Intraday Market Thoughts Archives
Displaying results for week of Jun 11, 2017BoE Hawks Touch Down, Japan Next?
The Bank of England became the third central bank this week to send a surprisingly hawkish message. The pound edged out the dollar as the top performer while the yen lagged. The BOJ decision is up next. 2 new trades in indices have been issued on the Premium Insights.
The MPC held rates unchanged as anticipated but the vote was a surprising 5-3 instead of the widely expected 7-1, with Saunders and McCafferty joining Forbes in calling for a rate hike. There was also some effectively pro-pound jawboning in the statement as it said continued weakness in the currency would push CPI further above 3%.
Cable traders were caught off guard and the pair jumped to 1.2795 from 1.2700. One caveat is that this was Forbes' last meeting so all else equal there will only be two dissenters next month, thereby, helping to cap GBP strength. The market was hoping for more clarity from Carney at the Mansion House speech but it was cancelled due to the London fire tragedy. The text may be released on Friday but no time has yet been specified.
Aside from the GBP move, the US dollar remained the performer as the FOMC momentum continued. USD/JPY was especially buoyant as it climbed more than a cent to 110.98 in New York trade. The gains were barely slowed by soft US reports on the import price index, NAHB housing market index and industrial production. Better news for the dollar was once again confined to soft data surveys as the Philly and Empire Fed beat.
In the bigger picture, the BOC, Fed and BOE all delivered hawkish surprises this week -- a trend that can't be ignored. It speaks to the confidence that central banks have that growth is really coming this time. Markets were burned by the reflation trade at the start of the year but the old saying that 'you can't fight the Fed' still rings true.
A final twist this week would be if another central bank adds to the chorus. The BOJ gets the chance with today's decision on interest rates. A hike is out of the question but even a subtle shift to something less dovish would be a surprise.
As we noted earlier this week, numbers from Japan have been solid. Exports have picked up and industry has some momentum. Kuroda has signaled in the past that he will be very patient but Poloz sounded the same way until this week.
If there is a shift, the bottom will fall out of yen crosses and it would send a broader hawkish signal that would seriously threaten equities and risk assets.There is no set time for the decision but it's usually around 0300 GMT.
Act | Exp | Prev | GMT |
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FOMC's Kaplan Speaks | |||
Jun 16 16:45 | |||
NAHB Housing Market Index | |||
67 | 70 | 69 | Jun 15 14:00 |
أشرف العايدي على قناة سكاي نيوز عربية
Fed Hardly Blinks, AUD Jobs Next
Fed day was a wild ride that started with soft data and sudden worries about a dovish Fed and ended with Yellen sticking to the Fed plan. The dollar did a 200 pip round trip but at the end of the day the Australian dollar led the way and the Swiss franc lagged. Aussie jobs are due next. Our Dax was stopped out at 12880.
Soft CPI and retail sales reports caused a quick rethink on the Fed among analysts and in markets. Core inflation rose 1.7% y/y compared to 1.9% expected and retail sales were down 0.3% compared to a flat reading expected.
In the aftermath, USD/JPY crumbled to 108.95 from 110.30 as Treasury yields dropped to post-election lows. But the euro chart was telling. Resistance at the election-night high of 1.1299 held and the 100-pip rally stalled.
As a small panic set in among dollar bulls, Goldman Sachs and JPMorgan warned that a Fed communication shift was going to happen. It didn't.
The Fed statement was virtually unchanged. There was a nod to lower inflation but no wavering in the forecast for a return to 2% inflation in the medium term. In addition, the forecasts didn't change except for lower unemployment.
The dollar bears hung on for every word from Yellen's press conference but finally threw in the towel when she blamed low inflation on one-off effects. The euro completely retraced the rally and hit a session low at 1.1193. USD/JPY rebounded as high as 109.89.
It's important to note that while Yellen was confident in her assessment, she said inflation would be watched closely and highlighted data dependency. Given low expectations of a hike in September, there are some upside risks but there won't be any answer with a light eco calendar until the end of the month.
One spot where the calendar (and the currency) is hot is Australia. At 0130 GMT the May employment report is expected to show 10K new jobs with unemployment at 5.7%. Technically, AUD/USD is looking more constructive after a break of the April highs and the 200-dma on Wednesday.
Act | Exp | Prev | GMT |
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Employment Change | |||
9.7K | 37.4K | Jun 15 1:30 |
Hard Data Shock Pre-Fed
Once is not a problem, twice is not unusual but a 3rd consecutive monthly slowdown in US inflation accompanied by a back-to-back decline in retail sales should deal a fresh blow to the assumption that US bond yields and their currency ought to find their rallying ways due to superior fundamentals. Today's twin data release highlights the Lame Duck nature of today's anticipated Fed hike, highlighting the eroding probabilities for an H2 Fed tightening.
We should watch whether the language in the statement shall add more weight to slowing inflation and pay growth as well look out for any dissents to the assumed hike. The central Fed Funds rate view in the dot plot shall be scrutinized on whether it would be lowered to 2 hikes this year (i.e. no more tightening assuming a hike today). If maintained at 3 hikes, then watch out for the dot plot on growth and Yellen's press conference.
تم تنزيل ملخص صوتي على قناة تلجرام عن بيانات اليوم و "ماذا يجب ترقبه" في بيان الفدرالي و مؤتمر يلن الصحفي T.me/intermarmetfx
Traders will find pockets of consolidation between the 10-15 minutes following the release of the FOMC statement and before the Fed chair Yellen begins her prepared remarks. The final wave of trading volatility is likely to emerge from the Q&A session when the probability for further Fed action shall be weighed through Yellen's discussion of bond sales, weakening wage growth and tepid consumer demand. Both of our Premium USD trades are in the green. Subscribers should watch for any trade action before the FOMC statement.
Act | Exp | Prev | GMT |
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FOMC Press Conference | |||
Jun 14 18:30 |
Fine Fed Lines To Be Drawn
A rate hike is virtually certain in the day ahead but the communication that comes with it is a major mystery. The pound was the top performer while the yen lagged. Chinese and Japanese industrial production data is up next. The English video ahead of the Fed for Premium subscribers was posted yesterday.
الإسترليني، الذهب و المؤشر المجهول (فيديو للمشتركين فقط)
A hike Wednesday is 95% priced in but beyond that is a mystery. Earlier this year, the debate was about three or four hikes but given the soft inflation data, that's been scaled back to two or three hikes. For September a 28% chance of another hike is priced in and for December it's 50/50.
The market will search for clarity in the statement, forecasts, dot plots and press conference. Most believe Yellen will signal some kind of wait-and-see stance that makes the next hike conditional on better growth and inflation.
Alternatively, the Fed could continue to insist that better numbers are right around the corner. That would be consistent with their previous stance but it would go against some of the most cautious comments from FOMC members recently.
Ultimately, how the market reacts will depend on how any shift is communicated. In the March dot plot, 5 members saw a total of four hikes in 2017, 9 saw three, 1 saw two and 2 saw no more changes. It would require six members to shift from three hikes to two in order to move the consensus; that's highly unlikely.
But the dot plot may not be the sole medium. The statement is also a complex means to signal a shift towards a more conditional approach because it's always conditional. A slight change in the line saying “The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate” could be sufficient but it's a delicate task.
If there are no clear changes, expect the US dollar to rally on the headlines, at least until Yellen's press conference 30 minutes later. The chances of confusion and choppy trading are high, be sure to follow @alaidi for live updates.
Before the Fed, the focus is on China with May retail sales and industrial production up next. Consumers continue to spending with sale forecast to rise 10.7% y/y while industrial production is forecast to rise 6.4%.
Impressively, Japan was almost able to keep pace with the industrial growth in China. April production rose 5.7% in the preliminary report and final data is expected to show similar growth. Don't expect significant market moves on the Chinese or Japanese data but continue to watch the yuan fix.
Act | Exp | Prev | GMT |
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Industrial Production (m/m) | |||
4.1% | 4.0% | Jun 14 4:30 | |
Industrial Production (y/y) | |||
6.4% | 6.5% | Jun 14 2:00 | |
FOMC Press Conference | |||
Jun 14 18:30 |
BOC Flips the Switch
A quick look at the USD/CAD chart shows how seriously the market took a hint from Bank of Canada senior deputy Wilkins today. The loonie was the top performer while the pound lagged. Australian business confidence is due later. The Premium video below dissects the technical and fundamental forces underpinning the British pound, inlcuding our GBP trades.
Any time a central banker's comment leads to a 150 pip fall in a currency it's serious but when it leads to a six-week low, a break of the 100-day moving average and a break of the 200-dma, it's especially notable.
That's what happened after Wilkins said the BOC is rethinking whether the 50 basis points in rate cuts since 2015 is still needed. She painted an upbeat picture of the economy that was already evident after GDP rose at a 3.7% annualized pace in Q1 and the economy added 54.5K jobs in May. Wilkins was almost unequivocal in her praise for an economy where she said signs of growth are broadening.
The implied probability of a hike by year-end rose to 58% from 29% on her comments. That kind of swing is rare and underscores the downside for USD/CAD. In addition, note that longs in the pair a sliver away from record extremes and are surely feeling uncomfortable.
Another place where central bankers have been feeling upbeat is Australia. The RBA last week brushed aside a soft Q1 and one of the reasons is upbeat consumer and business sentiment. We will get the next look at 0130 GMT when NAB releases its business confidence data for May. The prior reading was +13.
Act | Exp | Prev | GMT |
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NAB's Business Confidence | |||
13 | Jun 13 1:30 |
Macron Maxes Out
Six month ago Macron was an underdog to win the Presidency but his improbable surge has continued after a massive win in the first round of French parliamentary elections. The Australian dollar was the top performer last week while the pound sterling lagged. CFTC positioning data saw GBP shorts pile in ahead of the election. A new Premium video on the existing Premium trades will be posted mid Monday Asia morning.
Macron's La Republique En Marche won 415-455 seats in the first round of voting, out of a total of 577. The vote for the right wing National Front faded to only 1-5 seats and former President Hollande's Socialist party was decimated, winning only 10-20 seats.
The theme of 2016 in elections was a shift to populism but in 2017 it has turned into more of a shift to the fringes and away from establishment parties and candidates. Corbyn's ability to turn out the vote is as shocking as anything over the past year and may inspire leftist candidates elsewhere.
That sets up years of political drama and the specter of wildly divergent policies in a fragmented world. At the moment, a badly wounded May is attempting to hang on with the backing of the DUP but the knives are out. If she's toppled, the uncertainty will be a fresh reason to sell the pound.
CFTC Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.EUR +74K vs +73K prior GBP -37K vs -30K prior JPY -55K vs -52K prior CHF -17K vs -19K prior CAD -94K vs -98K prior AUD 0K vs +3K prior NZD -2K vs -5K prior
The moves of committment of traders were modest this week but at least a few traders got short GBP ahead of Thursday's election and rode that to a quick profit. EUR longs inched to a fresh high dating back to 2007 and CAD shorts remain near a record, highlighting to vulnerability of the pair after another strong jobs report on Friday.