Intraday Market Thoughts Archives

More US economic data misses are seeing USD falling across the board. Equities rebounded Thursday but FX was largely unchanged as the CPI-inspired rise in Treasury yields faded. US retail sales contracted by more than expected, US industrial production slowed by more than anticipated and Univ of Michigan sentiment survey is up next. Ashraf issued calls to the WhatsApp Broadcast Group long EURUSD near 1.2060s, US crude near 64.40s and XAGUSD as well as XAUUSD. The chart below highlights how economic surprise index for the Eurozone is exceeding its US counterpart, while remaining well correlated with EURUSD.

Economic data was a minor factor in trading in Thursday's trade. PPI was up 6.2% compared to 5.8% y/y expected but there was a small 'sell the fact' trade in the dollar afterwards. At the same time, weekly jobless claims also slipped to 473K from 498K as that series continues to improve.

Oil was the mover on the day, falling 3.5% to the lows of the week. The loonie struggled and some light jawboning from BOC governor Macklem may have helped that along.

The surprise on the day was the bond market. There was a soft 30-year Treasury auction but it did little to halt the bid, which has been relentless despite higher inflation. The bond market is most-sensitive to rising inflation risks but isn't screaming in the same way that some commentators are but that could change.

Looking ahead, the consumer comes at 1400 GMT with the UMich consumer sentiment report. It's forecast to tick up to 90.2 from 88.3 but there will also be a focus on inflation expectations. The one-year metric is forecast to climb to 3.5% from 3.4%.

هل يهمك تداول العملات مع تفادي المخاطر المتعلقة بالدولار الأمريكي؟ المزيد مع أشرف العايدي في ندوته الالكترونيّة المجانيّة الثلاثاء القادم 18 مايو، الساعة 9 مساءً بتوقيت مكة المكرمة. سجلوا حضوركم الآن . للمشاركة من السعودية فقط الرجاء نقر الرابط و للمشاركة من باقي الدول

More strong jobless and PPI figures just came out from the US. The heavyweight battle between inflation and a temporary blip in prices truly got underway on Wednesday with a shockingly high CPI print that sent risk assets spiraling. The US dollar is pulling back today after having led the way yesterday. Ashraf says EURUSD's 1.2050/55 support is a crucial support level. Elon Musk's eviromental epiphany about the energy repercussions of Bitcoin paved the way for further gains in some alt currencies vs BTC. ADA is one of them. US PPI came in at 0.6% vs exp 0.3%, while jobless claims fell to 473K vs exp 490K. A CAD traders await a crucial speech the BOC's Macklem (see below). 

The remainder of the year will be a battle between those seeing problematic inflation and those – particularly the Fed -- who insist it's temporary.

Think of the past few months of inflation talk as pre-fight hype but the bell rang on the real bout on Wednesday with the April CPI report. The inflationistas came out swinging and landed an absolute haymaker as CPI rose 4.2% y/y compared to 3.6% expected. Excluding food and energy it rose 3.0% y/y compared to 2.3% expected. The 0.9% m/m rise in core inflation was the highest in 39 years.

The dollar surged, Treasury yields rose and equities tumbled. The S&P 500 fell 2.1% in the largest decline since February, closing just off the lows of the day.

Fed vice chair Clarida spoke just after the report and said it was surprising but largely stuck to the same message. If there was a minor shift it was that he said that policymakers need to remain humble along with a reiteration that they wouldn't hesitate to act in the face of problematic inflation. He also highlighted the important role of inflation expectations in his decision-making.

The mood in markets is a sharp reversal from Friday when a soft jobs report looked like it paved the way for an easy summer for the Fed.

What's abundantly clear is that economic data is going to drive markets for months. Next up is PPI, which is often ignored but will reverberate this time around. There's often a correlation between the two reports so risks are to the upside in the +5.8% y/y consensus. Weekly jobless claims are also due and forecast at 490K.

We will also be keeping a close watch on the BOC's Macklem. Canada has drifted away from the central bank consensus with the early taper and Macklem widen the rift by highlighting inflation risks. If so, that would boost CAD but could also reverberate more broadly.

The harmony of message between the 8 Fed officials who spoke on Tuesday was remarkable in its consistency, even as pressure mounts. GBP was the top performer while the CHF lagged.  US CPI is due up next, expected +0.2% m/m from 0.6%,  but the big figure is the y/y number expected 3.6% from 2.6%.  The big debate is whether a higher than expected figure will give USD a lasting lift, given the Fed's increased focus on jobs

Equities were the main event on Tuesday as the risk-off trade that bubbled up on Monday extended. Europe and Japan were hit hard and US was on track to tumble as well but after a punishing run, it was tech that set off a bounce from the bottom as the Nasdaq turned a 2% decline into a flat close.

Those gyrations dictated FX moves with commodity FX following closely but the overall currency market moves weren't large.

Another source of support was an overwhelmingly consistent message from the 8 separate Fed officials who spoke. They unanimous preached some variation of patience before hiking rates and a belief that higher inflation is transitory. That kind of strong consensus should continue to offer comfort to equities for the months ahead.

One risk that several highlighted was an unwelcome rise in inflation. That's something that could start as soon as Wednesday with the April CPI report. The year-over-year reading is expected to jump to 3.6% from 2.6%. Excluding food and energy, the consensus is a rise to 2.3% from 1.6%.

We anticipate that the Fed has well-prepared the market for a short-term rise in prices so even a 0.1-0.3 pp upside miss on the y/y numbers should be well tolerated and may present a short-term buying opportunity. Watch bonds closely, particularly if there's an upside surprise.

The Tech wreck made way for the DOW to join the selloff, after reusrging inflation signs lifted yields at the expense of NASDAQ and bond prices (higher yields). But yesterday's pro-cyclicals rotation died down, dragging DOW30 and SPX by 1.5% and 0.9% respectively, while USD lost most of its ground gained earlier. Metals are also making a bounce, ahead of Wednesday's crucial US CPI release.  The big miss in non-farm payrolls on Friday led to some soul searching in markets but little in terms of a lasting move. Sterling surged on Monday after a middling mandate for Scottish independence. Subscribers made +300 pips in GBPUSD (see our video for the how and whys behind the trade). 

Whether a higher than expectec CPI helps the USD, will depend on the follow-up in US bond yields. But what's many are ignoring is that rising supply-driven inflation does not move in a vaccum. Do you think inflation will remain muted in Europe? 

Was the soft jobs report a game-changer? The trade on Friday was that it meant rates would stay lower for longer, or would at least give the Fed some leeway to try out it's patient approach to normalizing. On Monday though, the mood was more that it was a one-off report and that the dozens of other inputs of better growth are more relevant. That led to a big unwind in the stock and yield moves.

The US dollar though hardly bounced. A particularly large move came in cable, which jumped more than 150 pips to the highest since February. Some of that was technical as a series of March/April highs gave way but the tipping point was the Scottish election. Today's Queen's speech also helped boost GBP via improved political prospects for PM Johnson, following Labour's horrid showing in last week's local elections.  

The SNP and pro-indepenced Greens together got enough votes for a majority but it wasn't a resounding win and will independence polls flagging and better growth on the way, the market clearly took the impression that no referendum is coming soon. Combine that with ongoing UK vaccinations and reopenings and there isn't much in the way of a return to the Feb high of 1.4242 and potentially to back to 2017 levels.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR +85K vs +81K prior

GBP +20K vs +29 prior

JPY -41K vs -49K prior

CHF 0K vs -1K prior

CAD +26K vs +16K prior

AUD +1K vs -1K prior

NZD +9K vs +7K prior

Specs are beginning to buy into the Canadian dollar rally and that's no surprise given the positive backdrop in commodities and acceleration in Canada's vaccine rollout. Friday's Canadian employment report was on the soft side but lockdown measures should begin to ease this month and then it will be clear sailing. The report prompted Ashraf to trigger longs in GBPCAD on Friday, as stated late in the video and to the WhatsApp Broadcast Group on Monday.