for unemployment benefits. The numbers remain staggeringly high but the market has shrugged off unemployment concerns since the high of the pandemic.

Gold's breakout to $1800 for the first time since August 8, 2012 and the reinforcing downtrend in the US dollar displaces the usual writings on covid cases vs deaths. Before we mention the latest turn in the US-China rift below, we should remind that the rest of the week should prove a big test for positive sentiment as the weekend effect fades and US test results ramp up. For the day, silver outperforms all currencies, including gold. (More on gold's relative ascent below). We also caution watching for a new pattern in Fed communication below. 2 new FX Premium trades were posted before the start of the US session -- one of which is already +80 pips in the green. Below is the subscribers' video, containing Ashraf's analysis behind the new trades and his short-term target for gold. 

Ashraf adds that one of the factors weighing on USD specfically today, is the potential blowback by Beijing towards US assets in the event that US officials' treat to destabilise Hong Kong's USD peg see any fruition. How can the Trump administration seriously consider taking on the world's 3rd largest financial center, that is governed by the world's 2nd biggest economy, which also happens to be the world's 2nd largest source of US-deficit financing? And can we imagine what happens to USD value if a major USD-peg is attacked?

Back to Virus cases. The market initially cheered some US state coronavirus numbers released on Tuesday but the details tell a different story. Florida and Arizona both reported numbers below the 7-day average and the initial reaction was strength in equity markets. The market later soured and details of the numbers were one reason why. The declines in both numbers were entirely a result of lower testing, likely due to effects from the US long weekend. Both states recorded a higher percentage of positive cases including 33% in Arizona.

Deaths have also been gaining more attention but after just 235 in Monday's report, they rose to 322 Tuesday and for the day ahead Arizona and Florida alone have nearly matched the Monday total so expect a further rise. Note though that it's still far below the 3000 daily mortalities from April.

Early Wednesday, Texas reported 10,028cases with hospitalizations hitting records in that state and California. The day ahead will be an especially stern test of the market's resolve because the testing will rebound and that could mean a doubling of cases. Under normal circumstances the market would have already anticipated that but lately the market tends to take things as they come.

Along the same lines, Atlanta Fed President Bostic introduced the idea that data was 'leveling off' on Tuesday in an interview with the FT. He later repeated the same line and so did Philly Fed President Mester with both highlighting high-frequency data. Watch for that talk to work its way up the Fed ladder to Governors, the chairman or even the FOMC statement on July 29. Again, the market should start to anticipate something along those lines, but if it's not coupled with significant Fed action, the market could recoil.

Risk appetite finally tapers off after the Bank of Japan said it will not expand its easing operations in light of rebounding cases of Covid19, while USD stabilizes following five straight declining sessions. Aussie is the biggest loser of the day on a combination of cautious commentary from the RBA over spiraling rate of Covid19 cases in Australia and overall retreat in risk appetite. The Premium gold long entry at 1690 reached its final target of 1790. The Premium Insights service is ready to send a 2-pronged tactical plan this week.

The overarching reason for the latest round of US dollar weakness is risk appetite. The latest jolt came from China, where the Shanghai Composite gained 13% over the same stretch. Money may be returning to emerging markets more generally as sentiment improves.

Moreover, the US could be suffering from the effects of rising virus cases domestically. Every day where cases remain elevated in the US compared to other developed markets, it loses attractiveness – something we've been highlighting for awhile.

The dollar managed to recoup some losses Monday on a jump in the ISM non-manufacturing survey to 57.1 from 45.4, but is now under fresh pressure.

An initial retreat in oil has added to CAD's losses, which were built from yesterday's BoC survey.  USDCAD may eye 1.3610 on deepening risk aversion, while EURCAD could retest 1.5420. Gold  nears 1800, showing no sign of breaking below its medium term trendline support, while EURUSD risks correcting to 1.1240s. 

The coronavirus backslide isn't just a US story; Australia grabbed headlines on the weekend because of outbreaks and a number of countries are hitting various records. The US dollar starts another week on a sour note, down against all currencies, with silver and euro at the lead and CAD was the weakest after a dismal business survey from the Bank of Canada. (more below). The US services ISM survey jumped to 57.1 from 45.5, showing the biggest 1-month rise on record is the early highlight of the week. The Premium long DAX30 hit its final 12770 target for 640-pt gain, 3 days after the DOW30 long reached its final target for a 670-pt gain. 

The jump in Australian cases along with flareups in China and Japan show how difficult COVID-19 will be to contain. On the weekend US cases rose again but the market has so far brushed it aside. Some of that is because of lower mortality rates but there are also signs of complacency as summer hits.

The tug-of-war between easy money and virus fears has turned into a summer stalemate. So far, the economic impacts of the lockdown and a rebound in economic measures on pent-up demand and massive government stimulus was predictable.

The more challenging task is figuring out the expiration of fiscal measures. Time certainly isn't on the economy's side in the pandemic, but no one is quite sure when time will run out. That should bring economic data to the fromt focus in the weeks ahead.

The Bank of Canada business outlook tumbled to -35.0 vs from 22.0, highlighting deeply negative coniditions across all regions and sectors due to the the pandemic and drop in oil prices.