Intraday Market Thoughts

What Does the Bond Market Know?

by Ashraf Laidi
Oct 1, 2014 23:23

Sometimes a headline stands out as a catalyst for a market move but on many days it's impossible to point to a driving force. Wednesday was one of those days as the yen rallied in a flight to quality as the kiwi lagged. Markets will have a chance to digest the moves in Asian trading with a light calendar featuring RBA speakers.  Our latest Premium trades include 2 USDCAD and 2 in AUDUSD with Charts and trade ideas found in the Premium Insights.

The end/beginning of a quarter is always a tricky time to make sense of markets and that was especially true Wednesday with changeover happening a day ahead of the ECB meeting. Aside from broad yen strength the moves in the FX markets were relatively subdued but it was a full-fledged 'risk off' trade in bonds and stocks.

The debt markets seemed to lead Friday's moves, especially German and US bonds. The US 10-year yield fell more than 10 bps to 2.38% and German bunds fell below 0.90% once again.

A few of the reasons we heard for the moves:

1)Hong Kong protests 

2) Soft German/UK PMIs 

3) ISM manufacturing at 56.6 vs 58.5 exp 

4) Ebola 

5) PIMCO flows 

6) Talk about fresh Russian sanctions 7) Fund liquidation 

8) The calendar

Nothing quite adds up (and ADP was solid at 213K vs 205K exp) and we're suspicious of such dramatic flows into bunds ahead of the ECB. At the same time, Blackrock's global bond head said traders buying Eurozone sovereigns on expectations of QE are making a “mistake”. Blackrock is the firm running the ECB's ABS program.

Looking ahead, Chinese markets remain on holiday with the focus on the RBA. Policymakers Edey and Ellis will be grilled in parliament on housing  at 2330 GMT and HIA home sales are due at 0100 GMT. At 0130 GMT, Australian trade balance is expected at -800m and August building approvals are expected up 12.7% y/y in August.

Given the soft Aussie retail sales data and the wave of risk aversion, the 15-pip daily decline in AUD/USD on Wed should count as a small victory for the bulls.

Act Exp Prev GMT
Manufacturing PMI (Sep)
57.5 58.2 57.9 Oct 01 13:45
ISM Manufacturing PMI (SEP)
56.6 58.5 59.0 Oct 01 14:00
Markit PMI Manufacturing (SEP)
51.6 52.5 52.5 Oct 01 8:30
PMI Construction (SEP)
63.5 64.0 Oct 02 8:30
51.1 51.1 51.1 Oct 01 1:00
Eurozone Spanish PMI Manufacturing
52.6 52.3 52.8 Oct 01 7:15
Eurozone PMI Manufacturing (Sep)
50.3 50.5 50.5 Oct 01 8:00
Germany Markit PMI Manufacturing (SEP)
49.9 50.3 51.4 Oct 01 7:55
ISM Manufacturing Employment (Sep)
54.6 57.5 58.1 Oct 01 14:00
ISM Manufacturing New Orders Index
60.0 66.7 Oct 01 14:00
ISM Manufacturing Prices (Sep)
59.5 57.0 58.0 Oct 01 14:00
ADP Employment Change (SEP)
213K 210K 202K Oct 01 12:15
Trade Balance (AUG)
-700M -1,359M Oct 02 1:30
Building Approvals (AUG) (m/m)
1.0% 2.5% Oct 02 1:30
Building Approvals (AUG) (y/y)
9.4% Oct 02 1:30
Retail Sales (AUG) (m/m)
0.1% 0.4% 0.4% Oct 01 1:30

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