Order Flow Habits for Week of October 20, 2013 – October 25, 2013
October 21 – CNY CB Leading Index m/m at 0.9% / 0.8%
October 22 – CB Leading Index m/m at -0.2% / 0.3%
AUD has been rallying lately since the market is repricing to the new scenario that they are not going to cut rates anymore
CPI q/q at 1.2% / 0.8% / 0.4%
Trimmed Mean CPI q/q at 0.7% / 0.7% / 0.6%
AUD/USD: +30 pips FM, +12 pips over next hour
EUR/AUD: -42 pips FM, -17 pips over next hour
AUD hit the 0.9750 barrier and tripped stops, then NS and fell
October 23 – AUD tripped stops yesterday on USD weakness, and risk appetite and higher inflation data. Then fell on China news about bad loans, etc.
fears over possible measures to clamp down on China’s property market weighing on markets.
–A big jump in short-term China interest rates Wednesday triggered a correction in the risk currencies, with AUD particularly hard hit, says Societe Generale. The People’s Bank of China has withdrawn some 44.5 billion yuan from the financial system since Oct. 17, and the 7-day repo rate surged above 4% in Shanghai Wednesday, sparking fears of Chinese monetary tightening, says the bank.
Australia’s dollar fell from a four-month high as Chinese stocks dropped amid a jump in money-market rates, damping investor confidence in the outlook for the South Pacific nation’s biggest overseas market.
CNY HSBC Flash Manufacturing PMI at 50.9 / 50.5 / 50.2
AUD/USD: +25 pips FM then NS
EUR/AUD: -32 pips FM, then NS
Crude Oil: +10 cents FM, then perhaps +25 cents over next few hours
October 24 – AUD/USD tripped stops below 0.9600
EUR/AUD surged higher by +70 pips
AUD, NZD and CAD weak today
October 21 – Wholesale Sales m/m at 0.5% / 0.6% / 1.7%
CAD flat for the day
October 22 – Core Retail Sales m/m at 0.4% / 0.2% / 0.8%
Retail Sales m/m at 0.2% / 0.3% / 0.5%
choppy, unable to discern since US NFP released same time
EUR/CAD fresh highs
It seems the CAD is getting hit from the weaker North America story, but also the drop in Crude prices.
I am not willing to chase this CAD weakness
Buying EUR/CAD at the highs doesn’t seem appealing to me. It would take a dovish BoC stance to cause more upside. And I am just too uncertain about that.
October 23 – Overnight Rate at 1.00% / 1.00% / 1.00%
BOC Rate Statement
– composition of growth is now slightly less favourable for Canada.
– The U.S. economy is softer than expected
– In Canada, uncertain global and domestic economic conditions are delaying the pick-up in exports and business investment, leaving the level of economic activity lower than the Bank had been expecting.
– Inflation in Canada has remained low in recent months
– the fact that inflation has been persistently below target means that downside risks to inflation assume increasing importance.
– However, the Bank must also take into consideration the risk of exacerbating already-elevated household imbalances.
– Weighing these considerations, the Bank judges that the substantial monetary policy stimulus currently in place remains appropriate and therefore has decided to maintain the target for the overnight rate at 1 per cent.
USD/CAD: +41 pips FM, +30 pips over next hour
CAD/JPY: -42 pips FM, -20 pips over next hour
EUR/CAD: +52 pips FM, +42 pips over next hour
CAD weakening as the BoC did shift from slight hawkish to neutral. They removed the slightly hawkish language.
They don’t want to do any QE yet because of the household imbalances. So they just tweaked the language to get rid of the slight hawkishness. Which is the explanation for the recent run up of a few hundred pips of EUR/CAD and GBP/CAD. And they downgraded both growth and inflation forecasts.
The Canadian dollar lost the most since June after the Bank of Canada dropped language about the need for future interest-rate increases that has been in place for more than a year, citing greater slack in the economy.
“Poloz decided to roll the dice a little bit,” said David Watt, chief economist at the Canadian unit of HSBC Holdings Plc, by phone from Toronto. “I thought they’d continue to leave in place that the next move would eventually be a rate hike, but this time they’ve said, ’look, we acknowledge the risks in the household sector, but inflation (CACPI) is too low and our outlook is not panning out the way we anticipated.’”
“Finally, the Bank of Canada is catching up with reality, said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc., said by phone from New York. “The new growth forecasts brings them in line with what the International Monetary Fund had in October. A correction in the Canadian dollar was needed, and this will help get us there.”
Inflation will remain less than the 2 percent target until the end of 2015, two quarters longer than forecast in July, with the risks of further weakness taking on “increasing importance,” the bank said.
October 24 – CAD weakened another 20-50 pips going into NY open
There is a concern at central banks that what we’re seeing is another false start in their economies,” said Michala Marcussen, global head of economics at Societe Generale SA in London. “We now need to see two to three months of better numbers before they’re willing to contemplate an exit again.”
October 25 – EUR/CAD tripped topside stops then fell
DO NOT BUY TOP TICK
The only reason to short CAD at these levels is if you are expecting an interest rate cut from BoC or some form of QE, etc.
The Canadian dollar fell to a seven-week low against its U.S. counterpart with the Bank of Canada embracing a more accommodative monetary policy and crude oil prices heading for the biggest weekly decline since June.
“Royal Bank of Canada pushed out the timing of the first forecast BOC rate hike, and the environment leaves the Canadian dollar exposed,” Sue Trinh, a senior currency strategist at RBC in Hong Kong, said in a research report. “Oil market dynamics remain unsupportive and the risks for the currency on this front are skewed to the downside.”
October 22 – Trade Balance at 2.49B / 2.32B / 1.86B
October 23 – EUR/CHF dropped 40 pips on JPY strengthening
October 25 – EUR/CHF dropped 15 pips on USD/JPY going down, then rose + 50 pips as USD/JPY rose
DO NOT BUY TOP TICK
Whether EUR/CHF breaks out or not, mostly depends on what happens with EUR specific monetary policy. If the EZ econ can recover and they can signal a rate hike, etc, then EUR/CHF can rise naturally. Other bullish scenarios are if there is an imbalance in option positions and the market gets caught short volatility and spikes higher. But usually it needs to start with a macro catalyst first.
October 21 – German PPI m/m at 0.3% / 0.1% / -0.1%
EUR/USD tripped light stops below 1.3660, then bounced, helped by weaker US existing home sales
October 22 – EUR shugging off call from French ministry official to weaken EUR
The euro’s exchange rate against the U.S. dollar is too strong, and France wants theEuropean Central Bank to adjust the rate, French Industry Minister Arnaud Montebourg is quoted as saying in an interview in Tuesday’s edition of French daily newspaper Le Parisien.
“Our European partners have to understand that opting for recession can’t go on,” he said. “The euro is too strong, and if it were 10% lower against the dollar we would increase our national wealth by 1.2%, create 120,000 jobs and reduce our deficit by 12 billion euros ($16.44 billion). If the euro went down by 20%, we would create 300,000 jobs and reduce our deficit by one-third,” he said.
Mr. Montebourg said France “is appealing to the European Central Bank to do what other governments do: to adjust the rates according to our interests. The euro is too expensive, too strong, and a bit too German. It should be a bit more Italian, French and basically more European,” he said, adding that the French government is raising its voice to express its “irritation” and “impatience” with the European Union authorities in Brussels.
EUR/USD broke out to new highs. It was today’s star performer. Can it keep it up though? Well from a USD weakness perspective, it can, since the NFP was a weak number and from some of Fed evans comments. But from a EUR centric component, the EUR may be getting too high and inflation is low, etc. But of course the EUR has been shrugging off such things over the past few weeks.
October 23 – Spain Central Bank: 3Q unemployment Data best since 2008
DO NOT BUY TOP TICK in EUR/USD
Belgium NBB Business Climate at -7.7 / -4.1 / -6.7
Consumer Confidence at -15 / -14 / -15
EUR/GBP barrier at 0.8550
Draghi: Euro-Zone Recovery Still in its infancy
October 24 – EUR/GBP tripped topside stops
barrier in EUR/GBP at 0.8550
EUR/USD took out stops above 1.3800 and barrier. Then profit taking
DO NOT BUY TOP TICK
French Flash Manufacturing PMI at 49.4 / 50.3 / 49.8
French Flash Services PMI at 50.2 / 51.2 / 51.0
Spanish Unemployment Rate at 26.0% / 26.1% / 26.3%
German Flash Manufacturing PMI at 51.5 / 51.6 / 51.1
German Flash Services PMI at 52.3 / 53.8 / 53.7
Flash Manufacturing PMI at 51.3 / 51.4 / 51.1
Flash Services PMI at 50.9 / 52.3 / 52.2
ECB Mersch: Possible that another 3 year LTRO not needed
– Will use forward guidance as long as necessary
EUR doesn’t care about the weaker data today. It is still outperforming
EUR/USD stops tripped above 1.2823, then fell back
DO NOT BUY TOP TICK
Will other countries voice concern over strong EUR hurting exports?
Will ECB express concern over strong EUR as a deflation concern?
October 25 – EUR/USD tripped stops above 1.2825, then fell
DO NOT BUY TOPT ICK
German Ifo Business Climate at 107.4 / 108.2 / 107.7
M3 Money Supply y/y at 2.1% / 2.3% / 2.3%
Italian Retail Sales m/m at 0.0% / 0.2% / -0.2%
Private Loans y/y at -1.9% / -1.9% / -2.0%
EUR/USD: -14 pips FM, then NS
EUR/GBP: -5 pips FM, then NS
ECB Asmussen: don’t have any specific worry on exchange rate
– exchange rate within band we have seen for last 10 years
EUR being very resilient and outperforming for many days in a row.
Asmussen said he doesn’t worry about the high EUR so far. But how do his other colleagues on the ECB feel about it?
October 20 – Rightmove HPI m/m at 2.8% / -1.5%
October 21 –
“The news out of the U.K. has been quite positive and people are taking comfort from the fact that the recovery is continuing,” said Phyllis Papadavid, senior global currency strategist at BNP Paribas Corporate & Investment Banking in London. “That sentiment is supporting the pound for now but whether the recovery is sustained is a different question.”
GBP/USD tripped stops below 1.6140, then bounced
October 22 – GBP/USD tripped stops below 1.6130, then bounced
DO NOT SHORT BOTTOM TICK
– pace of recovery likely to be modest
– signs that recovery may be gaining traction
– Perfectly reasonable for market rates to rise on UK data
October 23 – BBA Mortgage Approvals at 43.0k / 39.4k / 38.8k
MPC Meeting Minutes
– Voted 9-0 to keep rates steady
– Voted 9-0 to keep QE the same
– the sterling effective exchange rate index (ERI) was around 3½% higher
– Over the month, the ERI had risen by 1%, driven in large part by a 4% rise against the US dollar, which had probably been partly associated with the US fiscal impasse. Part of the appreciation could reflect recent more positive data outturns in the United Kingdom than elsewhere.
– The 8% fall in sterling oil prices on the month also suggested a somewhat lower outlook for CPI inflation over the coming year.
– Further ahead, the recent appreciation of sterling would tend to bear down on inflation, reducing the likelihood of inflation being above 2.5% at the 18-24 month period relevant to the MPC’s forward guidance ‘knockout’.
– The headline LFS unemployment rate had fallen to 7.7% in the three months to July, and a fall in the claimant count measure in August, together with surveys of companies’ employment intentions, had suggested that it would fall further over the rest of the year, probably at a faster pace than anticipated at the time of the August Inflation Report.
– But it was too early to draw a strong inference about future prospects from the latest data.
The Bearish GBP was that the fall in oil prices and appreciation in sterling will tend to reduce the likelihood of the inflation knockout. So that was slight GBP bearish.
The bullish was that the BBA mortgage approvals are at a multi year high.
So the only scenario that could cause more GBP appreciation is if the unemployment rate rapidly declines. The inflation knockout probably will not be hit since oil prices are low and sterling has risen in value dampening inflation.
GBP/USD tripped stops above 1.6250, then fell on profit taking
DO NOT BUY TOP TICK
“Market rates had fallen back over the month and output appeared to be expanding at least as fast as expected” in August, the Bank of England said in the minutes. “All members therefore agreed that there was currently little case for increasing the degree of monetary stimulus further.”
October 24 – CBI Industrial Order Expectations at -4 / 10 / 9
GBP strength being restrained by EUR/GBP going higher
EUR/GBP barrier at 0.8850 hit, and stops tripped, then profit taking
GBP/USD underperforming into NY open as EUR/GBP was bid. Then GBP/USD playing catch up as EUR/GBP falls
BOE Carney: will have to see how persistent rise in inflation expectations is
– UK recovery has begun, is strengthening
– UK growth still modest relative to historic recoveries
Some Yougov poll showing increasing inflation expectations above 3.0%. I am not sure how credible that is, or if those inflation expectations will stay high or become subdued.
I would favor the GBP instead of the EUR at these levels. Inflation in EZ is very low, while in UK inflation is higher. And while the high currencies are restraining both UK and EZ, it is probably restraining EZ more.
October 25 – Prelim GDP q/q at 0.8% / 0.8% / 0.7%
Index of Services 3m/3m at 0.6% / 0.5% / 0.5%
GDp y/y at 1.5% / 1.5% / 1.5%
GBP/USD: -23 pips FM / +12 pips FM, then +19 pips over next few min, then NS
EUR/GBP: +10 pips / -10 pips FM, then -7 pips over next few min, then NS
GBP/JPY: -20 pips / +10 pips FM, then +18 pips over next few min, then NS
Will the market interpret new Carney measures as being growth positive?
It can be so weak and gradual that it may not have any volatility effect.
The pound headed for a second weekly advance versus the dollar after a government report showed U.K. economic growth accelerated to the fastest pace in more than three years in the third quarter.
Sterling was poised for a gain this week versus most of its 16 major counterparts after Bank of England Governor Mark Carney said yesterday the central bank will widen access to money-market operations.
“Further strengthening in the domestic recovery could push investors to more significantly buy into the pound story,” he wrote. “Citi economists expect GDP to hit 3 percent next year, pushing unemployment lower more quickly.”
The BOE will expand the range of collateral it accepts in its facilities and offer money for longer periods on cheaper terms, Carney said in a speech in London late yesterday. Officials will also consider making some liquidity tools available to a wider array of institutions.
October 20 – JPY weakening across the board
USD/JPY is at a unique moment because it is in a big uptrend from the 76 lows. It has been consolidating since May, for about five months now. So if the uptrend is intact, and US growth is going to continue, and Fed will taper, while BoJ will keep their foot on the pedal with QE, with potential for more QE sometimes in Q1-2 2014, then that should be enough to cause a breakout higher and trend continuation in USD/JPY.
Trade Balance at -1.09T / -1.06T / 0.82T
October 21 – All Industries Activity m/m at 0.3% / 0.3% / 0.4%
The yen fell for the first time in three days against the dollar after Japan’s export growth slowed and the nation extended a record run of trade deficits, fueling speculation the central bank will increase stimulus.
If econ data in Japan is not sufficient, then the BoJ / Japan government may deem that they need to weaken the JPY more and QE more in order to make more progress towards their objectives.
USD/JPY shrugging off weaker existing home sales for the most part
The Japanese currency weakened versus all except two of its 16 most-traded peers as Bank of Japan Governor Haruhiko Kuroda said policy easing, which tends to debase a currency, will be maintained until inflation is stable.
Weak trade and export data “in addition to Kuroda comments are confirmation that we have to keep doing something here, that Japan is not just going to sit and wait on the policies that they’ve enacted,” Sireen Harajli, a foreign-exchange strategist at Mizuho Bank in New York, said in a phone interview. “They’re definitely giving a signal that there’s more to be done in Japan and that they’re not stopping.”
“The miss on Japan’s export side has led people to believe that more stimulus may be needed,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The prospect of that will probably be enough to keep the yen on the defensive. This week, the U.S. jobs data is the headline act.”
October 22 – JPY weakened by 20-40 pips going into NY open
USD/JPY and other EUR/JPY pairs shrugging off lackluster NFP number and then rising.
JPY has bearish sensitivity.
USD/JPY then fell back.
EUR/JPY tripped stops above 135, and hit 135.50, then profit taking.
While the USD/JPY did act decent today in the few hours after NFP, if the Fed is truly going to delay taper into March 2014 or some later date, not only will that cap USD/JPY topside, but it can also cause it to go down a few hundred pips below the debt battle lows, as a delay so far into 2014, can cause a lot of disappointed longs to bail out. And I don’t expect the BoJ to seriously consider more QE until sometime next year. So there is a 2-3 month vacuum where USD/JPY does not have any immediate bullish catalysts, so it can go lower. So I am cutting my USD/JPY long I had and switching to bearish posture.
Also, there exists potential for USD/JPY and Nikkei to get slammed lower on profit taking and position liquidation. It could start in USD/JPY. If it gets slammed 100-200 pips, then it can slam the Nikkei and cause it to go down, and that can put the brakes on the S&P rally as well, and perhaps cause some profit taking in there as well. A lot of scenarios going through my mind.
Risk appetite is not enough to prop up USD/JPY. S&P is at fresh and record highs, but USD/JPY is languishing in the middle of the range. There are a lot of disappointed macro longs that can bail out.
October 23 –
The yen strengthened the most in eight weeks versus the euro as borrowing costs for Chinese banks jumped by the most since July, spurring demand for safer assets.
October 24 – USD/JPY tripped light downside stops then bounced.
Then tripped light topside stops above 97.50 then fell back
Flat going into NY open
Another possibility is that USD/JPY goes down, but Nikkei still goes up along with risk appetite as the Fed tapers, etc. In other words, my previous expectation that USD/JPY selling leads to heavy Nikkei selling and S&P selling, etc. That is one scenario.
The other scenario is that USD/JPY goes down, but Nikkei stays flat or goes up due to general risk appetite and Fed delaying taper, so S&P stays up as well, etc. That is the other scenario that can play out.
It seems some risk appetite and all that BoJ QE is propping up USD/JPY, etc. But I am still bearish on USD/JPY. Although downside may not be as much as I previously expected if there is a lack of risk aversion catalyst.
Tokyo Core CPI y/y at 0.3% / 0.4% / 0.2%
National Core CPI y/y at 0.7% / 0.7% / 0.8%
National CPI y/y at 1.1% / 0.9% / 0.9%
CSPI y/y at 0.7% / 0.8% / 0.7%
The Japan non core CPI was at 1.1%. But the USD/JPY didn’t do anything. I am not sure if that is sufficient progress for the BoJ or not. If it is sufficient progress, then they can refrain from new stimulus, so that can add a fresh macro downside catalyst for USD/JPY. But if it isn’t enough for them, then they can still be willing to QE, so that will prop up USD/JPY.
I would still say I am bearish USD/JPY. The stops below the key daily lows look juicy to me.
October 25 – USD/JPY tripped stops below 97.00, then bounced
DO NOT SHORT BOTTOM TICK
October 20 – Visitor Arrivals m/m at -1.0% / 0.0%
Credit Card Spending y/y at 5.2% / 6.6%
October 21 – NZD fell by 60-100 pips into the NY open
October 23 – NZD getting slammed today into NY open. Down over 1.00%
Lots of profit taking on positions
Trade Balance at -199M / -730M / -1234M
NZD/USD: +11 pips FM, then NS
EUR/NZD: -19 pips FM, then NS
October 24 – NZ/USD fell and tripped downside stops
EUR/NZD and GBP/NZD rose 100+ pips
AUD, NZD and CAD weakness today
October 25 – RBNZ comments helped to weaken NZD another 30-70 pips going into NY session.
He said that the new mortgage restrictions would mean rates don’t have to rise as much as previously thought. So NZD got deflated by a few hundred pips in anticipation of such rhetoric in the previous days.
The New Zealand dollar weakened after central bank Governor Graeme Wheeler said increasinginterest rates “would put upward pressure on the exchange rate and damage our traded goods sector.”
The New Zealand dollar is lower late Friday after comments from the Reserve Bank of New Zealand Governor Graeme Wheeler weighed on the local currency throughout the session.
Mr. Wheeler said in a radio interview that new restrictions on house lending may mean the cash rate does not need to rise as much as previously thought, and that the central bank is prepared to intervene in the country’s currency under certain circumstances.
The central bank had on Oct. 1 introduced restrictions on lending to home buyers with small deposits.
However, RBC Capital Fixed Income and Currency Strategist Michael Turner said in a note that given Gov. Wheeler also said that now is not one of the circumstances when the bank would be prepared to intervene and comments on restrictions are not new.
Mike Jones, currency strategist at Bank of New Zealand, said the underperformance of the New Zealand dollar reflected additional selling on the New Zealand in favor of the Australian dollar, the slow escalation of worries about the potential tightening of liquidity in Chinese markets and weakness in industrial metals prices in London and New York markets.
October 21 – USD up by 20-30 pips or so going into NY open. Probably on some profit taking and expectations of Fed delaying QE into next year are pared back.
Fed Evans (voting):
– Will take a few months of jobs data before deciding on tapering
– run up in stock market explainable
Evans said the Fed may wait a few months before tapering. But the USD did not drop. So it looks like the market is already priced for that and EUR/USD and GBP/USD struggling to go higher on more USD weakness. So that is USD slight bullish sensitivity. Unless there will be a delayed reaction and USD goes weaker.
If Evans has talked with other Fed members over the phone and been in contact with them, and if that represents the consensus view that it will take a few months of jobs data before they decide on tapering, then that is an important piece of information.
Existing Home Sales at 5.29M / 5.31M / 5.39M
EUR/USD: +8 pips FM, then NS
GBP/USD: +5 pips FM, then NS
USD/JPY: -3 pips FM, then NS
October 22 – Currently, there is conflicting evidence about when the Fed can taper. There is the Fed’s own general guideline (which they admitted was data dependant) that states they would like to taper before the end of the year, which probably means a December taper.
Then there is Fed Evans comments that it will take a few months of jobs data before deciding. Which would mean a taper sometimes in 2014 probably.
I am not sure who is right, so waiting for more information.
Non-Farm Employment Change at 148k / 182k / 169k
Unemployment Rate at 7.2% / 7.3% / 7.3%
Average Hourly Earnings m/m at 0.1% / 0.2% / 0.3%
EUR/USD: +66 pips FM, ret slight, then +46 pips rest of day
GBP/USD: +49 pips FM, ret half, then +57 pips rest of day
USD/JPY: -35 pips FM, then NS
AUD/USD: +36 pips FM, +32 pips over rest of day
USD/CAD: -11 pips FM, -6 pips over next few min
EUR/JPY: +30 pips FM, ret full, then +100 pips rest of day
EUR/CHF: -35 pips FM, then NS
EUR/AUD: +44 pips FM, then NS
EUR/NZD: +50 pips FM, then NS
S&P: +4 pts FM, then ret full, then +9 pts rest of day
Bonds: +27 ticks FM, then NS
Gold: +18 pts FM, then ret half, then +6 pts over rest of day
TIC Long-Term Purchases at -8.9M / 30.9B / 31.0B
Richmond Manufacturing Index at 1 / 0 / 0
Construction Spending m/m at 0.6% / 0.5% / 1.4%
Market interpreting it as Fed dovish, as the market believes they will wait another few months of data before deciding on tapering. The market believes they will focus on the lackluster +148k job gain, instead of the drop in unemployment to 7.2%
S&P went up
Bonds went up
Gold and silver jumped
USD went down
I would assume as well that the Fed will focus on the lackluster job gains rather than the drop in unemployment and be dovish. Unless something weird is happening with the labor market where the workforce is shrinking and that there is a long term structural decline in the labor force participation, etc.
So this is a USD bearish report since it confirms Fed Evans comments yesterday that the Fed will take a few months of jobs data before deciding.
For every meeting the market believes the Fed delays taper and pushes it back, the USD can weaken by 100-200 pips.
EUR/USD and GBP/USD rallied nicely in continuation
S&P rallied nicely as well, until some profit taking came in
JPY shrugged it off, so USD/JPY, EUR/JPY has slight bullish sensitivity
Gold rose in more momentum than bonds did.
The dollar slid to its weakest level in almost two years against the euro after lower-than-forecast U.S. employment gains added to speculation the Federal Reserve will delay reducing stimulus.
“The dollar is weak across the board,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a phone interview. “The jobs number was lackluster. It was just no better or dramatically worse than recent months, which just aren’t good enough for the Fed.”
The dollar wobbled near two-year low against the euro on Wednesday after disappointing U.S. jobs data cemented expectations that the Federal Reserve will keep its stimulus in place at least until early next year.
“It’s becoming difficult for the Federal Reserve to reduce its stimulus this year,” said Shinichiro Kadota, currency strategist at Barclays.
October 23 – USD rallied by 20-80 pips or so going into Ny open. Seems on profit taking from previous USD weakness
Currently, the market is not expecting the Fed to increase QE.
But theoretically, if the economy stalls, and inflation goes lower, then it is possible the Fed could consider that. But they would probably want to just hold steady for a few months to see how it goes. The unemp rate did dip to 7.2%. So the Fed will like to see what happens with that and get more clarity on it.
It seems there is a reversal and profit taking on previous extended positions. So GBP/USD, EUR/JPY, GBP/JPY, AUD/USD, NZD/USD all went down on profit taking. So did Nikkei, S&P a bit, etc.
So far the EZ inflation is at 1.1%. The BoE has said that inflation risks are subdued partly due to lower oil prices, and the BoC has also highlighted the downside inflation risks. So will the Fed also follow and highlight even more the downside inflation risks and delay taper for a while?
It would be hard for them to taper, since tapering will cause financial markets to go down and higher yields to come, which will cause inflation to go even lower. So there is no need for them to do that.
Import Prices m/m at 0.2% / 0.3% / 0.2%
HPI m/m at 0.3% / 0.8% / 0.8%
It will be interesting to see what the combination of mediocre NFP and US growth and weak inflation will cause the Fed to do.
Will it be a game changing moment?
October 24 – Trade Balance at -38.8B / -39.4B / -38.6B
Unemployment Claims at 350k / 343 / 362k
EUR/USD: +5 pips FM, then NS
USD/JPY: -5 pips FM, then NS
Flash Manufacturing PMI at 51.1 / 52.8 / 52.8
JOLTS Job Openings at 3.88M / 3.77M / 3.81M
Will the Fed consider the drop in inflation temporary as was their last stance? Or will they have a heightened sensitivity to deflation risk, warranted easier monetary policy response?
The dollar slid to a two-year low against the euro as concern that U.S. growth was hampered by a government shutdown earlier this month fueled bets the Federal Reserve will delay reducing stimulus.
The Fed will wait until March before slowing the pace of its third round of quantitative easing, according to the median estimate of economists in an Oct. 17-18 Bloomberg survey.
October 25 – Core Durable Goods Orders m/m at -0.1% / 0.6% / -0.4%
Durable Goods Orders m/m at 3.7% / 1.7% / 0.2%
EUR/USD: +5 pips FM, then NS
USD/JPY: +8 pips / -3 pips FM, then NS
Bonds: +5 ticks FM, then NS
Gold: -3 pts / +3 pts FM, then NS
Market struggled to figure out how to interpret the durable goods, as one number was really good, but without the aircraft demand the number was negative.
Revised UoM Consumer Sentiment at 73.2 / 75.8 / 75.2
Revised UoM Inflation Expectations at 3.0% / 2.9%
USD dropped 2-5 pips or so, then NS
Wholesale Inventories m/m at 0.5% / 0.3% / 0.2%
Part of what will happen to the USD depends on how shocked the Fed is to the recent data, etc. If they believe inflation is very low and the economy was set back, then they will delay into 2014. And the USD will gradually weaken. A lot of weakness has been priced in already, but it can still gradually weaken vs the EUR and GBP.
The Fed will delay tapering its $85 billion of monthly bond purchases until March, according to economists surveyed by Bloomberg on Oct. 17-18. A poll last month forecast the first reduction would be in December.
“We’re continuing to see the dollar get sold,” said Akira Moroga, a Tokyo-based manager of currency products at Aozora Bank Ltd. (8304) Regarding Fed stimulus “the consensus view is that December tapering is becoming less likely. The euro is supported as the economic picture there improves and investors seek an alternative to the dollar.”
October 21 – Crude fell and broke 100.00, while S&P was flat. Crude was acting weak last week as S&P broke to new highs, while Crude was languishing on the lows.
Crude fell on either some more production expectations / higher crude stockpile expectations.
Crude then bounced from 99.80
DO NOT SHORT THE LOWS
Crude Oil Inventories at 4.0M / 3.4M / 6.8M
NMI, then shot up +20 cents, then fell – 50 cents. Weird action.
West Texas Intermediate fell below $100 a barrel for the first time since July amid forecasts that crude stockpiles increased to a three-month high in the U.S., the world’s biggest oil consumer.
“One hundred is something of a psychological mark,” said Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich. “We still have a bearish outlook due to the increasing production in the U.S. Demand is not expected to rise dramatically.”
“There’s a lot working against the bulls,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We are looking at rising inventories in the U.S., and there were positive indications coming out of the Iranian talks in Geneva.”
October 22 – Crude still acting weak, trading near bottom tick
With the rest of the world seeming to be growing, etc China and Australia bounce, UK and EZ recovery, I wouldn’t be pressing too hard on any Crude short trades. Risk appetite can prop up the market. I don’t do too much analysis on this crude production, so I am uncertain how far the market can fall. I won’t be shorting bottom tick.
Crude isn’t benefiting like S&P from perceived Fed delaying taper. It is no benefiting from USD weakness, etc. Part of it is because if there is mediocre growth, then Crude can fall in value on reduced demand, along with the increase in supply from more US energy production, etc.
Crude make fresh low today, while S&P at fresh high. Divergence here.
West Texas Intermediate crude fell below $98 a barrel on speculation that the government will report U.S. supplies rose to a three-month high.
West Texas Intermediate traded below $100 a barrel for a second day after crude stockpiles rose to a 15-week high in the U.S., the world’s biggest oil consumer.
October 23 – Crude tripped stops below 98.00
Crude tripped stops below 97.50
Crude tripped stops below 96.50, then bounced
Crude Oil Inventories at 5.2M / 2.7M / 4.0M
Crude Oil: -20 pips FM, then NS
Crude oil did not sell off on higher inventories because it was already down so much in anticipation of a rise in the inventories. Then some short covering kicked in.
West Texas Intermediate crude fell to the lowest level in three months as supplies rose more than expected in the U.S., the biggest oil-consuming country.
October 24 – Crude hit 97.75 on slight higher China manuf, then fell to 96.90 into NY open
Crude tripped stops below 96.00, then bounced.
DO NOT SHORT BOTTOM TICK
“Lower crude oil processing led to rising U.S. crude oil inventories, which pushed prices lower in recent days,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “Processing rates must almost reach summer peak levels to drain inventories again, given rising supplies.”
October 21 – Gold upside potential seems limited if the Fed tapers gradually and risk appetite occurs as money gets shifted into equities since they have better growth prospects, earnings and dividends, etc.
The only potential is if inflation accelerates with the economic recovery. But with the restrained commodity prices so far and expected higher yields to cool off growth, I don’t see that happening any time soon. Maybe in over a year it may happen. So nothing to do with gold.
“While actual inflation and inflation expectations remain subdued, we continue to believe we are at risk of high inflation in the future,” Paulson & Co. wrote in the report. “We also believe we are in a pause phase, which is likely to persist until we see the leading indicators of inflation pick up.”
October 22 – Gold popped higher by +$20 on lower NFP.
Gold can definitely bounce higher if the Fed keeps on tapering into 2014 and into March 2014, etc. So the market can definitely reprice for that scenario. I just don’t think it is worth playing it as there are better opportunities in equities.
Gold futures rose to a three-week high after payrolls in the U.S. climbed less than projected in September, increasing speculation that the Federal Reserve will maintain monetary stimulus to boost the economy.
“The payrolls data is pushing gold higher as investors think the economy needs more support to gain momentum,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview.
October 23 – It doesn’t look like Gold will be a beneficieary of the lower inflation directly. But it can be a beneficiary from any expanded QE or delayed Fed taper that happens as a result of the low inflation.
October 24 – Gold breaking out on some after effects of USD weakness and expectations of Fed delay taper
If the Fed delays taper into sometime in 2014, there may be some upside potential where Gold spikes higher for a day or so.
The game changing moment for gold, is if Fed expands bond buying. Then gold can rise a fair bit. But I don’t know if the Fed will do that. That is an extreme scenario. The more likely scenario is that the Fed delays into 2014 the taper.
If you can pick stocks well, then picking the ones that will go up, will have far better upside than going long bonds or gold at these levels. Since whatever benefits bonds and gold (delayed Fed taper, expanded bond buying), will also benefit stocks. But since the economy is rebounding, there will be plenty of stocks that outperform the broad market.
Gold is up today, while Bonds are down.
October 25 –
“Gold has been benefiting from a weaker dollar and the reassessment of U.S. monetary policy expectations in light of softer data
October 20 – S&P flat into NY open.
If the Fed will take a few more months to decide on the taper, then that should benefit equities for the next month or two.
S&P tripped light topside stops, then profit taking.
DO NOT BUY TOP TICK
“The trend is up and you don’t want to fight that. A lot of the attitude is recognition that quantitative easing is not going to stop any time soon and that’s positive for equities.”
S&P bullish forces include: improving corporate earnings, rotation into equities and weaker crude prices, and some expectation for delayed Fed taper etc. Bearish macro forces include: profit taking and extreme positioning.
The wild card is also what the Fed will do. The S&P is pricing in some form of delayed taper. But if the Fed tapers in Dec, then there can be further profit taking, etc.
S&P has tripped above the key daily highs, which would be an overbought signal. But there aren’t any clear macro risks, as the debt battle just finished. Only risk are profit taking and excessive positioning, which could be enough to cause a down day.
Nikkei tripped topside stops on USD/JPY rising and trying to play catch up with S&P rise
October 22 – S&P flat into NY open
S&P jumped up a few points on weaker NFP as the market believes Fed will delay taper for a few months into 2014.
Lower yields and weaker dollar helping to prop up S&P.
But the S&P topside seems to be running out of gas. Any fresh gains are hard to come by. So money should be shifted out of S&P and into promising individual stocks with better reward risk ratios. It doesn’t necessarily mean the S&P will fall. It can still rise gradually. It just means that there is better upside and reward risk ratios in individual stocks versus the S&P, since the S&P just completed the big upswing MDMM from Oct 7 to today, tripping the key topside stops.
S&P lift off today on lower yields, weaker dollar, after it consolidated today.
This is a rare moment in time where the S&P is at a fresh all time high, with prospects for the Fed delaying taper due to mediocre job growth. A rare moment where there is some improvement in corporate earnings, and alot of QE fueling equity gains, and low inflation, low job growth, causing Fed to delay taper, etc. And the Fed doesn’t think the stock market is in bubbly territory, so they are not concerned about that. Such a confluence of forces does not occur too often in history.
S&P tripped stops above 1,750, then some profit taking
NQ tripped stops below yesterdays low at 3343, then bounced
S&P and equities benefiting again from weaker US dollar, lower crude prices and lower yields
Speculation slower growth in hiring will extend Federal Reserve stimulus lifted U.S. stocks and pushed the annual advance in the Standard & Poor’s 500 Index within a percentage point of the best yearly gain in a decade
October 23 – S&P fell 10 pts in European session as Nikkei fell on JPY strengthening. S&P down -0.50% into NY open. Also perhaps some China banking problems.
S&P tripped stops below yesterday low, then bounced
Paradoxically, if the Fed does delay taper, then it may actually cause S&P to stay flat or go down. The thinking behind it is that a Fed delay taper causes USD/JPY to go down, which causes Nikkei to go down, and causes broad profit taking in S&P. Especially if the bullish macro in S&P from a delay Fed taper is already exhausted. Which is an interesting scenario. Although it could be a farfetched chain of events.
Equities should still be beneficiaries of a delayed Fed taper. They just have to work off some excessive positioning and they can go up a bit again. Bonds are going up, since the market was already beaten down.
Lower crude and lower yields should also help support the equity market.
There is an interesting situation going on where S&P is at all time high, but inflation is still very low.
Unless the USD/JPY and Nikkei deleveraging knocks over the S&P as well.
So the bullish forces would be: delayed fed taper, lower yields, lower crude, weaker USD.
Bearish forces would be: extreme positioning susceptible to profit taking, if USD/JPY and Nikkei selling spirals into S&P selling.
I am a bit uncertain which side will win out. Probably the edge goes to the bullish side slightly.
Is this China news a fresh risk aversion catalyst? There hasn’t been a risk aversion catalyst over the past few months, except the recent debt battle, and before that the Syrian crisis.
Nikkei fell hard as USD/JPY and EUR/JPY and GBP/JPY fell hard on profit taking, and lack of any immediate JPY bearish catalysts
Nikkei down -3.00% into NY open
USD/JPY dropped -1.00% or so into NY open and GBP/JPY dropped -1.50%, but Nikkei dropped over -3.00%. So the Nikkei is sensitive 2x-3x what happened in the JPY. At least on the bearish Nikkei side.
October 24 – S&P rose +6 pts into NY open on expectations Fed to delay taper really supporting the market.
S&P retraced into NY open.
While there may be some S&P upside potential over the next 1-3 months, the money is probably better allocated to promising individual stocks that have better upside potential. The easy money and easy volatility in the S&P upside may be nearing the end, and it may get choppier climbing higher.
US equities are still attractive from the perspective that the Fed can continue to QE, and that the USD can remain under pressure for the next few months. Weaker USD helps boost US equities. While the foreign economies also are benefiting from the global boom in equities, but they have stronger currencies, which can dampen their economic growth potential.
Market seems to have shrugged off and not expecting any China banking problems.
Nikkei did bounce +1.00% from the lows on general risk appetite. Lack of JPy strength restraining topside.
October 25 – NQ at fresh highs
S&P and DJIA still below fresh highs
There is still probably slight S&P upside yet. If the Fed signals a delayed taper, then it can pop for a big ODVE to the topside, then perhaps profit taking. If they signal a December taper, then stocks will fall.
S&P rallied into the close to trip stops above 1,755
DO NOT BUY TOP TICK in S&P
Nasdaq 100 Index futures rose after revenue from Amazon.com Inc. and Microsoft (MSFT)Corp. topped estimates while investors watched economic data for signs on when the Federal Reserve may scale back monetary stimulus.
Nikkei fell 300 points down to 14,100 on USD/JPY going down, S&P drop, profit taking.
October 21 – Bonds flat into NY open.
I am looking for a reason to short them. Some form of quicker Fed taper, or better econ data, etc.
Bonds then fell 10-15 ticks down to 133-20
If the US econ recovery is on track, then it would make sense that yields should naturally go higher as the market prices in the Fed taper, and the rebalancing from bond funds into more risk appetite assets like equities, etc.
Umm. It is probably better to wait and see if they bounce before trying to sell them. I don’t want to sell them after they have dropped for the day. Either wait for a big catalyst and sell them even if they have dropped. Or wait until they rally and trip topside stops and re evaluate situation.
Treasury 10-year notes snapped a three-day advance before government reports this week that economists predicted will show U.S. employers added the most jobs since April last month and durable goods orders climbed.
October 22 – Bonds flat into NY open
Bonds hit 135 on weaker NFP job gains, tripping topside stops
DO NOT BUY TOP TICK
If the Fed does delay taper into 2014, etc, then I may have to wait on the bond short for a few weeks or a few months. They may just chop around or grind higher if econ growth weakens.
Treasury 10-year note yields fell to a three-month low after a report showed payrolls climbed less than projected in September, indicating the U.S. economy had little momentum leading up to the federal government shutdown.
October 23 – Bonds ticked up +12 ticks on more expectations for Fed delay taper, weaker growth.
Bonds are repricing for a scenario of mediocre growth, Fed delayed taper until sometime next year, and low inflation for many months.
It depends what it is going to be like. If it is going to be a year like 2012, where US growth was weak and insufficient and Fed QE’s, etc, then bonds can rise a decent amount more.
If it is a year like 2011, where there was EZ debt crisis, then bonds can rise a lot more.
It just depends on how long this mediocre growth patch lasts. It could last 2 months, or it could last 6 months, etc.
Part of it depends on what happens with the econ data after the shut down. If Sept was weak, perhaps October may be weak as well with the shut down data.
The question is what happens in November and December. Will labor market growth pick back up? Or was the deterioration in econ sentiment and damage so much and it raised uncertainty so much that it will cause mediocre NFP for many months into 2014?
That is not something that I can know right now.
No sense trying to fade the current bond rally with the current information set.
October 24 – Bonds tripped stops above yesterday highs, then fell
DO NOT BUY TOP TICK
Bonds are down today while Gold is up. Looks like a bit of profit taking in bonds.
Treasuries rose for a second day, with 10-year yields dropping to the lowest level in three months, amid speculation the Federal Reserve will push back plans to trim its bond-purchase program.
“Monetary policy risk is certainly the key driver for Treasuries,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The data isn’t quite strong enough to justify the Fed moving sooner rather than later. We think the balance of risks is for the early part of next year,” he said, referring to the timing of Fed tapering.
“This market can continue to grind its way to lower yields,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 21 primary dealers that trade with the Fed. Tapering won’t happen “at least till March. The economy is definitely not that strong. It doesn’t justify significantly higher yields.”
October 25 – Bonds flat into NY open
If the economy is going to stay weak/mediocre for the next 2-4 months, then bonds can be in a very choppy uptrend. No sense to aggressively short it until the Fed signals that taper is more imminent.
DO NOT SHORT BOTTOM TICK
Going long straight S&P probably has more upside than going long straight bonds. But, finding the key individual stocks that will go higher has much more upside than either a long S&P and long bond position.
Treasuries extended a second weekly advance amid speculation the U.S. economy is recovering too slowly for the Federal Reserve to begin reducing asset purchases this year.
Correlation / Sensitivity Sheet for Friday, October 25, 2013
All commodity currencies got hit. NZD down as RBNZ said mortgage restrictions and high NZD means that interest rates will not need to rise as much as previously thought. CAD fell on after effects and momentum of BoC statement and general commodity currency weakness. Not playing these either way.
BoC dovish shift and downgrade of growth and inflation forecasts to be a harbinger of Fed dovish shift?
Any Portugal, Spain, Italy, Greece political uncertainty? Any further credit downgrades? Or will risk appetite diminish such fears?
ECB to be concerned that high EUR is restraining growth and causing too low inflation?
BoE Carney says recovery is strengthening, but modest and high GBP dampening inflation. Any GBP specific order flow seems to not be enough to cause GBP/USD to go higher. So it is looking for more USD bearish catalysts.
S&P still has slight topside potential left, but easy money has been made already. Any future rises will be more gradual, unless the Fed really gets dovish.
Bonds and Gold can rise a bit on a delayed Fed taper, but best upside and reward risk is probably seen in key individual stocks rather than a straight long S&P/Bonds/Gold positions.
Nikkei got hit again as USD/JPY went down. With USD/JPY being restrained by Fed delay taper, and my expectation that BoJ will not consider new action until 2013, Nikkei can stay flat or go lower over the next 1-3 months. Until 2014 comes and the Fed tapers, and BoJ can look at increasing QE. If the Fed delays taper, that is bullish for equity markets around the world, but USD/JPY can go lower, so how that plays out in the Nikkei is uncertain. It can have bullish macro from general equity market flows, but it can have bearish macro from drop in USD/JPY.
U.S. econ to strengthen or weaken?
How fast and how much will Fed taper?
Will the U.S. economy be able to absorb the taper and higher rates or not? Growth drop if they taper?
Mediocre U.S. data, high yields, low inflation to cause Fed to delay taper?
Mediocre U.S. data, high yields, low inflation to cause Fed to expand bond buying?
Fed to taper fast, despite mediocre data?
Any risk aversion scenarios on the horizon?