Intraday Market Thoughts ArchivesDisplaying results for week of Jun 17, 2018
This week's activity in FX and equity markets has been busier than had been expected in light of the relatively empty economic calendar. Broadening trade tensions (US, China and Europe) and a surprisingly hawkish vote from the Bank of England helped extend the sell-off in global equities and remind us of the June seasonals. Next week will be busier with end-of-quarter rebalancing than meaningful data. A new Premium trade has been issued as we cannot ignore two consecutive monthly gravestone dojis.
Losers of Trade TensionsTrump's intention to hit China with additional tariffs will prove challenging for US automakers (largely dependent on China's market), and other firms US facing deliberate delaying of regulatory approval for new investments by Beijing. The situation will not be easy for Chinese companies and the PBOC has vowed to wage monetary stimulus to alleviate the liquidity and credit conditions.
OPEC, CAD & GBPOil prices are rallying to erase yesterday's gains after OPEC compromised on a net output increase of 600K bpd in light of a retreat from Iran and Venezuela. Disappointing inflation and retail sales from Canada damaged the loonie lower the board, sending odds of July BoC rate hike to 55% from 68% earlier in the week. Meanwhile Odds of an August BoE hike rise to 70%. EURUSD is on track to ending the month and quarter above the curcial 1.1500 support.
As global indices head lower on a combination of intensifying trade tensions and further tightening from the major central banks, here is a reminder of the negative seasonals for the month of June. But before that, we closed our short in the DAX with 360 pt gain at 12480. A detailed note was issued to Premium subscribers after the close. June seasonals are below:
- The DAX ended lower in the month of June in the last five years (2013 to 2017). No other month saw declines in five consecutive years for the German index.
- The Dow Jones Industrials Index fell in June in 9 of the last 13 years. The only other month of the year where the index fell in 9 of the last thirteen year is January.
- The FTSE index fell in June in 10 of the last 13 years. January is the only other month in the year when the British index fell 10 times over the last 13 years.
GBP is the strongest currency on the day thanks to a surprise shift inside the interest rate votes of the Bank of England. The 9-member Monetary Policy Committee shifted its vote of holding rates unchanged to 6-3 from 7-2, after chief economist Andy Haldane moved towards a rate hike to join hawks Ian McCafferty and Michael Saunders. Odds of an August rate hike shot up to 68% from 49% yesterday. GBPUSD shot up 100 pips to 1.3210. Why did Haldane change his mind?
After declining 9% over the past two months, GBPUSD may now be deemed too low according to the assessment of the BoE. The central bank may be reverting to jawboning the currency with the aim of contain inflation via influencing the probabilities of rate hike (without actually raising rates). So, instead of running the risk of damaging the economy via raising rates during Brexit-filled uncertainty, the BoE will aim at capping inflation via supporting the currency indirectly. Recall, UK inflation above the 2.0% target at 2.4% and UK PMIs find ongoing support atop the expansion territory. Meanwhile, here is the monthly GBPUSD chart.
Another vote this evening over whether parliament will win the power to decide what happens in the event that OM Theresa May arrives at a no-deal with the EU regarding Brexit. Unlike pro-Brexit lawmakers, who are willing to exit without a deal, remainers are pushing for lawmakers to win the power to have a meaningful vote in the event no deal is reached. Wednesday evening's vote in the House of Commons will be an important step towards the outcome of such vote. Sterling selling intensified over the past few days on emerging signs that PM May will be defeated in Parliament, implying a longer process of negotiations on multiple Brexit laws. With global equity indices struggling to regain composure due to escalating trade tensions among the US, China and the EU, GBPJPY is more vulnerable to break 143, while GBPUSD tests 1.3050s.
Global equity indices dip further into the red, led by US futures on Donald Trump's intention to impose tariffs on an additional $200bn in Chinese imports. The news came less than a week after the US and China imposed $50bn of tariffs on steel and agricultural products. USDJPY has fallen below 110 as the yen rallies against all currencies, followed by gold and the franc. All other currencies are weaker against the US dollar, with AUD at the bottom due to renewed pressure on Beijing. Yesterday's Premium video includes new trades in indices. AUDUSD and EURJPY were both stopped out.