Order Flow Habits for Week of September 1 – September 6, 2013
September 1 – AUD gapped up 30 pips or so on general risk appetite, but also that CNY Manufacturing PMI came out slightly higher at 51.0 vs expected 50.6 early in Sunday morning.
AIG Manufacturing Index at 46.4 / 42.0
MI Inflation Gauge m/m at 0.1% / 0.5%
Building Approvals m/m at 10.8% / 4.1% / -6.3%
Company Operating Profits q/q at -0.8% / 1.1% / 3.5%
AUD/USD: +10 pips FM
EUR/AUD: -17 pips FM
CNY HSBC Final Manufacturing PMI at 50.1 / 50.2 / 50.1
September 2 – Commodity Prices y/y at -7.3% / -9.7%
AUD rallied 100 pips on risk appetite, stronger China data, stronger AUd data, etc
AUD and NZD rallying on EUR/AUD and GBP/NZD longs unwinding
CNY Non-Manufacturing PMI at 53.9 / 54.1
Retail Sales m/m at 0.1% / 0.4% / 0.0%
Current Account at -9.4B / -8.3B / -8.7B
AUD/USD: -22 pips FM, -24 pips over next hour
EUR/AUD: +36 pips FM, +42 pips over next hour
AUD/JPY: -26 pips FM, -38 pips over next hour
September 3 – Cash Rate at 2.50% / 2.50% / 2.50%
RBA Rate Statement
– In Australia, the economy has been growing a bit below trend over the past year.
– This is expected to continue in the near term as the economy adjusts to lower levels of mining investment.
– The unemployment rate has edged higher.
– Inflation has been consistent with the medium-term target.
– With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the recent depreciation of the exchange rate.
– The Australian dollar has depreciated by around 15 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.
– At today’s meeting, the Board judged that the setting of monetary policy remained appropriate. The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target.
AUD/USD: +8 pips FM, ret full, then +54 pips over next hour
EUR/AUD: -10 pips FM, ret full, then -101 pips over next hour
AUD rallied a bit as it was more neutral tone, as they did not even mention the phrase: “inflation outlook could provide scope to ease policy further, should that be required to support demand.”
So they want to wait and see if demand will pick up from all the rate cuts and AUD depreciation, or if it won’t, then they can cut again, etc.
For some reason the market last week was selling AUD on risk aversion, or pricing in excessive AUD economy or China economy weakness, and that has been reversed this week.
Australia’s dollar climbed to a one-week high after the central bank left interest rates unchanged at a record low and omitted mention of further scope to ease monetary policy.
“The Aussie is rallying due to a small language change, as the market sees the removal of the scope line as a signal that they are done,” said Matthew Johnson, a Sydney-based interest-rate strategist at UBS AG. “It’s ironic as a higher Aussie dollar makes a cut more likely.”
AUD up for the day
AIG Services Index at 39.0 / 39.4
GDP q/q at 0.6% / 0.6% / 0.5%
y/y at 2.6% / 2.4% / 2.5%
AUD/USD: +30 pips FM, +90 pips rest of day
EUR/AUD: -51 pips FM, -130 pips rest of day
GBP/AUD: -57 pips FM, -118 pips rest of day
AUD/JPY: +32 pips FM, +84 pips rest of day
Some forex calendars had the forecast at 0.5%, and the y/y number came out higher, which helped cause AUD to rise.
Also, CNY HSBC Services PMI came out higher at 52.8 / 51.3 @ 21:45 EST
Today’s 1.5pt jump in HSBC’s Aug Services PMI to a five-month high of 52.8 is another reminder that some of us out there were getting a little, or way too cynical;
Today’s jump in China’s HSBC Aug services PMI to a 5-month high of 52.8 is another reminder that the bears may have gotten ahead of themselves;
September 4 – AUD rallying as it looks like market was caught short expecting worse number, but GDP came in at forecast or slightly higher.
“There is more confidence that the global economy is appearing to be robust,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “We generally are seeing investors putting on risk-on positions, particularly in the Aussie and the kiwi, following slightly stronger data in Australia and China.”
“The Aussie has jumped up on the GDP news because the number was a little better than markets were anticipating,” saidBesa Deda, the chief economist at St. George Bank Ltd. in Sydney.
“The move back above 90 cents now turns into near-term support and it looks like a lot of traders are happy to ride it a little higher in the short term,” said Stan Shamu, a strategist at IG Ltd. in Melbourne. “The RBA did sound a little less dovish and seem to have a wait-and-see approach given they’ve already put a lot of cuts through the system.”
Trade Balance at -0.77B / 0.10B / 0.24B
AUD/USD: -13 pips FM, ret slight, -6 pips over next few min
AUD/JPY: -13 pips FM, ret slight, then -8 pips over next few min
EUR/AUD: +21 pips FM, ret slight, then +8 pips over next few min
September 5 – AUD/USD down slight on USD str
AUD flat for the day
AIG Construction Index at 43.7 / 44.1
September 6 – AUD rallied across the board going into NY open on EUR/NZD and GBP/NZD selling
AUD/USD tripped stops above 0.9200, then fell
DO NOT BUY TOP TICK in AUD/USD
AUD up slight for the day
September 2 – CAD was not a beneficiary of today’s AUD and NZD strength.
CAD was flat. Consolidating
Barrier at 1.06 in USD/CAD
September 3 – EUR/CAD tripped downside stops, then small bounce
DO NOT SHORT BOTTOM TICK in EUR/CAD
DO NOT BUY TOP TICK in USD/CAD
Even though CAD was flat yesterday, today it gained slight strength going into the NY open.
Just like EUR/NZD and EUR/AUD liquidation, some EUR/CAD liquidation as well
Barrier at 1.0575 and 1.0600
September 4 – EUR/CAD fell alongside EUR/AUD and EUR/NZD in commodity rally today
Trade Balance at -0.9B / -0.3B / -0.5B
BOC Rate Statement
– Looking through the choppiness of the recent data, the level of Canada’s GDP is largely consistent with the Bank’s July forecast.
– Inflation in Canada remains subdued. With inflation expectations well-anchored, both core and total CPI inflation are expected to return slowly to 2 per cent as the output gap closes.
– Against this backdrop, the Bank has decided to maintain the target for the overnight rate at 1 per cent. As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate.
– Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target.
USD/CAD: -21 pips FM, -5 pips over next few min, then NS
EUR/CAD: -27 pips FM, -8 pips over next few min, then NS
CAD did not really go dovish. They just acknowledged the recovery is a bit slower than expected, and still reiterated that they want to normalize interest rates.
So CAD spiked a bit higher in the FM
September 5 – USD/CAD up on USD str
CAD/JPY up on JPY weak
AUD/CAD down slight
EUR/CAD down on EUR weak
CAD flat for the day
September 6 – More USD/CAD and EUR/CAD liquidation.
CAD rallied into the NY open
Employment Change at 59.2k / 21.2k / -39.4k
Unemployment Rate at 7.1% / 7.2% / 7.2%
USD/CAD: -49 pips FM, ret half, then -6 pips over next few hours
CAD/JPY: whipsaw as good CAD data battled it out with JPY bid from weaker NFP number
EUR/CAD: -15 pips FM, then some choppiness, then -28 pips over next hour
CAD rallying further on combo of better job gain and lower unemployment rate.
Although, I would say, it didn’t rally as much as I expected. Probably the market is not convinced that the good data will increase the rate hike fast enough. They probably think the normalization of rates will still occur slowly as per the BoC statement
DO NOT SHORT THE LOWS in GBP/CAD, EUR/CAD, etc.
The Canadian dollar strengthened to the highest level in more than two weeks as the nation added jobs at triple the pace forecast last month, indicating the recovery remains resilient as U.S. employment growth falters.
CAD up for the day
September 2 – SVME PMI at 54.6 / 55.9 / 57.4
I would say NMI, but it is possible that EUR/CHF: + 3 pips FM, 6 pips over next few min
EUR/CHF up 30 pips or so on general risk appetite.
The Swiss National Bank’s cap on the franc is still needed as a sudden appreciation of the currency cannot be ruled out in the current environment, the central bank’s chairman said on Monday.
“The minimum exchange rate will be kept in place for as long as necessary for monetary policy,” Chairman Thomas Jordan said in an interview with the Bieler Tagblatt.
The Swiss National Bank (SNBN)’s ceiling on the franc will stay in place as long as it is needed, according to Vice President Jean-Pierre Danthine.
“The cap isn’t there forever — it is there as long as it corresponds to monetary conditions,” Danthine said at a business reception in Lausanne, Switzerland.
“Inflation is basically zero,” Danthine also said. Swiss consumer prices ended 21 months of declines in July.
September 3 – GDP q/q at 0.5% / 0.3% / 0.6%
SNB said inflation is basically zero, so no need to remove the 1.20 floor yet.
Switzerland’s economy defied the recession that afflicted its neighbors to notch up a year of uninterrupted growth, underlining the importance of the country’s currency ceiling as it marks its second anniversary.
The easing of the debt crisis has led the franc to depreciate 2.1 percent against the euro this year, allowing the SNB to hold off on major interventions.
“The franc is still overvalued, albeit less strongly than in 2011,”
Israeli missile strike may have caused a 20 pip drop in EUR/CHF
Comparing EUR/JPY to USD/CHF, EUR/JPY should have more upside potential, since there is more JPY weak policies from Japan with all that QE, etc.
September 5 – EUR/CHF rose 40 pips on JPY weakness, risk appetite, etc.
EUR/CHF trying to grind higher despite today’s dovish ECB. Interesting sensitivity.
Some people probably see that shorting the CHF is similar to shorting the JPY, so they are shorting the CHF expecting risk appetite. Since the JPY has already sold off so much, some people are selling CHF, since it hasn’t sold off as much. Some people think the CHF has more room to depreciate due to market positioning elements, etc. That would be my theory.
But the SNB does not have any QE program.
Is EUR/CHF going to get caught short vol in the option market and spike higher?
September 6 – Foreign Currency Reserves at 434.2B / 434.3B
CPI m/m at -0.1% / 0.0% / -0.4%
This supports the SNB comment that inflation is basically zero
EUR/CHF hit 1.2400, then no more and pulled back
DO NOT BUY TOP TICK
CHF up for the day on lower NFP and Putin comments that Russia will arm Syria, etc.
S&P bounced back those losses, but EUR/CHF did not bounce back as strong.
September 2 – Spanish Manufacturing PMI at 51.1 / 50.1 / 49.8
Italian Manufacturing PMI at 51.3 / 50.7 / 50.4
Final Manufacturing PMI at 51.4 / 51.3 / 51.3
EUR doesn’t care about improving PMI’s. It won’t change the outlook for ECB interest rate policy. Especially with the low inflation rate, why would the ECB change policy?
At least with good US data, the Fed can come closer to tapering QE. But with good Eurozone data, what bullish EUR case is there?
September 3 – Spanish Unemployment Change at 0.0k / -5.2k / -64.9k
PPI m/m at 0.3% / 0.2% / 0.0%
EUR/USD took out downside stops, then bounced
DO NOT SHORT THE LOWS
Slight improvement of EZ data may not be enough to entice EUR buyers, unless it corresponds to hawkish change in monetary policy.
“Investors do not want to be long euros heading into the ECB meeting this Thursday,” said Geoffrey Yu, currency strategist at UBS. “We haven’t heard for a while from (President Mario) Draghi. We expect him to say conditions remain soft despite an improvement in the data and pledge to keep rates low.”
EUR/USD tripped stops below 1.3150, then rallied.
DO NOT SHORT THE LOWS
EUR down for the day
September 4 – Spanish Services PMI at 50.4 / 49.3 / 48.5
Italian Services PMI at 48.8 / 49.2 / 48.7
Final Services PMI at 50.7 / 51.0 / 51.0
Retail Sales m/m at 0.1% / 0.5% / -0.7%
Revised GDP q/q at 0.3% / 0.3% / 0.3%
ECB Asmussen: Interest rates low for good reason, but risks when too low for too long
September 5 – German Factory Orders m/ma t -2.7% / -0.7% / 5.0%
Minimum Bid Rate at 0.50% / 0.50% / 0.50%
ECB Press Conference:
– Underlying price pressures in the euro area are expected to remain subdued over the medium term. In keeping with this picture, monetary and, in particular, credit dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term.
– At the same time, real GDP growth in the second quarter was positive, after six quarters of negative output growth, and confidence indicators up to August confirm the expected gradual improvement in economic activity from low levels.
– It thereby provides support to a gradual recovery in economic activity. Looking ahead, our monetary policy stance will remain accommodative for as long as necessary, in line with the forward guidance provided in July. The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time.
– annual inflation rates are expected to remain low in the coming months, owing in particular to energy price developments. Taking the appropriate medium-term perspective, underlying price pressures are expected to remain subdued, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery. Medium to long-term inflation expectations continue to be firmly anchored in line with price stability.
– Would consider cut if unwarranted developments in money markets
– Our mandate talks about price stability
– We see no inflation in Germany
– We are alert to geopolitical risk that may come from Syrian situation
– Very cautious about recovery
– Haven’t discussed any coordinated action with other central banks
– There was a discussion of interest rate cut
EUR/USD: -85 pips over one hour
EUR/GBP: -32 pips over one hour
EUR/JPY: -90 pips over one hour
EUR/CHF: -15 pips over half hour
EUR/AUD: -87 pips over one hour
EUR probably slid 40 of those pips on Draghi saying discussed rate cut
EUR/USD tripped light topside stops, then fell on combination of lower US unemp claims,
ECB still being dovish and keeping rates low,
And then the higher US ISM Non-Manufacturing PMI
Since Eurozone growth is still weak compared to other countries, the Euro fell as they reiterated cautious recovery, subdued inflation, rates at current or lower levels for an extended period of time, and discussion of rate cut.
Combine that with this week’s stronger US data and it shows the contrast between U.S. and Eurozone growth rates.
ECB may be a bit concerned about the rise in yields aka money market rates.
It seems some members were considering rate cuts in order to stop the surge in bond yields, which with the weak recovery and already low 1.3% inflation rate, it was a threat to both the recovery and price stability.
- Improving economy seems to be staying ECB’s hand on new action
- Rate cut discussed but chance of it happening seems to be receding
- ECB to be “particularly attentive” on money markets, not stepping in yet
“Draghi is still not very confident about the economic recovery, and that’s contributing to the weakness in the euro,” Douglas Borthwick, head of foreign exchange at Chapdelaine & Co. in New York, said in a telephone interview. “The market knows very well that the ECB is going to be on hold with a bias towards lower rates for the foreseeable future.”
“The downward revision to 2014 growth suggests the ECB, as a whole, is looking through a lot of the recent upside in the data, and cuts were hinted at today,” said Stephen Gallo, European head of currency strategy at Bank of Montreal in London. “The Fed is moving towards taper, and other major central banks are doing what they can to resist the upward pressure on rates.”
Mario Draghi said the European Central Bank is “ready to act” as rising money-market rates threaten his drive to reassure investors that borrowing costs will stay low. Bond yields extended their gains
“We will remain particularly attentive to the implications that these developments may have to the stance of monetary policy,” the ECB president said at his monthly press conference in Frankfurt today after the bank left its benchmark rate at a record low of 0.5 percent. “I’m very, very cautious about the recovery. I can’t share enthusiasm, it’s just the beginning. The shoots are still very, very green.”
“The assessment of the upturn in economic conditions was also rather cautious when set against the flood of improving data.”
"ECB President Draghi toed the line that relatively higher
interest rates could threaten the recovery, and that the central
bank remains 'prepared to act' should the conditions justify a
September 6 – German Trade Balance at 14.5B / 15.9B / 15.8B
French Gov Budget Balance at -80.8B / -59.3B
French Trade Balance at -5.1B / -4.5B / -4.5B
German Industrial Production m/m at -1.7% / -0.3% / 2.0%
EUR/USD tripped light downside stops, then bounced.
Spiked further higher on US NFP where it had lackluster job gain.
Barrier at 1.3100
EUR flat on the day
September 2 – Manufacturing PMI at 57.2 / 55.2 / 54.8
GBP/USD: +37 pips FM, +4 pips over next few min, then NS
EUR/GBP: -21 pips FM, -3 pips in second min, then NS
GBP/JPY: +40 pips FM, +13 pips over next few min, then NS
GBP was up during yesterday on risk appetite from lack of Syria strike. Then continued moving higher prior to release of good Manufacturing PMI.
Then moved higher on good Manufacturing PMI.
GBP up going into NY open.
The pound rose to the strongest level versus the euro in two months after an index of U.K. manufacturing expanded to the most since February 2011, adding to signs the economy is recovering.
“The U.K. PMI is another piece of good news for the pound,” said Peter Frank, global head of currency strategy at Banco Bilbao Vizcaya Argentaria SA (BBVA) in London. “It’s another piece of evidence to suggest the recovery in the U.K. economy is broad-based. Almost every data set has been quite good over the past two months.”
BRC Retail Sales Monitor y/y at 1.8% / 2.2%
September 3 – Construction PMI at 59.1 / 58.4 / 57.0
GBP/USD: +24 pips FM, then NS
EUR/GBP: -12 pips FM, then NS
GBP/USD tripped topside stops, then fell
DO NOT BUY TOP TICK
Potential for Vodafone deal to support sterling.
The pound rose for a fifth day versus the euro as a report showed a gauge of U.K. construction based on a survey of purchasing managers increased for a fourth month in August, reaching the highest in almost six years.
EUR/GBP fell and took out 0.8450 barrier
GBP up for the day
BRC Shop Price Index y/y at -0.5% / -0.5%
September 4 – Services PMI at 60.5 / 59.3 / 60.2
GBP/USD: whipsaw FM, then +43 pips over next two hours
EUR/GBP: whipsaw FM, then -20 pips over next two hours
GBP/JPY: whipsaw FM, then +40 pips over next two hours
GBP/CHF: whipsaw FM, then +40 pips over next two hours
GBP rallied to take out topside stops on better UK data, then fell back
DO NOT BUY TOP TICK
The market would like to bid up GBP with all the good data, but it is reluctant to do so, because it is unsure if the good data will translate into cutting down the time the UK stays in low rate mode. That uncertainty and the fact that Carney said he can do more stimulus if the economy needs it, is causing the market to be reluctant to bid up the GBP too aggressively.
Will more members dissent against the forward guidance about not consider raising interest rates until unemployment falls to 7%?
The pound strengthened to a three-month high against the euro as a report showed U.K. services expanded at the fastest pace since 2006, boosting demand for Britain’s currency.
Under the central bank’s forward guidance, the MPC plans to keep its key interest rate on hold as long as unemployment exceeds 7 percent. The jobless rate was at 7.8 percent, according to data on Aug. 14.
GBP/USD tripped topside stops again
DO NOT BUY TOP TICK
September 5 – Official Bank Rate at 0.50% / 0.50% / 0.50%
Asset Purchase Facility at 375B / 375B / 375B
GBP/USD: +25 pips FM, ret slight, then +17 pips over next half hour
EUR/GBP: -15 pips FM, ret slight, then -15 pips over next half hour
GBP/JPY: +25 pips FM, ret slight, then +15 pips over next half hour
Strange, even the GBP is getting bid up on no change in rates or QE program.
Then GBP/USD it tripped topside stops, then fell back
DO NOT BUY TOP TICK
September 6 – Halifax HPI m/m at 0.4% / 0.7% / 0.9%
Manufacturing Production m/m at 0.2% / 0.3% / 2.0%
Consumer Inflation Expectations at 3.2% / 3.6%
Trade Balance at -9.9B / -8.2B / -8.2B
Industrial Production m/m at 0.0% / 0.2% / 1.3%
GBP/USD: -20 pips FM, -12 pips over next half hour
EUR/GBP: +9 pips FM, +10 pips over next half hour
GBP/JPY: -20 pips FM, -3pips over next few min, then NS
GBP/CHF: -18 pips FM, -14 pips over next half hour
EUR/GBP tripped stops below 0.8400, taking out barrier, then bounced
GBP flat on the day
September 1 – USD/JPY, GBP/JPY, etc gapped higher as Obama delaying Syria strike
USD/JPY tripped topside stops above 98.50. It is acting right for the bullish side, it just needs a catalyst. Because there are downside risks as well such as potential for Syria strike to happen, just delayed by 1 week, potential dovish Fed, etc. The NFP on Friday will be key. It is the last NFP before the Fed meets in September. A strong NFP can cause an upside USD/JPY breakout.
Capital Spending q/y at 0.0% / -2.0% / -3.9%
September 2 – Rumor that the reason for the JPY slide today is partially because Abe won backing for sales-tax increase.
The yen fell to the lowest level in a month against the dollar as Japan’s Prime Minister Shinzo Abe won backing for a sales-tax increase, signaling he is making progress on policies that have helped weaken the currency.
“I expect a sales-tax hike to sustain optimism toward Abenomics, resulting in a weaker yen,” said Kengo Suzuki, the chief currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest bank, referring to Abe’s economic policies. “For Japan’s monetary, fiscal and growth policies to be properly executed, a higher levy is needed, and an increase in the sales tax can be seen as the key to these three arrows of Abenomics.”
The dollar traded near a one-month high against the yen on Monday as diminishing worries about a military strike against Syria reduced demand for the safe-haven Japanese currency.
But the delay in the possible strike against Syria after U.S. President Barack Obama decided to seek congressional approval, thus opening the risk that Congress will not support such action, has reduced market tension and demand for the safety of the yen.
“Backing of the sales tax paves the way for a continuous easing of monetary policy by the Bank ofJapan. This is hurting the yen,” said Arne Lohmann Rasmussen, head of FX research at Danske Bank.
Monetary Base y/y at 42.0% / 41.3% / 38.0%
Average Cash Earnings y/y at 0.4% / 0.8% / 0.6%
September 3 – Do not buy top Tick in GBP/JPY
Overall, I would expect the USD/JPY to breakout higher above 104 at some point. Japan is going to do a lot of QE over the next 6 months, etc. It is just looking for a bullish catalyst, and I am slightly concerned over some macro risks like Syria strike, debt battle, etc. If it wasn’t for those, I would be very bullish on it.
JPY trying to sell off again on increasing global growth signs
“Our long-term view is that there will be yen weakness,” said Derek Mumford, a director at Rochford Capital, a foreign-exchange risk-management company in Sydney. The currency will “inevitably weaken, particularly against the dollar with the prospect of winding back of QE in the very near future by the Fed and the very fact that the BOJ will keep printing money.”
Israeli missile test may have caused a 30 pip drop in USD/JPY, which was bought back.
USD/JPY tripped light topsides tops on stronger US ISM manuf, then fell on Boehner comments that he will support President.
DO NOT BUY TOP TICK in USD/JPY
USD/JPY did bounce back and make part of the losses. It seems to be partially immune to the Syria tension. Not fully, but just partially effected. It is looking for a catalyst, either from the US side or from the Japan side to go higher.
JPY down for the day
There is a divergence. JPY got weaker for the day, while S&P fell. Which is the correct move?
- EconMin Amari – final decision on sales tax early October (yesterday).
- BoJ reported to be considering additional ease if sales tax to be hiked.
September 4 – USD/JPY tried to take out topside stops, but unable to do so.
GBP/JPY tripped topsides tops, then fell back
DO NOT BUY TOP TICK
I find it difficult for the Nikkei and USD/JPY to keep on shrugging off the Syria crisis, etc. Especially without any concrete JPY weakening steps from Japan. I would expect them to fall back. Definitely do not buy top tick in them.
That could be one reason for JPY bearishness. The BoJ can contemplate easing further if the sale tax is hiked. That could definitely be a bullish Nikkei and USD/JPY catalyst.
But even then, that is tentative, not set in stone, and if risk aversion comes, I would expect that to swamp any Japan QE, etc.
The Bank of Japan began a two-day policy meeting today. The central bank will probably refrain from adding to the unprecedented easing unveiled in April, according to a Bloomberg News survey of economists.
“Some investors are hopeful that should they increase the sales tax, they will also add some additional monetary easing or an extra budget as a package,” said Yoshihiro Ito, chief strategist at Okasan Online Securities in Tokyo.
Monetary Policy Statement
The Bank of Japan said the world’s third-largest economyis recovering and signaled it would increase its huge stimulus only if a planned sales tax hike was to threaten its goal of lifting inflation to 2 percent in two years.
Governor Haruhiko Kuroda said on Thursday there was no need to ease policy further now after a slew of data saw the central bank declare the economy is recovering, its most upbeat view since March 2008, before the global financial crisis.
He called on the government to proceed with the two-stage doubling of the sales tax, saying it would not derail the economy and warning that there was little fiscal and monetary policy could do once trust in Japan’s finances was lost.
“It’s uncertain how government bond and stock prices would react if the sales tax hike were to be delayed,” Kuroda told a news conference after the BOJ’s policy meeting.
“But if trust in Japan’s finances is lost as a result and lead to a sharp fall in bond prices, there’s no choice but to tighten fiscal policy. It’s also very hard to deal with such a situation with monetary policy too,” he said.
Easing the pain on the economy from the tax hike should be easier because policymakers only need to loosen fiscal and monetary stimulus further, Kuroda added.
“Even if the sales tax is raised as scheduled, we don’t expect the economy to falter,” he said. “If risks materialize and threaten our 2 percent inflation target, we of course will respond appropriately.”
As widely expected, the central bank voted unanimously on Thursday to maintain its April pledge to increase base money, or cash and deposits at the central bank, at an annual pace of 60 trillion yen ($603 billion) to 70 trillion yen.
The BOJ has consistently called for the need to fix Japan’s tattered finances and has argued that the sales tax hike won’t threaten the economic recovery or delay an end to deflation.
While critics have called for a delay or watering down of the tax hike for fear of derailing the budding recovery, the government is leaning toward proceeding as scheduled and cushioning the impact with fiscal spending.
That may add pressure on the central bank to offer further stimulus, although Kuroda said there was no need for pre-emptive action.
“We’re seeing clearer signs a positive cycle of income and expenditure is kicking in for both the corporate and household sectors,” Kuroda said. “Japan’s economy is moving in line with our forecast.”
“Japan’s economy is recovering moderately,” the BOJ said in a statement, revising up its assessment from August when it said the economy was “starting to recover moderately.”
These statements are slightly bullish for USD/JPY, GBP/JPY, etc, since Kuroda is saying they can ease further if the sales tax hike is going to slow down the recovery.
September 5 – USD/JPY tripped topside stops.
DO NOT BUY TOP TICK
“It is particularly important for Japan to achieve both economic growth and fiscal consolidation as our country’s fiscal situation is severer than other countries,” Abe was quoted by a Japanese official as saying.
Japan’s public debt is twice the size of its $5 trillion economy, which is the worst ratio among industrial countries.
If there’s no change in the plan, Japan’s sales tax will be raised to 8 percent from 5 percent in April and to 10 percent in October 2015, a move seen as crucial in funding bulging welfare costs and fixing Japan’s dire fiscal situation.
September 6 – Leading Indicators at 107.8% / 107.9% / 107.2%
USD/JPY retraced 60 pips off the highs
DO NOT BUY TOP TICK
JPY up for the day on lower NFP and Putin comments about arming Syria
September 1 – Overseas Trade Index q/q at 4.9% / 3.9% / 4.2%
NMI or perhaps +5-10 pip NZD rally
September 2 – NZD also rallied big along with AUD on risk appetite, better China data, etc.
AUD and NZD rallying on EUR/AUD and GBP/NZD longs unwinding
ANZ Commodity Prices m/m at 0.7% / 0.6%
September 3 – EUR/NZD tripped downside stops, then NS
DO NOT SHORT THE LOWS
NZD flat for the day
September 4 – NZD rose in sympathy with AUD
Whatever is good for AUD, is probably going to help NZD economy as well. And NZ is closer to rate hikes than AUD probably
You don’t want to short NZD/USD at the lows because they are close to rate hikes, even though the RBNZ does not want the NZD to appreciate in value. Shorting NZD/USD at the lows risks macro exhaustion, especially if there is no USD centric strength from good US economy.
September 6 – NZD rallied across the board with AUD on EUR/NZD and GBP/NZD selling
September 2 – USD flat for the day
September 3 – Final Manufacturing PMI at 53.1 / 53.9 / 53.9
ISM Manufacturing PMI at 55.7 / 54.2 / 55.4
Construction Spending m/m at 0.6% / 0.3% / 0.0%
ISM Manufacturing Prices at 54.0 / 51.6 / 49.0
EUR/USD: -22 pips FM, -4 pips over next few min, then NS
GBP/USD: -25 pips FM, then NS
USD/CHF: +20 pips FM, +6 pips over next few min
USD/JPY: +29 pips FM, +10 pips over next few min
AUD/USD: -20 pips FM, then NS, fade able
NZD/USD: -20 pips FM, -10 pips over next few min, then NS
USD/CAD: +13 pips FM, then NS
Bonds: -17 ticks FM, -20 ticks over next hour
Crude: NMI FM, but did rise +$1.00 over next fifteen minutes
Gold: -$5 FM, -$1 over next few min, then NS
Copper: +0.03 cents over twenty min
USD not able to sustain the rally.
Bonds cratered on better data
Gold fell as well, but nowhere near as much as bonds. Gold is being very resilient.
Crude oil rallied decently on the higher manuf data
S&P, more choppy action, but it is trying to rise.
The foreign exchange market doesn’t seem to be fully convinced that a taper is going to happen in Sept, or not convinced a big one is going to happen. Or the USD is not as sensitive to the taper as say, Bonds are.
The central bank will probably cut its $85 billion in monthly bond purchases by $10 billion at its next meeting, according to the median estimate in a Bloomberg survey of 48 economists conducted Aug. 9-13.
USD flat today
September 4 – Trade Balance at -39.1B / -38.7B / -34.5B
Fed Kocherlakota (nonvoting): rates will be kept low until unemployment falls below 6.5%
– FOMC forecasts suggest it should be providing more stimulus to the economy, not less
September 5 – IBD/TIPP Economic Optimism at 46.0 / 46.2 / 45.1
Challenger Job Cuts y/y at 56.5% / 2.3%
ADP Non-Farm Employment Change at 176k / 175k / 198k
EUR/USD: +10 pips FM, +10 pips in second min, then NS
GBP/USD: same as above
USD/CHF: -8 pips FM, -15 pips over next ten min or so
USD/JPY: -21 pips FM, then NS
AUD/USD: same as EUR/USD
NZD/USD: +18 pips FM, then NS
USD/CAD: -5 pips FM, then NS
EUR/JPY: -26 pips FM, then NS
EUR/CHF: -15 pips in gradual move over fifteen min
Bonds: -10 ticks / +10 ticks whipsaw FM
Gold: +$2 FM, then NS
Unemployment Claims at 323k / 332k / 332k
Revised Nonfarm Productivity q/q at 2.3% / 1.6% / 0.9%
Revised Unit Labor Costs q/q at 0.0% / 0.9% / 1.4%
GBP/USD: -12 pips FM, then NS
USD/CHF: +11 pips FM
USD/JPY: +12 pips FM, then NS
AUD/USD: -12 pips FM, then NS
Bonds: -9 ticks FM, then NS
Gold: -$6 FM, -$3 over next hour
ISM Non-Manufacturing PMI at 58.6 / 55.2 / 56.0
Factory Orders m/m at -2.4% / -3.4% / 1.6%
EUR/USD: -12 pips FM, ret half, then -30 pips over next hour
GBP/USD: -15 pips FM, -24 pips over next half hour
USD/CHF: +12 pips FM, ret half, then +30 pips over next hour
USD/JPY: +18 pips FM, +9 pips over next half hour
AUD/USD: -10 pips FM, ret full, then -20 pips over next half hour
NZD/USD: -8 pips FM, ret full, then -15 pips over next half hour
USD/CAD: +7 pips FM, ret full, then +24 pips over next half hour
EUR/JPY: +15 pips FM
EUR/CHF: +10 to +15 pips in gradual move
Bonds: -11 ticks FM, ret full, then -7 ticks over next few hours
Gold: -$3 FM, ret full, then -$20 rest of day
The dollar rose to a seven-week
peak against the euro on Thursday after the head of the European
Central Bank said its Governing Council expects key ECB interest
rates to remain at present or lower levels for an extended
If the US economy is the most resilient to higher yields, that is a USD advantage and potential bullish catalyst. Since the UK and the ECB are more scared of the higher yields. Of course the Fed is slightly concerned about it as well, but if the data continues to be good, then the Fed can get less worried about it, and taper, etc.
September 6 – Non-Farm Employment Change at 169k / 178k / 104k
Unemployment Rate at 7.3% / 7.4% / 7.4%
EUR/USD: +57 pips FM, +11 pips in second min, then NS
GBP/USD: +86 pips FM, +25 pips in second min, then NS
USD/CHF: -52 pips FM, then NS
USD/JPY: -92 pips FM, then NS
AUD/USD: +47 pips FM, +14 pips over next few min
NZD/USD: +62 pips FM, +11 pips in second min, then NS
USD/CAD: -50 pips FM, then NS
EUR/JPY: -78 pips FM, then NS
EUR/CHF: -22 pips FM, then NS
S&P: whipsaw, uncertain
Bonds: +41 ticks FM, + 3 ticks over next few min, then NS
Crude: whipsaw FM, then gradual move higher, uncertain whether due to NFP report
Gold: +$27 FM, +$5 over next few min, then NS
USD sold off as there was a big downward revision to previous month. Bonds surged initially up to 130, but then retraced.
Gold held up reasonably well and held up the gains
Crude was bid on better data from previous few days and some potential Syria bid combo
Is the Fed going to focus on the decline in the unemployment rate to 7.3%, which is close to their target of 7% for ending all of QE? Or will they focus on the lackluster 168k jobs gain? There was also a downward revision that was pretty bad.
Fed Evans: Nervous about low level of inflation
– Fed is mindful of Syria, debt limit uncertainty
– Financial stability not a major concern in taper debate
– Fed can act at any FOMC meeting
– Will attend Sept meeting with open mind
– Continuous challenges from falling labor force participation
Is the USD that weak today, that the market chooses to focus on the missed job gains, rather than the decline in unemployment rate?
The dollar fell the most in more than eight weeks after U.S. employers added fewer workers last month than forecast, damping speculation the Federal Reserve will cut bond purchases this month.
Payrolls in the U.S. climbed less than projected in August and gains for the prior two months were revised down, pointing to an expansion that’s struggling to gain momentum.
Fed George: FOMC should start reducing bond purchases at next meeting
– Wants QE to end in 1H of 2014
– Unwind will likely trigger some market volatility
USD down on the day
September 1 – Crude gapped down almost $3 – $4 since Obama wants to go through Congress first and get approval for Syria strike.
Crude gapped lower -$3 – $4
Then bounced back quickly to make back half the losses.
September 2 -Crude made back another $1 of previous day’s losses or so. It could be risk appetite, higher China and EZ manufacturing causing prices to slightly rise.
Even if Congress says no, Obama still said he reserves the right to act with his executive powers.
But it seems he will wait until Congress gets back next week and see what they say.
“The postponement of any intervention in Syria while governments ask their politicians for authorization has taken some of the steam out of oil prices,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London.
September 3 – Crude trying to rally past 107.50 in Europe trade
Israeli missile test may have caused a +0.70 cent spike in European trade
Crude rallied +$1.00 on stronger US ISM manuf data, then retraced
Crude then tried to rally on comments from Bohner that he supports the President.
West Texas Intermediate crude advanced as U.S. President Barack Obama sought support in Congress for a military strike on Syria, bolstering concern that oil shipments from the Middle East will be disrupted.
September 4 – Crude retraced in profit taking from 108.70 to 107.60
Crude deflated down to 107.00 as it seems some safe haven bid removed
DO NOT SHORT THE LOWS
September 5 – Even if Syria risk aversion fears subside, there is still the bullish case of increasing US growth, global growth, which can cause Crude to go higher.
So don’t short it. Look for long opportunities, since you get the benefit of Syria risk premium if it comes and can bet on global growth, etc.
Crude consolidating on the daily charts
Crude Oil Inventories at -1.8M / -1.9M / 3.0M
Crude Oil: -20 cents FM, then NS
September 6 – Crude oil grinding higher, taking out stops above 109.00
Crude oil continuing to go higher after mix NFP.
Rising to take out stops above 109.50
Crude may have rose as Putin said to support Syria and arm them
West Texas Intermediate crude rose to a two-year high as Russian President Vladimir Putin said his nation will assist Syria if it’s attacked, raising concern that escalating tension will disrupt Middle East oil exports.
“A military strike is not fully priced in,” said Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich who estimates Brent may rally to $127 a barrel should an attack be launched. “It’s only a question of time until the U.S. is active as Obama is really committed to lead a military strike and can’t afford to lose face.”
Jitters over a U.S. military strike against Syria remained,
and drove up U.S. crude oil futures more than $2 a barrel.
September 1 – Gold dropped -$20 on Obama delaying Syria strike.
Gold sold off more than bonds during Sunday gap. So it looks like Gold is acting weaker than Bonds
Gold recovered most of the losses. So did Bonds. Crude did not recover all the losses yet.
September 2 – Gold fell yesterday, but rebounded to be roughly flat for the day going into NY open
“The increase in gold has been because of some temporary factors,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $112 billion of assets. “As I look forward, some of these things start to unwind. With better economic news on the horizon, it means taper terror is back in the gold market.”
Gold is acting decent. It sold off on removal of safe haven bid, but it bounced back. So if Syria crisis comes again, it can rise, and if risk appetite comes back again, it is possible it will remain flat or not fall too much. it just needs a catalyst. Physical demand is not much of a catalyst. It needs a macro catalyst.
DO NOT SHORT THE LOWS
September 3 – Gold flat going into NY open, while Bonds are down.
Gold is acting better than bonds for the bullish side.
I don’t know why exactly, but sensitivity is bullish for gold, so don’t fight it.
It doesn’t have a big bullish catalyst, so it cannot surge higher yet.
An Israeli missile test may have caused a +$13 surge in European trade
Gold swung between gains and losses in London as investors weighed an Israeli missile-defense system test and prospects for less U.S. stimulus.
Gold only fell slight on higher US ISM manuf data. Gold normally was supposed to sell off another $5 – $10 or so. But it didn’t. It was bid on the FM spike down.
Bonds continuing to sell off, even as Gold flat
Gold continuing to grind higher today.
It seems like nirvana for gold bulls all of a sudden. Gold is flat, while bonds down on general risk appetite earlier in the day. Then gold doesn’t sell off much on better US data. Then Gold is rising on safe haven bid returning.
That is a lot of bullish sensitivity.
Gold futures rose for the first time in a week on demand for a haven asset as U.S. PresidentBarack Obama won support from leaders in Congress for a military strike on Syria.
September 4 – Gold retraced from 1415 to 1400 going into NY open
Gold was acting great yesterday. Today, not so great. Today it is acting terrible.
Gold is down at the NY open, while bonds flat
Gold safe haven bid seems to have been deflated today as S&P rose
September 5 – Gold tripped downsides stops, then bounce.
Then fell on lower unemp claims
Then fell further on higher US ISM Non Manuf PMI
Is gold going to follow bonds massively lower? Or will the mystery bids come back and prop up prices.
Because bonds are making new lows, while Gold is starting the fall from the retracement highs
Gold fell to the lowest in more than a week as better-than-expected U.S. economic data reinforced the case for the Federal Reserve to slow stimulus.
Gold acted terrible today.
Gold took out stops below 1372.
“Stronger U.S. data is getting the market jittery again,” Tom Power, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “The strength in the dollar is working against gold.”
September 6 – Gold tripped light bottom stops below 1365, then bounced
DO NOT SHORT BOTTOM TICK
Gold tripped light downside stops again pre NFP
Gold spiking higher on NFP, with it focusing on the lower job gain of 169k
Gold spiked higher by +$30 over five min or so
Gold rebounded from a two-week low as weaker-than-forecast gains in U.S. payrolls revived prospects for an extension of economic stimulus by the Federal Reserve, stoking demand for the metal as a store of value.
Gold acting a lot better than bonds today. Gold is holding more of the gains than bonds are.
There are still people unwinding long bond positions and selling out of them to fund equity purchases and other risk assets from the improving econ. Since the bond market is bigger and there was a multi year bull market, that unwinding is taking a long time.
With gold, a lot of that unwinding happened a few months ago in the big sell off.
September 1 – S&P gapped up on Obama seeking Congress approvals for Syria strike. The strike being delayed caused a tad bit of bullishness.
S&P +9 pts gap up
September 2 – Risk appetite returning to the market as imminent Syria strike is off the table. Then risk appetite came back more on decent China data, AUD building approvals, Eurozone data, and GBP data. So many countries around the world are bouncing back.
It is labor day and some shorts were also squeezed and the market rallied
Stocks climbed around the world and copper rallied as manufacturing in China and Europe expanded and prospects of an imminent strike on Syria faded. The yen weakened, bonds declined and crude oil fell for a third day.
“Growth expectations globally continue to improve,” Michael Kurtz, Hong Kong-based chief global equity strategist at Nomura Holdings Inc., Japan’s largest brokerage, said in an e-mail. “An ongoing rebalancing in China keeps growth there largely on a moderating trend.”
European stocks advanced the most in eight weeks as a gauge of Chinese manufacturing activity exceeded economists’ estimates. U.S. index futures and Asian shares also climbed.
“A short-term lift in business-cycle indicators in China is dampening market skepticism short term, so risk appetite is revived as we are heading into a week of vital importance for the direction of equities,”
I would prefer NOT to go with these ODVE that just happened over the past 24 hours. I am not going to chase these ODVE on Labor day. Better to wait
September 3 – DO NOT BUY TOP TICK in S&P
Israeli missile test may have caused a 4pt drop in European trade
“Manufacturing is finally increasing,” said James Kinghorn, who helps oversee 146 billion pounds ($227 billion) at Scottish Widows Investment Partnership in Edinburgh. “Mergers and acquisitions activity is a good start as it looks like companies are more comfortable in putting money to work.”
Will market shrug off higher yields, and potential Syria strike, Fed taper and just keep going higher?
S&P rising during NY open, tripping light topside stops above 1649
Global stocks rose yesterday as data showed China’s manufacturing index increased to a 16-month high in August, while other gauges showed euro-area factory output expanded at a faster pace than initially estimated in August.
There is a lot of money that would like to be put into equities again. A wall of money. They are just looking for slight catalysts to cause it to rise. Some participants want clarity as to the effects of the Syria situation. Others are looking for clarity as to if the rise in bond yields and Fed taper will slow growth or not. If they can get clarity on those, then the market can rise again.
There is a big difference between shorting S&P at the all time highs @ 1,700 and shorting them after they have already dropped to 1625. The reward risk is different. It is an uptrend, so you don’t short after it has retraced so much, unless you have an imminent bearish catalyst, etc. You look to buy after it has retraced.
People are pulling money out of bond funds because they still expect sufficient growth to cause the Fed to gradually taper. The environment is different from 2011 and 2012, where there was a big bond bull market because of a lot of QE and insufficient growth. This year, growth is picking up, becoming more sufficient for the Fed to taper QE. Unless of course econ data severely deteriorates from this moment.
The market is torn between improving econ on the bullish side, and the Fed taper and higher yields from the other side causing concern it can slow growth. Conflicting macro forces.
DO NOT BUY TOP TICK in S&P
S&P falling as Boehner said he will support President on Syria.
Macro sellers still exist on Syria tension. They just have to be activated by certain comments by key officials, getting closer to the Congressional vote, etc.
A combination of Syria tensions + Fed taper and higher yields can be a potent bearish catalyst. But I would assume that the Fed will delay taper or only taper slightly to take into account geopolitical tensions and higher yields.
Part of it also depends on what happens after the strike? If there is no retaliation or escalation, then S&P can easily bounce higher. If there is a broader Mideast escalation, then it can fall further.
The market is currently not pricing in an escalation of the Syria crisis, not an upside surge of crude oil prices.
S&P bounced towards the close.
DO NOT SHORT BOTTOM TICK
“There are a number of catalysts that could drive volatility higher in September such as an escalation in the Syrian crisis, further deterioration in emerging markets, or larger-than-expected tapering by the Fed,”
Nikkei surging in Asian trade
Nikkei able to reach 14,000, then some profit taking
Nikkei corrected the divergence with USD/JPY from last Friday, and then rallied some extra more.
Postponing an increase would have a large and negative impact on Japan’s financial markets, said 22 of 32 economists in a Bloomberg News survey. JPMorgan Chase & Co. Senior Economist Masamichi Adachi said a delay could push stocks down 10 percent, wiping out $418 billion in market capitalization, while UBS AG Economist Daiju Aoki predicted a sell-off as steep as 12 percent in the Nikkei 225 Stock Average.
“Abe doesn’t have much choice as delaying the sales-tax plan would be too risky,” said JPMorgan’s Adachi, who is a former Bank of Japan official. “Abe would lose all of the trust that has buoyed Japanese markets so far.”
Abe’s decision is seen as a test of his commitment to reining in Japan’s debt, now more than double gross domestic product. If he puts the sales-tax increase on ice, the shock to the markets could cause the 10-year government bond yield to surge and the yen to rise above 95 yen per dollar, said UBS’s Aoki. The yen traded last night at weaker than 99 per dollar.
September 4 – S&P, Nikkei, USD/JPY, etc, they all would like to go higher. There are just some macro risks that are restraining the topside.
S&P and Nasdaq surging at the NY open again.
Nasdaq tripped topside stops above 3113.
DO NOT BUY TOP TICK
Higher vehicle sales despite the increase in yields. Is the economy handling the higher rates just fine?
Nikkei rallied to take out stops above 14,000
DO NOT BUY TOP TICK
“If the U.S. does take military action against Syria, there’s a chance it won’t end quickly and oil prices will remain high,”
Prime Minister Shinzo Abe will announce his decision on Oct. 2 on whether to raise the sales tax, Kyodo News reported today, citing an unidentified person in the government.
September 5 – S&P tripped topside stops, then fell back
Nasdaq tripped light topside stops, then fell back
YM tripped topside stops, then fell back
DO NOT BUY TOP TICK
Part of the market believes the economy is strong enough and resilient enough to handle the Fed taper and higher yields, and believe it can grow sufficiently and corporate earnings can grow, etc. So they are trying to bid up the market.
"It seems like the market is tentatively concluding that any
military action may not last that long and its impact on the
world economy will be limited. The market is coming back to
business as usual," said Bart Wakabayashi, head of forex at
State Street Global Markets in Tokyo.
Then again, if you want to bet on a Syria crisis risk aversion, and high yields, etc causing a slowdown, then the best time to do it is when the S&P rises sharply. That would be much better than selling it after it trips downside stops.
The S&P is currently resilient to higher yields, and attempting to shrug off taper fears and Syria concerns. That is so far. But it is getting closer to next week when Congress will vote.
Nikkei tripped light topside stops, then fell back
DO NOT BUY TOP TICK
Nikkei didn’t seem disappointed at all about lack of any imminent BoJ extra QE.
It just consolidated for the day, ready to go higher again along with global risk appetite.
It seems the combination of expectation that sales tax will pass, eases concerns about the Japanese government finances, and with the combination that if anything bad does happen, the BoJ can increase QE, or the government can raise fiscal spending, etc. That seems to have soothed the market and caused a rise higher in Nikkei, USD/JPY, etc, with a further rise likely to happen as long as any risk aversion exogenous events do not happen.
September 6 – S&P tripped light downside stops in Europe session, then bounced higher to take out topside stops
DO NOT BUY TOP TICK
S&P either fell due to general profit taking, fear of Fed taper, or Putin saying he is arming and continue to arm Syria.
Then it bounced back sharply to retest the highs.
Equities briefly turned lower earlier in the day, falling as much as 0.9 percent, after Russian President Vladimir Putin said at the Group of 20 summit that his country will assist Syria if strikes are launched.
S&P tripped topside stops again, then fell back.
DO NOT BUY TOP TICK
Nikkei fell for the day from the Tokyo open
Nikkei acted terrible able the US NFP report. Probably because USD/JPY dropped, causing Nikkei sellers
September 1 – Bonds dropped -10 ticks or so on Obama delaying Syria strike
Bonds did not sell off as much as Gold did during Sunday gap.
September 2 – Bonds sold off another half point on risk appetite in European trade.
Bonds sold off more than Gold on risk appetite.
So in this sense, there is more safe haven bid built into the gold market. So if there is lack of safe haven, gold can fall a bit more.
But there is more risk aversion built into the bond market. So if risk appetite comes back with higher economic data, bonds can fall more than gold.
But, I might be trying to read too much into the past two day’s trading action.
September 3 – Bonds tripped light downside stops, then bounced
DO NOT SHORT BOTTOM TICK
Bonds are not acting good. There was an Israeli missile test and bonds barely went up, only +7 ticks, then fell back, while Gold actually went up more.
Bond sensitivity is bearish.
If bonds can’t rally on safe haven bid, then the only other bullish catalyst, is a severely weaker economy to cause the Fed to delay taper, or expand bond buying, etc.
Treasuries fell, extending this year’s rout, the steepest in almost four decades, before reports on manufacturing and jobs this week that economists said will confirm a worldwide pickup in growth.
“With the Syria situation at least temporarily on the backburner, it’s back to data-watching now and what that means for tapering prospects,”
Bonds continuing to sell off, even as Gold flat
Bonds did not rise all that much intially on Boehner comments that he will support President on Syria. Bonds rose perhaps +6 ticks.
The market believes the Fed will taper, even with the Syria crisis. Unless the Fed indicates otherwise, or the market participants change their belief.
But then bonds did start ticking up in delayed reaction.
Short end of the bond curve is bouncing back faster. 5 yr notes bounced back faster than 30 year bonds.
"The Syria issue had put a floor on bond prices last week,"
said Mike Cullinane, head of government bond trading at D.A.
Davidson in St. Petersburg, Florida.
September 4 – Bonds flat going into NY open
Bonds flat at the NY open, while Gold is down
September 5 – 5 year and 10 year notes tripping stops below daily lows
Which would normally be oversold according to the macro model, but good US data came out today which kept prices going lower.
Treasuries fell, pushing yields to a two-year high, as fewer Americans than analysts forecast filed applications for jobless benefits, boosting speculation the Federal Reserve will cut bond purchases this month.
U.S. and European government bond yields jumped on Thursday, with the yield on U.S. 10-year Treasury notes rising to the highest in more than 25 months, as economic data supported the view the Federal Reserve will reduce its bond purchases this month.
“You are seeing a normalization in the economy so you should see a normalization in rates,” said Craig Elder, fixed income strategist at Baird Private Wealth Management in Milwaukee.
September 6 – Bonds tested the key daily low support, then bounced half a point higher to 129
Bonds spiked higher by +20 ticks during NFP, as the market seemed to focus in on the lackluster job gains of only 169k and the downward revisions to previous months.
DO NOT SHORT BOTTOM TICK
Then bonds retraced their gains for the day.
Correlation / Sensitivity Sheet for Friday, September 6, 2013
I don’t want to do anything with AUD or CAD. They have run up quite a bit over past week. RBNZ is closest central bank to hiking rates, but they don’t want to see NZD go up. So those are conflicting forces. Just wait and see mode for the commodity currencies.
AUD growth to pick up from all the rate cuts and AUD depreciation?
Chinese growth to continue to pick up or falter?
Growth and inflation to pick up in NZ?
Gold up, while Bonds retraced gains. Gold acting better than bonds for today
Any Portugal, Spain, Italy, Greece political uncertainty? Any further credit downgrades? Or will risk appetite diminish such fears?
Will ECB discuss rate cuts again? Will they continue to worry about surge in yields?
S&P, Nikkei would like to go higher, but macro risks have entered the market picture and restraining topside potential. Syria crisis, high oil prices, rise in yields, potential debt battle. Bias is for lower S&P prices I would say. But there will still be select stocks that continue to rise due to company specific factors. There is still a wall of money that would like to go into stocks if macro risks recede.
Nikkei and USD/JPY would like to go higher on expected sales tax hike to shore up finances and that BoJ can do more QE if the tax hike slows down recovery. But macro risks listed above restraining upside potential.
Abenomics to succeed or not? Growth, inflation and corporate profits to pick up or not?
Crude risk premium to rise or not? Market is not fully pricing in a Syria strike. Will Congress vote No? Will Obama strike even on a No vote? WIll Iran get involved? Or no escalation?
Crude is also trying to rally on good global growth data from a variety of countries around the world. So a long Crude oil position can benefit from both Syria tensions and improving global growth picture.
Swiss to take any additional measures to weaken franc?
S&P has been remarkably resilient to Syria concerns, high oil prices, high yields, etc. But it is getting closer to next week’s vote.
U.S. econ to strengthen or weaken?
How fast and how much will Fed taper?
Will the U.S. econ be able to absorb the taper and higher rates or not? Growth drop if they taper?
Mediocre U.S. data, higher yields, high oil prices, low inflation to cause Fed to delay taper?
Mediocre U.S. data, higher yields, high oil prices, low inflation to cause Fed to expand bond buying?
Fed to taper fast, despite mediocre data?
Any risk aversion scenarios on the horizon?