Intraday Market Thoughts Archives

Displaying results for week of Mar 07, 2021

Euphoria with Questions

Mar 12, 2021 16:07 | by Adam Button

The divergence between rallying DOW and falling NASDAQ returned on Friday amid a new surge in bond yields, now posting their 6th weekly gain. The upcoming months are likely to offer the greatest convergence in positive real-life sentiment and market sentiment in generations. Economies are reopening, vaccines are rolling out and pent-up demand is insane. It's a perfect storm ... right? Ashraf sent out yesterday the Premium video (below), stating NASDAQ would dissipate at 13110/20. Indeed, the index topped at 131120 overnight  before tumbling 300 pts. 

We called this piece Euphoria with questions, because of the point tweeted below, which has been highlighed in detail in the above video. 

Euphoria with Questions - Tweet Yields Nasdaq (Chart 2)

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

Mar 11, 2021 16:53 | by Adam Button

The ECB kept the size of its EUR 1.85 trillion pandemic bond buying program, ut pledged to step up government bond purchases in the next few months to stem the sharp rise in bond yields and help support the economy. USD resumed its selloff both the DOW and S&P hit new highs, while Nasdaq is breaking above a key trendline resistance of 12980, now facing crucial resistance at 13120/30. All eyes shift to the 30-year US govt bond auction for clues on foreign demand for longer debt maturities. Listen to Ashraf's detailed voice note on his Telegram Channel on about the importance for the Fed and US Treasury to force yields below GDP growth and inflation. Listen here. 

ECB Pledges, BoC Punts - Telegram English Voice Note Debt (Chart 1)

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

Mar 10, 2021 16:34 | by Ashraf Laidi

أين يجد الدولار و الداو في تناظرية ٢٠١٨ و ماهي فرصا التداول للمدى القصير، خاصة قبيل لقاء الفدرالي؟ الفيديو الكامل

There are Two Markets

Mar 9, 2021 16:40 | by Adam Button

Markets are cheering the biggest daily decline in US bond yields in over a week ahead of the 3-yr auction. One way to understand the current set of market moves is by envisioning two different markets. There's the momentum-driven market and the bond-driven market. Knowing which of those markets is dominant at any given moment, is the key to understanding what's moving and why.

Click To Enlarge
There are Two Markets - Whatsapp Tweet Mar 9 2021 (Chart 1)

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.