Order Flow Habits for Week of July 7 – July 12th, 2013
July 7 – ANZ Job Advertisements m/m at -1.8% / -2.5%
July 8 – NAB Business Confidence at 0 / -1
CNY CPI y/y at 2.7% / 2.5% / 2.1%
PPI y/y at -2.7% / -2.5% / -2.9%
AUD/USD: -13 pips FM, ret full -21 pips over next ten min
EUR/AUD: +21 pips FM, ret half, +27 pips over next ten min
AUD up on short covering
AUD/USD rose 80 pips
EUR/AUD down 70 pips
AUD/JPY up 70 pips
AUD up on the day
July 9 – AUD further short covering across the board as AUD/USD went up, EUR/AUD and GBP/AUD went down
IMF: China growth faces downside risks amid credit problems
Westpac Consumer Sentiment at -0.1% / 4.7%
CNY Trade Balance at 27.1B / 27.8B / 20.4B
CNY Exports at -3.1% / 3.7% / 1.0%
CNY Imports y/y at -0.7% / 6.0% / -0.3%
AUD/USD: -33 pips FM, -5 pips in second min, then NS
AUD seems to be sold out. If it can’t drop on lower China exports, then some short covering may be in order
AUD didn’t want to sustain the sell off after bad China data. Is AUD sold out? Some more short covering to occur?
July 10 – MI Inflation Expectations at 2.6% / 2.3%
Employment Change at 10.3k / 0.3k / -0.7k
Unemployment Rate at 5.7% / 5.6% / 5.6%
AUD/USD: +55 pips FM, then NS
EUR/AUD: -65 pips FM, then NS
AUD/USD took out stops above 0.9200 after it could not go lower on bad China data, then fell back into range on AUD centric weakness as people piled back into long EUR/AUD and GBP/AUD trades.
AUD/USD up on USD weak
EUR/AUD up on AUD weak
AUD down for the day
“Everybody who’s got a bearish view on Aussie dollar has already put their money where their mouth is,” said Ray Attrill, the Sydney-based global co-head of currency strategy at NAB. “Positioning looks to be extreme.”
July 11 – Home Loans m/m at 1.8% / 2.3% / 1.2%
AUD/USD hit 0.9300, then fell 150 pips
EUR/AUD continued moving higher
GBP/AUD rose sharply
AUD down for the day
Australia’s dollar surged to the highest in two weeks after Federal Reserve Chairman Ben S. Bernanke signaled there would be no immediate reduction in U.S. stimulus that has helped boost asset prices across the world.
July 12 – CNY New Loans at 861B / 800B / 667B
CNY M2 Money Supply y/y at 14.0% / 15.3% / 15.8%
NMI, perhaps +5 pips of AUD str
AUD moving lower because China official saying lower growth would be tolerable.
AUD/USD knocked out 0.90 barrier, then some short covering
The Australian dollar weakened to less than 90 U.S. cents for the first time since September 2010 amid speculation the Reserve Bank will cut interest rates next month to a record low.
“We don’t think 6.5 percent or 7 percent will be a big problem,” – Lou Jiwei
Policymakers in China are increasingly tolerant of lower growth as they attempt to reform the economy. We now have the first indication of a willingness to accept growth of 7% this year, much below the official 7.5% target.
The Australian dollar was lower in Asia on Friday, after a week of poor economic reports that have stoked talk of a cut in interest rates in August.
News of rising unemployment, falling business confidence and soft labor demand this week have seen financial markets price in a 60% chance the Reserve Bank of Australia will cut its benchmark cash rate from its current record low of 2.75%
“Our view is that the Australian dollar is largely acting as a shock absorber rather than providing a noticeable boost to growth per se,” ANZ said.
AUD down big for the day
July 8 – Building Permits m/m at 4.5% / 2.6% / 11.2%
USD/CAD: -7 pips FM, then NS
EUR/CAD: -8 pips FM, then NS
BOC Business Outlook Survey
– further indications that uncertainty regarding the nature and timing of a notable improvement in growth prospects is bearing on firms’ expectations and investment decisions.
– While businesses reported some firming in past sales activity, they do not foresee a marked change in the pace of their sales growth over the next 12 months.
USD/CAD: +4 pips FM, +15 pips over next ten min
EUR/CAD: +8 pips FM, +23 pips over next ten min
EUR/CAD up slight
GBP/CAD up slight
CAD flat to slightly lower for the day
July 9 – Housing Starts at 200k / 189k / 205k
USD/CAD: -10 pips FM, then NS
CAD up for the day along with AUD and NZD in commodity currency short covering
July 10 – USD/CAD down on USD weak
EUR/CAD up on EUR str
CAD down for the day
July 11 – NHPI m/m at 0.1% / 0.3% / 0.2%
The Canadian dollar
strengthened against its U.S. counterpart on Thursday, up by as
much as two cents at one point, as the greenback tumbled after
U.S. Federal Reserve Chairman Ben Bernanke said on Wednesday the
Fed was not ready to abandon its stimulus measures.
USD/CAD slightly down on the day
CAD up for the day
CAD may have risen on the day due to the economic growth link with the U.S. More U.S. QE can sometimes benefit the CAD slightly
July 12 – USD/CAD flat
CAD flat for the day
July 8 – Unemployment Rate at 3.2% / 3.2% / 3.2%
EUR/CHF up 40 pips on risk appetite
EUR/CHF up 30 pips
GBP/CHF up 30 pips
CHF down for the day
July 9 – Retail Sales y/y at 1.8% / 3.7% / 3.1%
EUR/CHF rallied 60 pips on risk appetite
The ECB low rate guidance, and the sovereign debt concerns and credit rating cuts don’t seem to be causing EUR/CHF to go down.
CHF down for the day
July 10 – EUR/CHF flat on the day, even though S&P and risk appetite surged. In the previous days, EUR/CHF was able to take out previous days highs on risk appetite, but now no more.
USD/CHF fell on USD weak
GBP/CHF down on EUR/GBP selling
CHF flat for the day
July 11 – USD/CHF flat
GBP/CHF up on EUR/GBP drop
CHF flat for the day
CHF flat on the day, even though risk appetite surged.
July 12 – USD/CHF flat
EUR/CHF down 50 pips on Portugal fears
CHF up for the day
July 8 – German Trade Balance at 14.1B / 17.4B / 17.5B
EUR/USD: -5 pips FM, then NS
Sentix Investor Confidence at -12.6 / -11.5 / -11.6
German Industrial Production m/m at -1.0% / -0.5% / 2.0%
EUR/USD: -4 pips FM, then NS
ECB Draghi: ECB has injected a downward bias to interest rates
– ECB to keep policy as accommodative as warranted
– Prolonged Recession main systemic risk
– Higher rates would destabilize weak economies
– Higher interest rates not warranted in many advanced economies
EUR stayed flat to slightly up on Draghi comments
EUR/USD up 40 pips on short covering
EUR flat for the day
July 9 – French Gov Budget Balance at -72.6B / -66.8B
ECB Asmussen: Forward Guidance goes beyond 12 months
– Wouldn’t rule out further LTRO
– Want to anchor market expectations for foreseeable future
EUR tumbled 50-70 pips or so
S&P Cuts Italy’s Credit Rating to BBB and remains negative
EUR/USD: -31 pips FM, then NS
USD/JPY: -20 pips over four min
S&P: -1 pt or so over three min, then NS
ECB: No guidance was given to exact length of this period
– contradicts Asmussen on forward guidance comments
Italy’s credit rating was lowered to BBB, or two levels above junk, by Standard & Poor’s because of
expectations for a further weakening of economic prospects and the nation’s impaired financial system.
EUR/USD fell on ECB clarity on forward guidance, Italy credit rating cut, and EUR/AUD and EUR/NZD profit taking
The euro slid to a three-month low against the dollar after an official at the European Central Bank signaled it may remain accommodative for more than a year, further diverging from policy in the U.S.
Greece will get 2.5 billion euros of aid this month and the rest in October, as long as Prime Minister Antonis Samaras’s coalition delivers on economic reforms and cuts to spending. Creditors approved the financing after the European Commission, International Monetary Fund and European Central Bank worked through the weekend to seal an accord with the Greek government on deficit-reduction steps.
The euro hit a three-month low against the dollar after
Standard & Poor's cut Italy's sovereign credit rating and
European Central Bank policymaker Joerg Asmussen told Reuters
Insider that the bank's guidance on interest rates staying at
record lows extends beyond 12 months.
The austerity imposed on Greece by the EU and IMF in return for is likely to keep the economy in depression for a sixth consecutive year and push already soaring, record unemployment to yet new highs. The Athens-based IOBE think tank said Greece’s economy could shrink by as much as 5% this year. The EU and IMF expect Greece to shrink 4.2% in 2013; the Bank of Greece projects a contraction of 4.6%. The Greek economy shrank 6.4 percent last year.
EUR down for the day
July 10 – German Final CPI m/m at 0.1% / 0.1% / 0.1%
French Industrial Production m/m at -0.4% / -0.5% / 2.2%
Italian Industrial Production m/m at 0.1% / 0.4% / -0.3%
EUR/USD rose 50 pips off the lows on some profit taking on USD long positions. Then rose on slightly dovish FOMC minutes, then rallied 300 pips after dovish Bernanke comments as market tripped stops above 1.2950, and 1.3000 and there was a sent/psych shift and people just started to bail out of their dollar long positions.
Then hit 1.3200, then stalled out
DO NOT SHOR THE LOWS in EUR/USD
French Fin Min: Sees signs of economic recovery
ECB Visco: ECB to keep rates low as long as necessary
The euro spiked to its highest in three weeks against a fast falling U.S. dollar in early Asian trade on Thursday after dovish comments from the Federal Reserve chairman forced markets to cut long dollar positions.
EUR up for the day
July 11 – German WPI m/m at -0.4% / 0.3% / -0.4%
French CPI m/m at 0.2% / 0.1% / 0.1%
ECB Weidmann: Current conditions justify low rates
– council can still raise rates in timely fashion if needed
– Guidance attempt to make policy easier to explain
– Forward guidance not a change in strategy
EUR/USD: +29 pips FM, then NS
Euro spiked higher on slightly hawkish comments from Weidmann about that the new guidance wasn’t a change in strategy.
But that is probably a minority view on the ECB governing council, since Weidmann is one of the few hawks. He may be the only one sharing that view.
EUR flat on the day
July 12 -Industrial Production m/m at -0.3% / -0.2% / 0.5%
EUR/USD tripped downside stops below 1.3007 on some Portugal fears
Portugal concerns and yields rise, causing EUR to sell off 20-40 pips or so
Then rallied intraday.
Fitch downgrades France:
EUR -35 pips or so, then NS
S&P: -3 pts FM, then NS
Bonds: Maybe +1-2 ticks
Crude: -15 cents FM, then NS
EUR doesn’t want to sell off on these credit downgrades. Same thing with the Italy credit rating cut a few days ago. It didn’t sell off past the FM spike.
EUR/USD dropped from 1.3100 down to 1.3000, then bounced
France lost its top credit rating at Fitch Ratings, which highlighted concern about lack of growth and the buildup of debt in Europe’s second-largest economy.
EUR/GBP up slight
EUR/AUD up on AUD weak
EUR flat for the day
July 8 – BRC Retail Sales Monitor y/y at 1.4% / 1.8%
RICS House Price Balance at 21% / 9% / 5%
GBP/USD up 50 pips on short covering
“While it’s encouraging to see confidence continuing to improve, we should be mindful of the zig-zag trend that has characterized U.K. business confidence since 2008,” BDO partner Peter Hemington said.
July 9 – Manufacturing Production m/m at -0.8% / 0.3% / -0.2%
Trade Balance at -8.5B / -8.4B / -8.4B
Industrial Production m/m at 0.0% / 0.3% / -0.1%
GBP/USD: -41 pips FM, -100 pips next few hours
EUR/GBP: +22 pips FM, +42 pips over next few hours
GBP/JPY: -42 pips FM, -130 pips rest of day
GBP/CHF: -35 pips FM, -77 pips over next few hours
GBP/CAD: -44 pips FM, -127 pips over rest of day
GBP/AUD: -40 pips FM, -108 pips over rest of day
NIESR GDP Estimate at 0.6% / 0.6%
GBP/USD crushed on bad data and GBP/AUD and GBP/NZD profit taking. Takes out downside stops, then some short covering.
DO NOT SHORT THE LOWS in GBP/USD
The pound fell to a three-year low against the dollar after U.K. manufacturing unexpectedly shrank in May, casting doubt on the strength of the recovery.
GBP down for the day
July 10 – GBP/USD rose 40-50 pips on people taking profit on long USD positions, then rose +265 pips on dovish Bernanke comments
DO NOT SHORT THE LOWS in GBP/USD
GBP/USD up on USD weak
EUR/GBP up on EUR str
GBP flat for the day
July 11 – GBP/USD up
GBP up for the day
Will weakness in Eurozone, cause BoE Carney to become more accommodative?
July 12 – CB Leading Index m/m at 0.4% / 0.2%
EUR/GBP up slight
GBP flat on the day
July 7 – Current Account at 0.62T / 0.62T / 0.85T
Bank Lending y/y at 1.9% / 1.8%
July 8 – Economy Watchers Sentiment at 53.0 / 55.6 / 55.7
M2 Money Stock y/y at 3.8% / 3.4% / 3.5%
JPY flat on the day
USD/JPY slight down
JPY flat for the day
July 9 – Prelim Machine Tool Orders y/y at -12.4% / -7.4%
Tertiary Industry Activity m/m at 1.2% / 0.9% / -0.5%
CGPI y/y at 1.2% / 1.2% / 0.5%
Monetary Policy Meeting Minutes
USD/JPY consolidating, even though Nikkei and S&P went up. It seems to be waiting for catalyst. That bounce up from the lows due to excessive profit taking and people re establishing their trend longs seems to be fairly complete, so the market will look to future catalysts to see where to go.
AUD/JPY slightly up
JPY flat for the day
July 10 – Consumer Confidence at 44.3 / 47.2 / 45.7
Core Machinery Orders m/m at 10.5% / 1.9% / -8.8%
Monetary Policy Statement
– Did not implement any new measures
USD/JPY: -17 pips FM, -48 pips over next twenty min
The market seems to be disappointed that the BoJ is not doing any more stimulus.
USD/JPY dropped 140 pips as it seems the market gunned for the concentrated positioning. And a lot of people were long USD, through long USD/JPY, and short EUR/USD, GBP/USD, etc and those positions reversed for a bit.
USD/JPY dropped to below 100 before release of FOMC minutes.
Then sold off further on dovish Bernanke rhetoric.
USD/JPY dropped a lot, even as the S&P rose by a lot
USD/JPY down on USD weak
EUR/JPY up on EUR str
AUD/JPY down on AUD weak
NZD/JPY down on NZD weak
JPY flat for the day
Bank of Japan Governor Haruhiko Kuroda and his fellow policy makers will talk about upgrading their assessment of the nation’s economy by using the word “recover” for the first time in more than two years, according to people familiar with the central bank’s discussions. The bank concludes its two-day meeting today.
“The market has come to the conclusion that maybe there won’t be so much additional easing from the Bank of Japan down the line,” said Jane Foley, a senior currency strategist at Rabobank International in London.
Economists are ditching forecasts for the Bank of Japan to further expand its record easing this year amid signs that a recovering economy may spur inflation.
Prices, excluding the effect of a planned sales tax increase, will rise 1.9 percent in the year starting April 2015, according to the median estimate of the bank’s nine-member policy board in April.
Abe is trying to put the nation on a sustainable growth path through his so-called three arrows of Abenomics — monetary and fiscal stimulus, and lowering barriers for investment and hiring. In January, the government announced a 10.3 trillion yen ($102 billion) stimulus package
“The economy is proving Kuroda right,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo. “This is the first time in a while that the BOJ doesn’t have to boost stimulus because the economy is moving in line with their expectations”
July 11 – USD/JPY tested lows on disappointment with BoJ not doing anything new. Then consolidated.
Perhaps the JPY has gained slightly recently because of perceived slightly stronger econ data, which would cause people to pare back their expectations for how long the BoJ may do QE and thus the JPY pairs will not go up as much.
A lot of risk appetite today, but it was concentrated in equities, as the JPY did not weaken much.
BOJ Governor Haruhiko Kuroda said on Thursday while overseas economies were weaker than expected that would be offset by robust domestic consumer spending and a pick-up in capital expenditure, and so he remained confident of meeting a target of lifting inflation to 2 percent in roughly two years.
“Japan’s economy is starting to recover moderately,” the central bank said in a statement after its two-day meeting, revising up its assessment for the seventh straight month.
“There’s no material change to the BOJ’s forecasts from April. Basically, the economy is recovering in line with its main scenario,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
JPY flat for the day
July 12 – Revised Industrial Production m/m at 1.9% / 2.0% / 2.0%
JPY flat on the day
July 7 – REINZ HPI m/m at 0.0% / 0.7%
July 8 – NZIER Business Confidence at 32 / 23
Maybe NZD rose 10 pips FM, then NS
Short covering in NZD/USd
DO NOT SHORT THE LOWS
NZD up for the day
July 9 – NZD rallied on short covering as NZD/USD went up and EUR/NZD and GBP/NZD dropped.
NZD may have rallied +30 pips on NZ Fin Min comments:
- Says, rate rises may boost NZ dollar, especially if RBNZ first CB to move
The NZD and the CAD are the central banks that have refused to cut rates or institute some sort of forward guidance.
Will the RBNZ want to cut rates in order to help depreciate the currency faster?
NZD up for the day
July 10 – Business NZ Manufacturing Index at 54.7 / 59.0
FPI m/m at 2.15 / 0.3%
New Zealand’s kiwi dollar was supported after the finance minister said it’s certain the nation’s interest rates will rise.
“One of the risks to New Zealand is being the first developed country to lift interest rates,” English said at an event in Wellington. Investors would be attracted to New Zealand’s relatively higher yields “and we’d end up with an exchange rate going too high,” he said.
NZD/USD up on USD weak
NZD down for the day
July 11 – NZD/USD tripped light topside stops, then fell 150 pips. Same thing with AUD/USD
EUR/NZD rose sharply
GBP/NZD rose sharply
NZD down for the day
July 12 – NZD fell across the board along with AUD on expectations that China GDP may slow
July 8 – Consumer Credit m/m at 19.6B / 13.2B / 10.9B
US dollar sold off a bit as people took profit on dollar longs
The Dollar Index fell from a three-year high amid speculation it climbed too far, too fast after a report last week showing stronger-than-forecast U.S. job growth fueled bets the Federal Reserve will soon slow its stimulus.
“It’s a reversal of the strong dollar trend that came last Friday,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “The market may have gone too far to the extreme in terms of pricing in the tempering of asset purchases.”
Expectations the U.S. economic recovery is leading the rest
of the world and that the Fed will reduce its bond-buying have
sparked a nearly 5 percent rally in the dollar since mid-June
USD down for the day
July 9 – NFIB Small Business Index at 93.5 / 96.2 / 94.4
EUR/USD down on EUR weak
GBP/USD down on GBP weak
USD/CHF up on CHF weak
AUD/USD up on AUD str
USD flat for the day
July 10 – Wholesale Inventories m/m at -0.5% / 0.3% / -0.1%
FOMC Meeting Minutes
– Private-sector employment expanded further in recent months, and the unemployment rate in April and May was below its first-quarter average, although it continued to be elevated.
– Consumer price inflation was subdued, partly reflecting transitory influences.
– Nonetheless, the staff expected that much of the recent softness in inflation would be transitory, and thus did not materially change its medium-term projection.
– The staff viewed the uncertainty around the forecast for economic activity as normal relative to the experience of the past 20 years. However, the risks were still viewed as skewed to the downside, in part because of concerns about the situation in Europe and the ability of the U.S. economy to weather potential adverse shocks. Although the staff saw the outlook for inflation as uncertain, the risks were viewed as balanced and not unusually high.
– A number of participants mentioned that they were encouraged by the apparent resilience of private spending so far this year despite considerable downward pressure from lower government spending and higher taxes. In particular, consumer spending rose at a moderate rate, and the housing sector continued to strengthen.
– Overall conditions in the labor market improved further in recent months, although the unemployment rate remained elevated.
– Many participants saw the downside risks to the medium-run outlook for the economy and the labor market as having diminished somewhat in recent months, or expressed greater confidence that stronger economic activity was in train.
– However, some participants noted that they remained uncertain about the projected pickup in growth of economic activity in coming quarters, and thus about the prospects for further improvement in labor market conditions, given that, in recent years, forecasts of a sustained pickup in growth had not been realized.
– Importantly, participants wanted to emphasize that the pace, composition, and extent of asset purchases would continue to be dependent on the Committee’s assessment of the implications of incoming information for the economic outlook, as well as the cumulative progress toward the Committee’s economic objectives since the institution of the program last September.
– Several participants pointed to the challenge of making it clear that policymakers necessarily weigh a broad range of economic variables and longer-run economic trends in assessing the outlook.
– . However, to some other participants, this approach appeared likely to limit the Committee’s flexibility in adjusting asset purchases in response to changes in economic conditions, which they viewed as a key element in the design of the purchase program.
– Others were concerned that stating an intention to slow the pace of asset purchases, even if the intention were conditional on the economy developing about in line with the Committee’s expectations, might be misinterpreted as signaling an end to the addition of policy accommodation or even be seen as the initial step toward exit from the Committee’s highly accommodative policy stance. It was suggested that any statement about asset purchases make clear that decisions concerning the pace of purchases are distinct from decisions concerning the federal funds rate.
– In addition, he would make clear that decisions about asset purchases and other policy tools would continue to be dependent on the Committee’s ongoing assessment of the economic outlook.
– Some added that they would, as well, need to see more evidence that the projected acceleration in economic activity would occur, before reducing the pace of asset purchases.
EUR/USD: +41 pips F2, ret half, then +54 pips over next twenty min
GBP/USD: +23 pips F2, ret half, then +49 pips over next twenty min
USD/CHF: -24 pips F2, ret half, then -43 pips over next twenty min
USD/JPY: +26 pips FM, then -100 pips over next twenty min
AUD/USD: +32 pips F2, ret half, then +26 pips over next twenty min
NZD/USD: +30 pips F2, ret half, then +30 pips over next twenty min
USD/CAD: -15 pips F2, ret half, then -50 pips over next twenty min
S&P: +8 pts over four minutes
Bonds: +17 ticks over three min
Gold: +$3 FM, +$12 over next twenty min
The minutes were not as hawkish as the market expected. There were some very slight dovish phrases in there with some committee members wanting to make sure that they would continue to tell the market that the QE program would continue to be dependent on incoming information. And that they do not want to limit their flexibility, etc
Also, with the market selling the USD in the hours prior to the report, the market was looking to take profits on its long USD positions.
"The minutes were not as hawkish as expected," said Joseph
Trevisani, chief market strategist at WorldWideMarkets, in
Woodcliff Lake, New Jersey.
Fed Chairman Bernanke Speaks
– “Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said today in response to a question after a speech in Cambridge,Massachusetts.
- -Early comments point at reasons not to rush toward taper or tightening
Bernanke said that financial conditions have tightened somewhat (bond yields going higher), and that if they tighten further, Fed may have to respond.
EUR/USD: +180 pips over a few hours
GBP/USD: +170 pips over a few hours
USD/CHF: -136 pips over a few hours
USD/JPY: -136 pips over a few hours
AUD/USD: +142 pips over a few hours
NZD/USD: +130 pips over a few hours
USD/CAD: -88 pips over a few hours
S&P: +13 pts over a few hours
Bonds: +1pt, 24 ticks over a few hours
Gold: +$28 over a few hours
The market may have been pricing in too much USD bullishness, given that the unemp rate is still elevated, and there has already been a tightening in financial conditions as bonds have dropped. Which could cause the Fed to wait a bit more than the market was pricing in.
Earlier today, the Fed released minutes of the Federal Open Market Committee’s June 18-19 policy meeting at which many officials indicated they want to see more signs employment is picking up before they’ll begin scaling back $85 billion in monthly bond purchases.
Many Federal Reserve officials want to see more signs employment is picking up before they’ll begin scaling back $85 billion in monthly bond purchases, according to minutes of policy makers’ meeting last month.
“Many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases,” according to the record of the Federal Open Market Committee’s June 18-19 gathering released today in Washington.
Reducing the pace of bond buying in September “looks to be the majority opinion but it is not a done deal,” said Eric Green, global head of rates and foreign-exchange research at TD Securities Inc. in New York and a former New York Fed economist. “Most of them want to see more evidence the job market is improving. The only way for the job market to improve is if growth shifts higher from the pace of the first half.”
The “dollar is taking back some of the exuberance of the past few days,” said Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut. “The comment that inflation and jobs signal more Fed stimulus is needed is causing the market to react a little bit, perhaps taking out some of the hawkishness that was in asset prices in fixed income and foreign exchange.”
July 11 – Unemployment Claims at 360k / 342k / 344k
Import Prices m/m at -0.2% / 0.1% / -0.7%
EUR/USD: +20 pips FM, then NS
USD/JPY: -20 pips FM, then NS
AUD/USD: +13 pips FM, then NS
Bonds: +9 ticks FM, then NS
Gold: +$4 FM, then NS
Federal Budget Balance at 116.5B / 42.1B / -138.7B
Is the budget improving to due one off special timing surpluses? or due to increasing economic growth increasing government revenue? Which one?
What does Bernanke mean by his remarks yesterday? Does he mean that he won’t taper in September? That he will delay it? What does “Fed may have to respond” mean?
“It is clear they want to pull the trigger on the wind-down of QE, but they also want to calm market anxieties about raising rates for the foreseeable future,” said Ward McCarthy, chief financial economist at Jefferies Group LLC in New York and a former Richmond Fed economist. Their attempts at providing clarity are further complicated because of “pretty significant divisions among policy makers on a number of issues.”
When Federal Reserve policy makers start to curb $85 billion in monthly bond buying, possibly before the end of the year, the last thing they want to do is spoil the nascent U.S. housing recovery.
That means the Fed may concentrate first on trimming purchases of Treasuries, while continuing to buy mortgage bonds to keep a lid on interest rates for home loans.
"Bernanke didn't give us any new information," said Benjamin
Reitzes, senior economist and foreign exchange strategist at BMO
Capital Markets. "He's doing his best to tell markets tapering
QE (quantitative easing), and ending QE, is not the same thing
as raising rates. I think that's something the markets really
haven't been able to grasp entirely."
GBP/USD up on GBP str
AUD/USD down on AUD weak
USD flat for the day
July 12 – PPI m/m at 0.8% / 0.5% / 0.5%
Core PPI m/m at 0.2% / 0.2% / 0.1%
EUR/USD: -12 pips FM, then NS
GBP/USD: -14 pips FM, then NS
USD/JPY: +17 pips FM, then NS
S&P: perhaps -1pt
Bonds: -6 ticks FM, then NS
Gold: -$3 FM, then NS
Prelim UoM Consumer Sentiment at 83.9 / 85.3 / 84.1
Prelim UoM Inflation Expectations at 3.3% / 3.1% / 3.2%
EUR/USD: +9 pips FM, then NS
USD/JPY: -12 pips FM, then the rest was from JPY specific str
Gold: +$2 FM, then NS
– If inflation weakens further, Fed Must Act
– Fed may need to extend bond buying to boost inflation
– June was bad time to lay out bond-taper plan
– Bond taper possible if economy continues to improve
– Even lower inflation would need Fed response
USD dropped 25 pips or so over ten minutes around 12:50 EST, as reports indicated Bullard comments were leaked.
Fed Plosser (nonvoting): Time to taper bond buying, end by close of year
USD did not rise at all
Fed Williams: (nonvoting): says probably going to have to have more accommodation because of inflation data
(after market close)
Bernanke said on June 19 that the FOMC may taper bond purchases later this year and end the program around mid-2014 as long as the economy performs in line with the Fed’s forecasts. About half the 19 participants on the FOMC favor ending the program by year’s end, according to meeting minutes released this week.
Will the higher Unemployment Claims from yesterday, start a trend of weaker US economic data?
Will Fed officials talk about taper again?
Either the S&P is reading too much into Bernanke comments and is responding in a bullish fashion that is not justified. Or the markets are reading his comments correctly and the Fed may delay taper, due to some combination of low inflation, mediocre economic data, external global growth slowing, higher bond yields, unemp rate ticking higher, etc.
Or the market is going up anyways, even if the Fed is going to taper, because the market is convinced that the economy can handle the taper. Which I find an interesting scenario, but the market has already retraced and attacked the highs already, so the macro buyers have already been beating out the sellers from the Fed taper, but with the market approaching the highs, the macro buyers can potentially be exhausted and due for a correction. The equity market seems to be pricing in too much QE for too long at this point. Unless economic data comes out weaker, and that causes the market to believe the Fed will delay the taper.
Probably best to wait some more time and take in more data and information before making a decision as to the correct scenario. There seems to be legitimate arguments on either side for now.
AUD/USD down on AUD weak
NZD/USD down on NZD weak
USD flat for the day
July 8 – Crude rose above $104.00 in Sunday illiquid session and took out stops, then sold off to 102.00 on profit taking and potentially declining risk premium. Then bounce back up to 103.00 or so.
Crude oil and gasoline futures (NKA) declined as concern eased that Middle Eastern supplies will be disrupted amid violence in Egypt.
“Traffic on the Suez Canal has been unaffected by the unrest in Egypt,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “There’s relief that the traffic is still moving.
West Texas Intermediate crude dropped from a 14-month high after an official said Egypt’s Suez Canal is secure and ship traffic is “normal,” even as violence escalated in Cairo.
July 9 – Crude dipped intraday, then stabilized around the 9:00 EST time, then rallied, potentially on increasing risk premium from Egypt.
Rallied very hard into the close. Tripped stops above $104.00, 104.20 and 104.50 in the illiquid after hours session.
West Texas Intermediate crude advanced to a 14-month high as U.S. equities rose amid optimism about the economy and as analysts estimated that U.S. oil inventories fell last week.
July 10 – Crude Oil Inventories at -9.9M / -2.9M / -10.3M
Crude Oil: + 42 cents FM, another +20 to 50 cents over next half hour
Crude consolidated in European session, then broke out higher above 105.00, then continued moving higher. Perhaps a bit on expanding risk premium. Then rise continued on lower crude stockpiles. Then rise continued on dovish FOMC minutes and dovish Bernanke comments., taking the market up close to 107.00
In a nutshell:
– potential widening of risk premium
– higher US economic growth and demand
– lower US stock piles
– Bernanke potentially saying that Fed may delay taper if financial market conditions tighten
West Texas Intermediate crude surged to a 15-month high after U.S. stockpiles tumbled for a second week.
“There’s no incentive to hold supplies with the market in backwardation,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “You are seeing big drops in inventories and that should continue.”
“WTI is the leader now,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “The last two reports have been real eye-openers. You’ve had two massive supply declines and there’s a lot of speculative interest entering the market.”
July 11 – Crude tripped stops above 107 up to 107.45, then sold off on profit taking.
– Did the risk premium decline and profit taking come in?
WTI surged above $100 a barrel on July 3 for the first time since September as protests in Egypt heightened concern that unrest in the most populous Arab country will spread and disrupt Middle Eastern oil supplies. Shipping traffic through the Suez Canal is continuing normally today, with 43 vessels transiting the waterway, according to the Suez Canal Authority.
July 12 – Crude stabilized at 104.50, then rallied during the NY session
Crude oil resilient on France credit rating cut
West Texas Intermediate crude climbed on speculation that U.S. inventories will keep declining after the largest two-week drop in at least three decades.
July 8 – Gold rose a bit on short covering. Rose +$10 oz
July 9 – Gold short covering and tripped topside stops from 1240 up to 1257, then fell back.
Gold did not go up when S&P cut Italy credit rating
DO NOT BUY THE HIGHS
The problem with the gold bulls is that the Fed is in reduction of stimulus mode, and there is currently no other bullish catalyst that can prop up prices. Inflation is still low, the Fed is not going to expand QE according to their remarks, there is no safe haven bid, there is no growth or capital appreciation story with gold, no dividend income going to be gained by holding gold.
July 10 – Gold tried to rise a bit on long USD profit taking. Rose on slightly dovish FOMC minutes, then rose sharply on dovish Bernanke comments.
Gold futures jumped to a one-week high as minutes from the Federal Reserve’s last meeting showed many officials want to see more signs of employment picking up before they begin slowing the pace of bond purchases.
July 11 – Gold tripped topside stops, then reversed those gains.
DO NOT BUY THE HIGHS
Equities are benefiting more from Bernanke’s comments. Both Gold and Bonds not benefiting as much.
Even though both gold and bonds were heavily sold down, they didn’t benefit as much as equities did.
Gold futures rallied to a two-week high after Federal Reserve Chairman Ben S. Bernanke said yesterday that the U.S. needs “highly accommodative monetary policy for the foreseeable future.” Silver also gained.
July 12 – Gold flat on the day
July 8 – S&P rose for the day, potentially on more economic optimism. Perhaps the sell off in crude, higher bond prices, and lower dollar helped on an intraday basis.
Closed at the highs.
The market was even more resilient today, than it was on Friday. On Friday there was a bigger intraday drop. Today, the intraday drop was much less.
“The world looks rosy to investors again, after the U.S. market rallied on much better-than-expected employment numbers that investors finally seem to be interpreting as good news,”
U.S. stocks rose, giving the Standard & Poor’s 500 Index a third straight day of gains, as the start of corporate earnings season fueled increased optimism about growth in the world’s largest economy.
July 9 – S&P rallied to take out light topside stops around 9:30 EST, then fell back to intraday support, then rallied to trip topside stops again.
S&P barely went down due to Italy credit rating cut.
S&P resilient against higher oil prices and Fed taper profit taking and higher bond yields
The market seems to be priced to withstand the reduction in stimulus. That is its current stance. But will another wave of selling / profit taking come in from fear of Fed taper?
Higher oil prices, weak growth in Europe, higher bond yields, strong dollar, etc are all headwinds that are restraining topside potential.
DO NOT BUY THE HIGHS
only consider buying intraday dips
U.S. stocks rose for a fourth day amid optimism companies will report better-than-forecast earnings for the second quarter.
Global stocks remained higher even after the International Monetary Fund said worldwide economic growth will struggle to accelerate this year.
The S&P 500 has recovered all its losses following a 4.8 percent drop between June 19 and 24, triggered when Chairman Ben S. Bernanke said the central bank may reduce the pace of bond purchases later this year as economic risks subside.
U.S. stocks rose for a fourth day amid optimism companies will report better-than-forecast earnings and that economic growth is strong enough to withstand any reduction in Federal Reserve stimulus.
Global equity markets extended
gains on Tuesday and the dollar hit a three-year high, spurred
by an optimistic tone among investors after a good start to the
U.S. earnings season and last week's strong U.S. June jobs data.
Nikkei is consolidating and has not broken out of the previous few days highs, while S&P already has.
July 10 – S&P may have sold off a few points on bad China data during previous Asian session.
Then S&P consolidated intraday, then tripped topside stops on slightly dovish FOMC minutes, where they seemed to want to wait for some more incoming data and maintain their flexibility.
Then sold off to the intraday support.
Then started to rally into the close.
Then blasted off higher on Bernanke talking about how financial conditions have tightened and that if they tighten further, the Fed may have to respond.
Without those dovish Bernanke remarks, the proper macro model was to:
DO NOT BUY THE HIGHS
only consider buying an intraday dip
If the market is no longer as scared of the Fed taper, then that gives the S&P room to attack the highs again, since there are less macro sellers and less profit taking from Fed taper fears.
Tech stocks seem to be outperforming the S&P and Dow Jones, as the Nasdaq rose around 0.25% more than S&P
The market was initially encouraged that the Fed is waiting on additional data, but possibly taken aback by the fact that about half the participants indicated that asset purchases should end later this year.”
Data today showed inventories at U.S. wholesalers unexpectedly declined in May by the most since September 2011 as sales surged, pointing to a pickup in orders and production.
Nikkei tripped stops above 14,500 during Asian session, then sold off as USD/JPY profit taking hit the market.
Nikkei still consolidating on the daily charts. S&P moving higher, but Nikkei is lagging behind for today.
There seems to be some macro profit taking in the Nikkei, perhaps due to expectations that the BoJ may not introduce any new measures. But if that is due to stronger econ, then the macro buyers should eventually cause the Nikkei should go up, similar to what happened with the S&P, where there was profit taking first, then eventually the stronger econ pushed prices back to the highs.
July 11 – S&P consolidated a bit intraday, then rallied to fresh highs. Bernanke comments yesterday supporting, with potential help from lower oil prices, and stabilizing bond yields.
S&P rallied 1.27%
Nasdaq rallied 1.93%
Nasdaq broke through the highs first, then S&P followed later on int he day
European stocks advanced to their highest level in more than five weeks after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy will continue to need stimulus measures.
U.S. stocks jumped, sending the Standard & Poor’s 500 Index to a record closing level, as Federal Reserve Chairman Ben S. Bernanke backed sustained monetary stimulus.
“You had more evidence from the Fed that they are going to great lengths to make the market realize that they are very data dependent and are not talking about tightening,”
Is the US economy going to slow down due to higher bond yields, higher oil prices?
If so, is the Fed going to delay taper? And how will the S&P respond? Will it rise on weak data due to longer Fed QE? or will it sell off on lower econ growth despite the Fed going to delay taper?
Nikkei bounced off 14,300 lows up to previous range resistance at 14,550. Slightly stronger yen and slight disappointment with BoJ restraining topside, but it is getting dragged higher by the global equity rally from the past few days.
World stocks rallied on
Thursday, with the Dow and S&P 500 indices hitting all-time
closing highs, while the dollar fell after Federal Reserve chief
Ben Bernanke signaled the U.S. central bank may not be as close
to slowing stimulus as investors had begun to expect.
July 12 -S&P consolidate intraday, then trip topside stops, then back into range.
DO NOT BUY THE HIGHS
S&P resilient in the face of Fed Plosser (nonvoting) calling for Fed taper.
S&P resilient on France rating cut and Portugal fears
Nasdaq has already taken out the highs a few months ago, while S&P has not yet.
Nasdaq acting better than S&P
U.S. stocks rose for a seventh day, extending a record for the Standard & Poor’s 500 Index, as better-than-estimated bank earnings overshadowed a reduced profit forecast from United Parcel Service Inc. (UPS)
Will Fed officials talk about taper again? Will Bernanke say that they could taper over the next few months? Or will he say he will maintain current pace?
I can completely understand the markets response to the Bernanke comments a few days ago. They most definitely sounded bearish. But is that indicative of what the FOMC council as a whole thinks?
Either the market believes the Fed is going to potentially delay taper.
the market believes that despite the taper, stocks are still going to go up
the market is overextended and some profit taking related to Fed taper is going to occur, if it gets clarified.
July 8 – Bonds made fresh lows by 2 ticks, then bounced higher on short covering and bargain hunters.
Rose 1pt and a half.
Were bonds pricing in too much of a strong recovery than was warranted?
DO NOT SHORT THE LOWS
Treasuries rose for the first time in three days amid speculation an increase in 10-year yields to the highest in almost two years had been too rapid.
“The selloff into this week was too strong. The data was positive, but given the state of the economy, we may have moved too fast.”
U.S. Treasuries prices climbed on buying by bargain-minded
investors, helping to bring benchmark yields down from near
July 9 – Bonds consolidating in a very tight range.
Bonds did not rise on Italy downgrade
S&P went up, but bonds are steady for now
What if inflation starts to go higher due to increase in Crude prices? Can that cause another slide in bond prices? Or will that take many months before that shows up in consumer prices?
Also, the inflation numbers are slightly below target, so the higher oil prices may just move them back towards the 2% target, and not necessarily overshoot to the upside.
S&P’s probably have more upside than bonds. I can’t see bonds rallying that much assuming the environment is still one of at least mediocre economic data.
Even if the Fed delays the taper by one or two meeting, as long as the economic trajectory is one of growth and expectation that the taper will come, then the bond prices should not rally too much.
July 10 – Bonds dropped slightly intraday tripping light downside stops, then rallied slightly on FOMC minutes, where some members would like to wait for more data.
Then fell in the aftermath of FOMC minutes, as half said bond buying could end this year.
Then rallied hard as Bernanke said financial conditions have tightened and if they tighten further the Fed may have to respond.
Will the big bond drop, cause the fed to delay the taper, as Bernanke said that there has been some tightening of monetary conditions
Everyone who had positions betting on a Fed taper is taking losses today.
Despite a speech about the history of Fed policy, Bernanke now offering some juicier insight about current policy during the Q&A session. The Chairman shows his dovish side, saying the US economy still needs easy monetary policy for the foreseeable future, citing fiscal austerity and low inflation. Notably he says the Fed won’t likely raise short-term rates for some time after jobless rate hits 6.5%.
Treasuries erased losses after Federal Reserve Chairman Ben S. Bernanke soothed concern that policy makers are moving closer to ending asset purchases sooner that most investors anticipated.
July 11– Bonds were not able to rally past yesterdays spike high. They actually reversed half those gains at one point.
Treasury 10-year notes rose for a fourth day, the longest rally since February, after Federal Reserve Chairman Ben S. Bernanke called for maintaining stimulus amid division among policy makers on when to slow bond buying.
Bernanke comments may stall out and prevent another bond market drop, but I don’t think they will cause a big rally in bonds. But if the bond market stops falling, then that can give a boost to equities since interest rates would stop rising.
The reason is that the market participants realize that the equity market upside is much more than bonds, if the Fed delays the taper, for they gain exposure to increased growth and increased earnings, etc. Bonds may go higher slightly due to the bargain hunters, but the equity upside should be much more.
July 12 – Bonds rose half a point on Portugal concerns and safe haven bid, testing topside resistance, then fell 1 pt.
Bonds did not rise much on the French credit rating cut.
Bonds are not getting bid up much on safe haven bid. They have weak sensitivity to any bullish news.
Growing worries over the political crisis in Portugal sent the nation’s sovereign bond market sinking and Treasury bonds are gaining on safe-haven bid. Bond prices now ticking up after paring gains earlier on PPI. “Bernanke turned the Treasury market around when he pushed back against tapering, but the fact that Portugal is getting hit hard is also bringing in some safe-haven buying this morning, particularly in front of a weekend,”
Correlation / Sensitivity Sheet for Friday, July 12th, 2013
S&P 500 flat
AUD sold off most on news that Chinese government could accept a lower growth rate. Australia still needs a weaker AUD below 0.9000 for economic rebalancing.
RBNZ to cut rates after weak GDP and China slowdown?
CAD did not sell off with other commodity currencies. BoC going to take any dovish action after weaker CPI and retail sales?
ECB to take any further stimulus measures? LTRO? Negative deposit rate?
Portugal crisis to intensify? Economic slowdown in France and Germany? Any further credit rating cuts?
BoE to implement any new measures? Slow Eurozone weighing on UK economy?
S&P and equity markets being very resilient to Portugal higher yields and French credit rating cut. But the market is getting very frothy.
Will the cumulative decline in unemp rate from 8.1% to 7.6% be enough for the Fed to taper? Or will the FOMC want to wait to see more data, as the external global slowdown, higher bond yields, and unemployment rate ticking higher can cause headwinds?
Tech sector broke out higher, but the S&P, DJIA, and Nikkei could not follow.
Abenomics to succeed or not? Growth and inflation to rise or not?
Any fresh Abe or Kuroda rhetoric or policies?
Crude Oil risk premium to rise? Or collapse? Egypt crisis to spread?
Swiss to take any additional measures to weaken franc?
Bonds acting terrible. Struggling to rally on Bernanke comments and Portugal higher yields.
General Comments and Food for Thought:
US economy to strength or weaken?
How fast and how much will Fed taper?
Will the US economy be able to absorb the taper or not? Growth drop if they taper?
Mediocre US data, higher bond yields, to cause Fed to delay taper?
Mediocre US data, higher bond yields to cause Fed to expand bond buying?
Fed to taper fast, despite mediocre data and higher bond yields?
Any risk aversion scenarios on the horizon?