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Displaying results for week of Apr 09, 2017Faith Fades, Bombs Fall
The confidence markets had in the new President and the Republican agenda is rattled. The Australian dollar was the top performer on the day while the Canadian dollar lagged. Japanese industrial production is next. Overnight's Aussie jobs figures exceeded expectations, forcing the Premium service to issue a hedging AUD trade. Our indices trade joins metals deeper in the green.
The quintuple flip-flop from Trump on Wednesday was followed by a fresh bomb in Thursday. This time, it was literally a bomb as US forced dropped a GBU-43/B Massive Ordnance Air Blast in Afghanistan near the Pakistani border. It's now the largest non-atomic bomb ever used in combat.
Markets wobbled a bit on the headlines but takeaways are tough. On the one hand, US officials wouldn't even say if Trump knew about it or authorized its use, so maybe it's nothing but a tactical attack on an enemy dug in deep.
A more sinister view would be that after last week's bombing in Syria, Trump is getting a taste for warfare. He wouldn't be the first leader who campaigned on less aggression and had his feelings change after getting power.
A less-sinister but more-troubling view for markets is that Trump doesn't stand for anything and that Congressional Republicans can't agree on anything. Markets have made a big bet on deregulation, infrastructure spending and tax cuts. Confidence is still high but it's waning and almost daily.
On Thursday, the S&P 500 fell 16 points to 2329 and is now just 7 points above the March low. In FX, the US dollar was strong and the general theme was an unwind of the moves on Wednesday.
We've highlighted bonds lately but 10s were flat on the day. Another spot we're watching closely is volatility. Several measures are disconnecting from markets in a way that could signal trouble ahead. The problem is that many such signals have been wrong in the past but volumes are increasingly large.
Markets are likely to quiet down in the day(s) ahead with Good Friday and Easter holidays. Asia-Pacific trading is mostly open on Friday and the US has decided to release retail sales and CPI into a thin market so that could be notable.
The next even to watch is Japanese industrial production at 0430 GMT. It's the final report and no revisions are expected from the +2.0% m/m prelim data.
| Act | Exp | Prev | GMT |
|---|---|---|---|
| Industrial Production (m/m) | |||
| 2.0% | 2.0% | Apr 14 4:30 | |
السباق بين الذهب والنفط وتثلث المخاطر
Trump Confirms Dollar Breakdown
The range breaks in USD/JPY and 10-year Treasuries were tenuous on Wednesday until late in the day when Trump jawboned the dollar lower. The euro was the top performer on the day while USD lagged. The Australian jobs report is next. Range breaks can break your heart. Well defined ranges in USD/JPY and 10-year yields gave way on Tuesday in a strong move but the lack of fear in stocks and the lack of a compelling new catalyst was a concern. On Wednesday, the lack of follow and a quiet market through added to the worries about a false break. Both gold and silver longs in our Premium service have deepened in the green at +77 and 110 pts respectively.
That changed late in the day as the dollar and yields sank after Donald Trump jawboned the currency lower. The initial headline reported him saying the dollar was getting too strong but buried in the WSJ interview was a comment that may have more long-lasting implications than some minor jawboning. He said that he likes low interest rate policy.
Trump will soon fill one of the Fed governor roles. He has two more vacancies to fill after that and could also replace Yellen. But in perhaps another sign that he's a dove, he reversed campaign comments that she was 'toast' and said he was thinking about extending her but undecided.
His comments were part of handful of policy reversals. He also confirmed suspicions that he won't name China a currency manipulator, that he won't close the Import-Export Bank, that NATO isn't obsolete along with his seeming reversal on taking action in Syria.
The market latched onto the dollar comments and EUR/USD climbed to 1.0670 from 1.0600. Technically, the bigger story was USD/JPY as it broke through 110.00 on Tuesday then spent most of Wednesday consolidating just below before Trump's comments sent it to 108.90. There is huge downside potential in that trade if it can break the 200-dma at 1.0875.
Looking ahead, the Australian dollar will shift into focus in Asia-Pac trading with the jobs report due at 0130 GMT. The consensus is 20.0K new jobs. AUD/USD touched the lowest since mid-January in early trading but reversed in an outside day to 0.7530. A strong jobs number would help confirm the turn.
اهمية اختراق الذهب فوق متوسط ال ٢٠٠ يوم
10s Tell the Story as Yen Breaks
US 10-year yields broke out of the 4-month range as risk aversion gripped markets Tuesday. It was a classic flight to safety in FX as the yen was the top performer while the commodity currencies lagged. Japanese PPI is due next. A new Premium trades in the Aussie has been issued after it had last been opened on March 8 and closed at a gain.
US 10-year yields closed at the lowest level since November 29 in a break below a clear and critical support line. The range between 2.30% and 2.62% has been pivotal since December with tests (and holds) on both sides. The next level of major support is 2.00% to the 200-dma at 2.03% in a slide that would highlight trouble elsewhere.
Some of the nerves in markets were calmed when the S&P 500 recovered to finish 3 points lower from down 20 points but it was the exception. Gold broke out higher and the yen was heavily bid.
But it's the bond market that has led major moves lately. In March, the failure of the 10-year to break 2.63% was the earliest sign of trouble that later spread elsewhere.
The USD/JPY chart also flashed trouble ahead as it finally broke (and closed) below 110.00 after four failed attempts over the past two weeks.
No single headline was responsible for the change in sentiment, which didn't take hold until a few hours into US trading. One concern was geopolitics as Trump warned China that it would get a better trade deal if it dealt with North Korea. He followed that by saying if China didn't cooperate, the US could deal with North Korea itself. A later report said US and Japanese leaders had discussed notification if/when the US planned to attack. That's a sign that the talk was more than bluster.
In addition, there was more talk about some of the problems we outlined earlier including high debt and tight lending.
We will be watching closely on whether these moves reverse or continue in the day ahead. The Asia-Pacific calendar features Japanese PPI and machine orders at 2350 GMT. PPI is forecast to rise 1.4% y/y and machine orders +2.5% y/y.
Fed Could Shoot Itself in the Foot
Yellen once again pointed to consumers as a source of strength in the economy and added an upbeat note on housing in comments Monday. The Monday session saw the Canadian dollar as the top performer on higher oil prices while the US dollar and Aussie lagged. Today, gold, silver and the yen have led the European session into early US trading with CAD and NZD the biggest losers in thin trading. The Premium video on existing trades will be posted near the London close.
إلى أين ارتداد الدولار؟" (فيديو للمشتركين فقط)
Yellen said the economy was pretty healthy and repeated that the plan is to gradually move rates to a more-neutral level if the economy cooperates. Her optimism was balanced by a warning that inflation is still below target in her view.
The market hardly reacted to her comments in what was a low-volatility day of trading. In general, expect currencies to move less on Fed statements about the economy, especially positive comments. The focus is more on interest rates and the market will wait for signals on hiking/holding rather than attempting to interpret economic thoughts.
What's interesting to note is that the consumer and housing are the backbone of the Fed's positive view. Housing isn't something that was previously emphasized but with supplies tightening in the US, it could be a powerful one. Valuations in most American cities are far below global prices as the scars from the crisis cut deep but they are fading and years of catch-up may be coming. What could endanger that theme the most is the Fed. If Yellen hikes 100 bps, buyers could be scared off.
Consumer remain fickle. The election has led to a surge in confidence but it hasn't been met with business investment and if that paradigm falters, the consumer could retrench. Again, credit is also critical because of the high level of consumer leverage. If rates go higher, tight lending could easily spending.
So both pillars of the Fed's upbeat model are sensitive to the Fed itself, along with a fluid political environment. So while Yellen (and markets) are confident now, any misstep could easily break the paradigm.
