Intraday Market Thoughts Archives
Displaying results for week of Mar 07, 2021Euphoria with Questions
We called this piece Euphoria with questions, because of the point tweeted below, which has been highlighed in detail in the above video.
Normally, it's the job of central bankers to end this kind of party by taking away the punch bowl, but they're drunk on the idea of forward guidance and overshooting on inflation.
So we're about to have a great moment in the economy at the same time as money is cheaper than ever. It's no wonder US stocks closed at record highs on Thursday and quickly snapped back from the bond-driven jitters.
Last week, Ashraf gave a list of his favourite 15 stocks to members of the WhatsApp Broadcast Group, which he deemed are best to benefit from the stimulus, infrastructure, clean energy and other technnological niches.
On the fixed income front, a 30-year sale went off without a problem Thursday. The ECB's bond buys will also help to keep global rates depressed for the next three months. Europe is behind in the vaccine race but they will catch up.
In the bigger picture, euphoria will continue to build until fiscal or monetary tightening puts an end to it. The further it goes, the less it will take to deflate the bubble.ECB Pledges, BoC Punts
The BOC offered few hints about what's coming next while holding rates steady. There was some speculation they could dial down the bloated QE program but most were waiting for new forecasts in April anyway. There's no doubt those forecasts will be better as the BOC acknowledged in its statement that the economy has been more resilient and said Q1 GDP will likely be positive.
CAD initially slumped on no changes to QE but later rallied to finish near the best levels of the day on USD weakness, commodity strength and risk appetite.
The risk is that's not enough of yields rise.
بين مقاومة الدولار و سقف المؤشرات
There are Two Markets
The momentum-driven market is largely tech and SPACs. It's the set of high-flying stocks that soared during the pandemic. They're hard-to-value stocks with extremely high multiples.
The bond-driven market is much larger. It's the universe of inflation-sensitive and rate-sensitive assets.
There are two kinds of risk trades right now. The one driven by slumps in momentum is largely contained and doesn't spill outside of its realm until it gets very ugly. When it's higher yields driving the trade it's all-encompassing and leads to meaningful moves in FX and global markets.
At times these trades intersect. It may have even been the rise in bond yields that burst the tech bubble but they're best thought of as separate trades.
The point being: If you're only going to watch one market, make sure it's the 10-year yield -- not the Nasdaq. If rates stabilize it will spark a resumption in growth-positive trades like commodity currencies, emerging markets and global equities.The $1.9 trillion US stimulus plan overcame a major hurdle on the weekend, passing through the Senate. It came just after a strong jobs report showed signs of a better-than-anticipated recovery. CFTC positioning data highlighted waning enthusiasm from euro longs.
Friday's non-farm payrolls report showed 379K net jobs, easily surpassing the +198K consensus. Revisions also pushed the January reading to +166K from +49K and within the report there were positive signs. Risk to that may be on the upside as Congress nears the passage of the stimulus bill. The assumption among many was that the Senate would trim the pricetag of the bill to around $1.7B from $1.9B but that wasn't the case. It's a safe assumption that it will now pass in something very similar to this form within the next few days.
The surprise from the bill was how united Senate Democrats remained. They can't afford to lose a single vote but they didn't and that increases the likelihood of more spending in the year ahead, including a $3 trillion infrastructure plan that Biden has floated.
CFTC Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR +126K vs +138K prior
GBP +36K vs +31K prior
JPY +19K vs +29K prior
CHF +12K vs +12K prior
CAD +15K vs +9K prior
AUD +6K vs -2K prior
NZD +16K vs +15K prior
Persistently high net euro longs have been the dominant feature of this data set for the past six months but as rate differentials widen and the ECB prepares to do more, it's an increasingly difficult trade to love. Eventually the eurozone will be vaccinated but the US will be first and the high US fiscal spending ensures a faster recovery.
