Intraday Market Thoughts ArchivesDisplaying results for week of Mar 04, 2018
Today's US NFP/Earnings data are a fresh confirmation of the status quo (3 Fed hikes in 2018) instead of increasing the odds of a 4th rate hike. With 1.5% inflation and ascending bond yields looming large over an aggressive Treasury borrowing schedule, it best to not rock the boat. Full analysis.
قبل بدء المؤتمر الصحفي لرئيس المركزي الأوروبي ماريو دراجي ما القرارات المنتظرة التي يتوقعها خبير الأسواق أشرف العايدي وكيف يمكن للمتداول أن يختار مراكز تداولاته ليقتنص فرص التداول المتاحة بعد صدور قرار الفائدة من البنك المركزي الأوروبي (الفيديو الكامل)
Markets stabilise on reports that Trump will expempt NAFTA countries from tariffs. As we move to the ECB press conference, all currencies are down against the USD while US indices bounce off their 100-DMA and attempt breaching their 55 DMAs. Draghi's press conference will focus on the ECB's latest revisions for growth and inflation and any takes with regards to trade wars and the FX implications. EURUSD pushed higher after the ECB rates announcement removed the reference to the possibility of increasing the QE program if necessary.
The focus was squarely on the Canadian dollar on Wednesday and it delivered a tumultuous day. The loonie slumped after the Bank of Canada highlighted trade worries and household debt. A s a result USD/CAD climbed to 1.3000 from 1.2910.
But some of those worries may be quickly calmed if reports that Trump will exempt NAFTA countries from the tariffs prove to be true. The market reacted by erasing the move in USD/CAD and sending it back to 1.2900. The possibility of a waiver was something we warned about yesterday. The that shift also helped stock markets recover into a flat close.
In the bigger picture, the landscape remains deeply unsettled. Relief for Canada and Mexico might be coming but that leaves the rest of the world still subject to a harsh tariff and a high likelihood of retaliation. Cohn's exit may also highlight that tariffs and are part of a broader White House agenda that he wasn't comfortable with.
Another troubling development was an increase in the US trade deficit in January to $56.6B compared to $55.0B expected, including a record in the deficit excluding petroleum. The sharp deterioration in the past four months suggests the tax cut funds are adding to imports at the margin and that could accelerate. In turn, that will make Trump more likely to take dramatic actions on trade.
Equity index futures are down sharply (S&P minis -33 pts or -1.2%) after the announced resignation of White House top economic advisor Gary Cohn, long regarded as the remaining "adult in the room" when it came to economic/fiscal policy was instrumental in shaping up Trump's tax reform. Cohn's sharp disagreement with Trump's trade war approach is widely attributed to his departure. A new Premium trade has been issued earlier today. There are 10 Premium trades in progress; 8 in the green, 1 flat and 1 at a loss.
The twists and turns of tariff talk gave the loonie some relief on Tuesday. Trump tied them to a new NAFTA deal and, at the same time, Congress and business lobbies have rallied to head off a trade war. USD/CAD touched just above 1.3000 before sinking down to 1.2875.
The drop erases Monday's gain and leave some uncertainty about a break above the late-2017 highs. That's likely to be resolved with the Bank of Canada rate decision on Wednesday. The OIS market is pricing in a 13% chance of a hike but even that number is too high with virtually no economist is predicting a move.
The latest round of economic data in Canada sharply deteriorated and that's compounded by the trade talk. The previous BOC statement included the line "recent data have been strong" and that's almost certain to be downgraded.
Guidance, however, is likely to remain largely intact so the risks to the loonie are probably modest. That said, the BOC certainly has a flair for the dramatic and officials will tread cautiously on trade.
The bigger current question for the loonie is about the uncertainty between any implementation of tariffs and a NAFTA agreement. It's unclear if the White House will give Mexico and Canada a waiver while NAFTA negotiations continue. If not, that would provoke a kneejerk lower in CAD and MXN.
One indicator that can't be overlooked on Wednesday is trade data from the US and Canada. We've written recently about the rising US trade deficit and corresponding risks of clumsy policies to counteract it. The US trade deficit is expected at $55 billion per month in January.
|BoC Rate Statement|
|Mar 07 15:00|
White House comments to start the week tied tariffs to NAFTA and were seen as a sign that the President has a strategy. The pound was the top performer while the Canadian dollar lagged. The RBA decision is up next. The English Premium video is below . يمكن مشاهدة فيديو المشتركين أدناه
Global stock markets bounced and the yen slipped on Monday as rhetoric shifted on steel tariffs. What looked like a hasty decision to put on global tariffs may have been part of a strategy to leverage a better NAFTA deal. Trump and US NAFTA negotiator Lighthizer both said Canada and Mexico would win exemptions from the tariffs if they made a NAFTA agreement.
It's entirely unclear what kind of agreement Trump wants or if US NAFTA partners can accept it but for now, markets were comforted by signs of a plan.
One pocket of weakness was the Canadian dollar as mounting risks pushed USD/CAD above the technically-critical 1.2920 level to the highest since June. That fear ties into Wednesday's BOC decision and a growing likelihood of a more-neutral stance because of greater trade and economic risks.
Yet, it remains unclear if Trump has a bigger plan for tariffs outside of NAFTA. Many leaders want to see the text of what Trump is proposing before taking a step towards retaliation.
Looking ahead, it's a big day for AUD traders with current account and retail sales at 0030 GMT followed by the RBA decision three hours later. Retail sales are forecast to rise 0.4% after a 0.5% decline in December. It's been volatile time for the numbers but consumer confidence has been rising.Trade, meanwhile is expected to show next exports pulling GDP 0.6 pp lower and the current accounts in a deficit of A$12.2B.
Whatever the numbers, the market will be reluctant to make a move before the RBA weighs in. Lowe has been more optimistic lately and expects GDP to accelerate to 3.25% y/y by the end of 2018 but recent wage numbers have been soft.
|-12.3B||-9.1B||Mar 06 0:30|
Italian political surged after a Hung parliament ensured following the victory of the anti-migrant Leage party, while risks abated in Germany on the formation of a coalition govt. CFTC positioning data showed the crowded yen-short trade lightening up. After closing the DAX short late last week for 430-pt gain, there are 9 Premium trades currently in progress (6 in FX, 2 in commodities and 1 in indices). 7 in the green, 1 flat and 1 in the red.
German SPD members approved a grand coalition with Merkel on Sunday and that clears the way for stability until 2021 but the new government will have its hands full as rumblings of a trade war grow louder.
Italy's Euroskeptic Five Star Movement and anti-migrant Leage won the bulks of of the results in this weekend's polls and seek to reach a coalition to form a new government. That's given the euro a bump early on but it will be hours before the official results are in. Headline risks in the days ahead will be high as party leaders attempt to form a stable government.
The bigger risk for markets is worsening trade rhetoric. US stocks rebounded late Friday in part due to hopes that Trump would add exemptions to steel and aluminum tariffs. A number of comments from high-ranking US officials on the weekend made that appear much less likely. In addition, Trump threatened to ban European car imports.
Over the past year, betting against risk assets because of turmoil in the White House has been a poor bet. The President has often appeared to be unhinged only to plod forward with more-traditional policies.
Is this time different? Perhaps, Trump has been a trade protectionist for more than 30 years and most of his advisors on international trade share his beliefs. Hints on what's coming next may come from personnel changes. Gary Cohn reportedly tried to convince Trump to back down on tariffs, and may well consider to step down. If so, markets will see it as a definitive turn in his administration.
CFTC Commitments of TradersSpeculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR +138K vs +126K prior GBP +13K vs +8K prior JPY -97K vs -108K prior CAD +22K vs +23K prior CHF -16K vs -19K prior AUD +10K vs +12K prior NZD +1K vs -1K prior
The overstretched yen shorts we've been warning about for weeks have finally started to cover as USD/JPY hits 14-month lows.