Intraday Market Thoughts ArchivesDisplaying results for week of Sep 30, 2018
A little-seen report last month suggested the US is rolling out an information offensive against China. Signs of it emerged Thursday and it begs the question about what is the end game for the US. Along with rising bond yields, it contributed to a round of risk aversion that unwound recent moves. The US and Canada jobs reports are due next. A new index trade was issued for Premium subscribers.
Bonds flattened out after an early selloff Tuesday but the damage was done as US equity markets sank. The S&P 500 fell 24 points to 2901. The yen was broadly stronger with commodity currencies struggling. GBP bucked the trend on some upbeat Brexit comments from May.
The selling accelerated as VP Pence delivered a comprehensive anti-China speech. There was no new information but he railed against FX manipulation, IP theft and humanitarian themes.This is undoubtedly part of a coordinated White House effort to turn Americans against China, something Axios said was coming in a little-seen report in late Sept.
It came on the same day as a Bloomberg report about tiny backdoor chips planted at Chinese electronics factories that are used to steal corporate secrets. The story relies on three-year old discoveries, so it was likely purposely timed and leaked by intelligence officials.
The politics of it don't really concern us; the question is what will happen next? Markets wise, expect to see tightening in Chinese credit markets and a decline in the Aussie. It's increasingly clear that the US isn't looking to make a quick NAFTA-style agreement with China. An effort to round up public opinion suggests this will be a long-term campaign.
The best case scenario is that this is simply an effort to rebalance trade and protect IP. That may be a protracted battle but the US and Chinese economies are resilient and the fallout would be mostly manageable. The worst case is that this is the first step in a US campaign to undermine China's assent. That would set up more of an existential struggle and a long term battle. In any case, the market is right to be worried.
|FOMC's Bostic Speaks|
|Oct 05 16:40|
USD eases off from Wednesday's broad rally, boosted by the best ISM non-manufacturing report in more than 20 years. But the story remains the bond market as yields around the world soar on rising inflation expectations. Stocks indices are in the red as rising yields threaten. USD was the best performer in Wednesday's trade but is now pulling lower as GBP and JPY are the 2 leading currencies in Thursday trading due to reports that Brexit talks are nearing a deal on the Irish border and risk-off boosting the yen. A new Index trade will be issued to subscribers after the London close. US factory orders and jobless claims are up next. Ahead of Friday's US and Canada jobs, FX traders watch the EURUSD weekly close at 1.15, while gold attempts to retest its 55-DMA at 1202. If you're in Paris next week, join Ashraf for the Traders' Event in Paris with XTB.
The break down in bonds and corresponding jump in yields has the makings of a watershed. US 10-year yields rose 12 basis points to the highest since 2011 at 3.23%. US 30-year yields also rose above the key 3.25% zone to hit 3.39%.
We wrote earlier this week about the Amazon wage hike and a tipping point on inflation. The bond market is now signaling something similar. Fed speakers this week (Kaplan and Harker) signaled no rush to raise rates but the market is beginning to think differently.
The combination of soaring bond yields and rising oil is a solid reflection of broadening global growth and liquidity. In the big picture, it's still early but if bond market participants think their returns are going to be diluted by inflation, or that short-term rise aggressively, then dislocations coudl ensue rapidly. If so, emerging markets could suffer accelerating outflows in what becomes a viscous circle of USD buying.
It's been a storm of challenging news for the Aussie lately as AUD/USD returns to the lows of the year. Some of that is broad US dollar strength but there are several headwinds. On the weekend, Chinese manufacturing PMIs were softer then the RBA decision didn't provide any encouragement. Yesterday August building permits were down 9.4% m/m after a 5.4% drop the month before. That was also far worse than +1.0% expected. If trade is weak, watch for a break of the September low of 0.7085 in what would be a fresh low since Feb 2016.
|FOMC's Quarles Speaks|
|Oct 04 13:15|
|Final Services PMI [F]|
|53.5||52.9||52.9||Oct 03 13:45|
|ISM Non-Manufacturing PMI|
|61.6||58.0||58.5||Oct 03 14:00|
|62.3||61.9||Oct 04 14:00|
|Challenger Job Cuts (y/y)|
|70.9%||13.7%||Oct 04 11:30|
|214K||214K||Oct 04 12:30|
إنضموا الى ندوة مساء الاربعاء مع أشرف العايدي عبر شركة إكس تي بي الساعة التاسعة مساء بتوقيت مكة المكرمة. رابط التسجيل
The lesson from the weekend drama was that deals can come together in a heartbeat and that deep pessimism might be the time to buy. The Canadian dollar was the top performer Monday while the yen lagged. The US September ISM manufacturing survey was at 59.8 compared to 60.0 expected.The RBA decision is up next. A new CAD trade was issued, while the JPY trade was stopped out. The video for Premium subscribers on existing and future trades is posted below.
Yesterday Ashraf noted that it wasn't too late to sell the Canadian dollar and that was the case as the declines continued throughout the trading day as USD/CAD broke the 200-DMA to hit a four-month low late in North American trade. Also note USDCAD is among the most inversely related pairs with equity indices.
The quick turnaround on the NAFTA deal may prove to be a helpful lesson for sterling traders as Brexit negotiations continue. Algos bought GBP heavily on Monday on a newswire headline that gave the impression of May offering something that would likely lead to a deal. Cable instantly jumped a full cent but later gave back nearly all the gains with the text of the report showing that this was a backstop deal contingent on getting full access to the EU; something that's a longshot. Also watch EURGBP closely for GBP's Brexit-related reactions rather than only GBPUSD.
In economic news, IMF leader Lagarde said a downgrade to global growth forecasts would be coming this month.
Italy remains an overhand for the euro as it fell to the lowest in three weeks at 1.1564. We can't envision a major blowup over 0.4 pp on the deficit-to-GDP target but the Italian bond market certainly hasn't been impressed.
Perhaps the news that could reverberate the longest was a roughly 3% rise in WTI and Brent crude with both at the highest in four years. India said it won't import oil from Iran and Japan and South Korea have already made similar announcements.
Looking ahead, the RBA decision is at 0430 GMT (05:30 BST) with no change widely expected. Some economists expect the RBA to hold rates unchanged through 2020 in a sign of the deep complacency that surrounds the central bank.
اذا ما أنهى اليورو تداولات الأسبوع دون هذه المستويات ستبدأ رحلة الهبوطما هي الأسعار المستهدفه لزوج اليورو دولار؟ الفيديو الكامل
USDCAD hit a fresh 4-month low at 1.2850 amid optimism over a NAFTA deal following Friday's gains, which were triggered by strong GDP numbers. NAFTA negotiators are pressing to meet a Sunday deadline to complete a trilateral deal. News reports say nearly all of the substantial work is finished. CFTC positioning showed yen shorts at the highest since March as USD/JPY hits a 9-month high. A new CAD trade for premium clients has been issued accompanied by 5 important reasons (especially 2 & 3).
USD/CAD fell 135 pips on Friday and closed on the lows on very-late breaking news that Mexico was making a final push. The pair finished at 1.2908 and has an August/Sept double bottom near 1.2885 that is certain to be broken in a move that may clear the way for a sustained Canadian dollar rally. But the 200-DMA of 1.2870 has so far been broken.
If a deal is struck, especially one that precludes auto tariffs against Canada, could be a massive tailwind for Canada. If a US-China trade war continues as expected, the winner is Canada, who will be selling things to both sides tariff free.
Recall, the latest round of tariffs against China went into effect last week includes 5,750 product lines that cover about $200 billion of annual Chinese exports to the US. In those categories alone, Canada exports $158 billion to the US. That's easily more than any other country or region.
Also on the weekend, the China PMIs showed a dip in manufacturing but a rise in the non-manufacturing surveys.
The manufacturing survey was at a seven-month low of 50.8 compared to 51.2 expected. Non-manufacturing rose to the highest since June at 54.9 compared to 54.0 expected. Aside from CAD and MXN trading, watch for a soggy start to the week in Asia as Typhoon Trami bears hits Japan.
CFTC Commitments of TradersSpeculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR +4K vs +2K prior GBP -67K vs -79K prior JPY -85K vs -64K prior CHF -16K vs -18K prior CAD -20K vs -30K prior AUD -72K vs -68K prior NZD -32K vs -32K prior
Cable shorts came down from an extreme just as the pair rolled over last week. However yen shorts were perfectly timed as the pair ripped higher after the FOMC.
|56.8||Oct 01 13:30|
|Final PMI Manufacturing [F]|
|52.9||52.9||Oct 01 0:30|
|50.8||51.2||51.3||Sep 30 1:00|
|50.0||50.5||50.6||Sep 30 1:45|