Intraday Market Thoughts

Conflicting Signals on the Rebound

by Adam Button
Jan 21, 2016 23:40

Draghi continues to be the world's most unpredictable central banker as he surprised by sending strong signals about the potential for easing in March. The euro initially tumbled but it recovered lately as markets sent mixed signals on the potential for a rebound. The Japanese PMI is later.

I lamented central bank over-optimism yesterday but a dose of dovishness came from a surprising place. Draghi cast aside the wait-and-see rhetoric from the ECB and cited downside risks and said they may 'reconsider' policy. The euro fell  150 pips on the headlines.

The other major story was a recovery in some of the most beaten-down currencies. The commodity bloc ripped higher with USD/CAD falling more than 200 pips. The antipodeans also made equally strong moves. They were joined by cable, which finished 60 pips higher on the day but 130 pips from the lows to create a minor bullish engulfing candle formation in what could be the first sign of a retracement.

Oil soared 6% despite another bearish US inventory report. Various talk around OPEC was probably less of a factor than dip buying or short covering.

Bonds also sold off as a calmer mood settled over risk assets. The one exception was the stock market. The S&P 500 was strongly higher midway through trading but the index finished just 10 points higher. Note that the past 6 consecutive Fridays or final trading days of the week have finished lower.

Bearish commentary continues to circulate with Soros saying he's short the S&P 500 and continuing to warn of trouble.

China is a major topic of conversation in Davos and Chinese VP Li said officials will continue to intervene in stock markets. That may be seen as a positive signal in Shanghai trading today. If so, it could set the stage for a continued relief rally and reversal of some of the massive moves we've had since the start of the year.

The calendar is light in Asia-Pacific trading except for the Nikkei Japan manufacturing PMI at 0200 GMT. The consensus is for a rebound to 52.8 from 52.6.

A new Premium Trade was issued with a supporting chart & note, bringing the number of existing premium trades to five.
Act Exp Prev GMT
Markit Manufacturing PMI (JAN) [P]
51.1 51.2 Jan 22 14:45
Nikkei PMI Manufacturing (JAN) [P]
52.6 Jan 22 1:35
Eurozone Markit PMI Composite (DEC) [P]
54.2 54.3 Jan 22 9:00
Eurozone Markit PMI Manufacturing (DEC) [P]
53.0 53.2 Jan 22 9:00

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