Order Flow Habits for Week of December 15, 2013 – December 20, 2013
December 20 – AUD/USD tripping stops above 0.8890
DO NOT BUY TOP TICK
December 19 –
Chinese Yuan is weakening the past few days.
December 18 – AUD roughly flat into NY open
There is no bullish AUD scenario, unless you are just playing the AUD short covering for a few hours or day or so. There isn’t any bullish macro scenario to play.
“Because inflation has been consistent with the target, the board has been quite comfortable in easing policy by a significant amount,” Stevens said in remarks to a parliamentary committee in Canberra. “The board has maintained an open mind about whether we may need to lower interest rates further. At this point, however, there are few serious claims that the cost of borrowing per se is holding back growth.”
“My judgment would be that an exchange rate over a dollar or even in the 90s is unlikely to be a sustainable equilibrium for us over time,” Stevens said today.
Rising unemployment and lower mining investment threatens 22 years of consecutive economic growth in Australia
Australian stocks are poised for the worst quarter relative to global equities in two years as manufacturers from Ford Motor Co. to General Motors Co. exit the nation and consumer confidence drops.
Australian Treasurer Joe Hockey said Dec. 17 that the budget deficit will balloon to A$47 billion in the fiscal year through June 30, 2014, up from an August estimate of A$30.1 billion, as the mining boom wanes and the nation’s currency remains “uncomfortably high.”
The government estimates economic growth will be 2.5 percent this fiscal year, less than the 3 percent estimated in May. Hockey pledged spending cuts, including in assistance to the motor industry, to try to rein in debt.
General Motors’ local Holden’s unit said last week it will cease making cars in Australia in 2017, citing high costs due to an almost 50 percent increase in the Australian dollar in the past four years. About 2,900 employees will lose their jobs at the automaker’s plants in South Australia and Victoria states. In May, Ford said it will exit Australia in 2016, also citing the currency among reasons to cease production.
Qantas Airways Ltd. (QAN), the country’s largest airline, tumbled 30 percent this quarter after saying it expects to lose as much as A$300 million in its first half, forcing the carrier to either take on debt, issue shares or sell assets to pay for new planes.
“We continue to expect the RBA to leave interest rates on hold, but the risks in the short term are still skewed toward more rate cuts, particularly if recent bad news regarding Holden’s and Qantas adversely affects confidence,” Shane Oliver, who helps oversee $131 billion as head of investment strategy at AMP Capital Investors Ltd. in Sydney, said by telephone Dec. 17.
“Unlike the U.S., Australian growth is likely to decline in 2014 as the growth handover from mining to non-mining continues to struggle for traction,” Matthew Sherwood, Sydney-based head of investment markets research at Perpetual Ltd., which manages about $25 billion, said by telephone Dec. 12.
“As for China, you cannot expect demand there to accelerate
from now on as the Chinese economy is heading for a stable
slowdown,” Saito said.
December 17 – If there are going to be spending cuts in AUD budget, and there is the China data getting weaker, stronger Chinese Yuan, etc, then that all should add more bearish macro pressure for the AUD.
For if there isn’t going to be any government stimulus in the form of more govt spending, and the RBA would prefer not to cut rates imminently, then the only avenue for Australian economy stimulus would be AUD depreciation.
AUD/USD breaking below 0.8900 to fresh lows
EUR/AUD to fresh highs
Australia’s dollar dropped to a five-year low against its New Zealand peer after the nation’s central bank said it maintained the option of loosening policy further and the government’s budget deficit widened.
MI Leading Index m/m at -0.1% / 0.1%
CNy CB Leading Index m/m at 1.4% / 0.7%
Foreign Direct Investment ytd/y at 5.5% / 5.8%
December 16 – AUD fell into NY open. Dropped around 30-60 pips. Mostly showed weakness in the rise in EUR/AUD and GBP/AUD
A Chinese manufacturing index unexpectedly fell to a three-month low as output gains eased and employment weakened, suggesting the world’s second-largest economy is vulnerable to a slowdown.
Chinese stocks fell the most in a month as the report underscored the Communist Party’s warning last week that the economy faces “downward pressure.”
The community party said that the economy faces downward pressure, then go to do exchange rate reform to strengthen the Yuan, which can put even more downward pressure on the Chinese economy.
“The reading confirms our view that Chinese GDP growth is already decelerating,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. He forecasts 7.2 percent gross domestic product expansion in 2014, compared with 7.7 percent this year.
CB Leading Index m/m at 1.1% / 0.6% / 0.1%
AUD rallied 5 pips FM, then NS
New Motor Vehicle Sales m/m at 1.8% / -0.9%
Monetary Policy Meeting Minutes
– Recent data suggested that growth of the Australian economy had remained a bit below trend over the second half of the year.
– Business investment had risen in the September quarter, but mining investment was likely to decline over the next few years
– Overall, growth of the economy was expected to continue at a below-trend pace over the next year, picking up thereafter.
– At recent meetings, the Board had judged that leaving the cash rate unchanged was appropriate while continuing to gauge the effects of the substantial degree of monetary policy stimulus that had already been put in place.
– While the exchange rate had depreciated over the month, members agreed that it remained uncomfortably high and a lower level would likely be needed to achieve balanced growth in the economy.
– not to close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity, consistent with the inflation target.
AUD/USD: 20-30 pips over ten min or so
EUR/AUD: -40 pips or so over ten min
The AUD spiked higher FM, perhaps on some short covering.
But Overall, I think it was slight AUD bearish as they could still cut off interest rates, they are just not imminent. They could still seriously consider interest rate cuts, say in 6 months or so as they see the evolution of the economy and exchange rate. They do not want to cut right now because they would rather have a weaker AUD rebalance the economy, rather than stoking a housing binge with more rate cuts.
And with the Chinese Yuan higher, potential for China slowdown, and AUD budget deficit meaning less govt spending, I would be bearish AUD.
December 15 – CNY HSBC Flash Manufacturing PMI at 50.5 / 51.0 / 50.8
AUD/USD: -18 pips FM, then NS
EUR/AUD: +28 pips FM, then NS
December 20 – Core CPI m/m at -0.1% / 0.1% / 0.2%
CPI m/m at 0.0% / 0.2% / -0.2%
Core CPI y/y at 1.1% / 1.3% / 1.2%
CPI y/y at 0.9% / 1.0% / 0.7%
Core Retail Sales m/m at 0.4% / 0.0% / 0.2%
Retail Sales m/m at -0.1% / 0.3% / 1.0%
USD/CAD: +34 pips FM, +25 pips over next ten min, then NS
CAD/JPY: -26 pips FM, -26 pips over next ten min, then NS
EUR/CAD: +44 pips FM, +37 pips over next ten min, then NS
USD/CAD DO NOT BUY TOP TICK
The Canadian dollar plunged to a three-year low after the inflation rate remained below the central bank’s target band for a second mont
The bearish case for the CAD is that it has low inflation and is a commodity currency. However, the BoC didn’t say it wanted to weaken the CAD. It had no view on CAD strength.
Compared to the AUD and NZD, where inflation is higher, but those central banks have said they want a weaker currency.
So the bearish CAD view has the low inflation on their side.
The bearish AUD view has the central bank wanting to weaken it on its side.
Overall, I don’t want to short CAD when it makes a new low, because I am uncertain about any policy changes out of Canada. They did downgrade growth and inflation forecasts last time. But I think they may just wait it out. Unless there is evidence the Fed taper is further hurting CAD growth and inflation prospects.
Exports and investment have been disappointing and inflation has been “lower than we can explain,” Poloz said in an interview with Bloomberg News on Dec. 17. The Bank of Canada’s forecast is that the economy won’t reach full output until around the end of 2015.
December 19 – USD/CAD tripped stops above 1.0725
DO NOT BUY TOP TICK
CAD rose today on snapback from previous weakness.
CAD has sold off due to it being a commodity currency and it having a low inflation rate. But it does have growth above 2%.
EUR on the other hand is not selling off, even though inflation is just as low and growth is even weaker. So if there is any currency that is too strong, it is the EUR that should sell off 5-10% or so.
December 18 – Wholesale Sales m/m at 1.4% / 0.4% / 0.0%
“We’re in the process of seeing a divergence in monetary policy,”Paresh Upadhyaya, the Boston-based director of currency strategy at Pioneer Investment Management Inc., said in a Dec. 16 phone interview. “Canada can be expected to keep a very loose, accommodative monetary policy, in contrast to the Fed, which is set to start its tightening cycle.”
Canada’s dollar is emerging as the Group of Seven currency with the most at stake as traders debate whether the U.S. Federal Reserve will announce a reduction in its unprecedented monetary stimulus as soon as today.
“We were disappointed on several fronts,” Poloz said when asked if dropping the bias in October was his biggest innovation since taking over from Mark Carney. “Any other governor sitting here would have done the same thing if the data behaved the way they did over the last six months.”
Exports and investment have been disappointing and inflation has been “lower than we can explain,” Poloz said. The Bank of Canada’s forecast is that the economy won’t reach full output until around the end of 2015.
December 16 – CAD weakened by 30 pips or so in sympathy with AUD and NZD weakness.
Foreign Securities Purchases at 4.41B / 9.24B / 8.29B
December 19 – Trade Balance at 2.11B / 2.57B / 2.28B
CHF weakened today while JPY was flat. So the CHF strength from EUR/CHF breaking the lows from before is reversing and turning into CHF weakness.
“We avoid the pure Swiss producers,” said Martin Lehmann, a portfolio manager at 3v Asset Management in Zurich, adding he always considers how much of a company’s production is Swiss-based before investing. “The franc will stay at these levels, or even test the 1.20 level versus the euro again. The euro crisis is not totally over yet.”
December 18 – ZEW Economic Expectations at 39.4 / 31.6
EUR/CHF snapped higher today, from 1.2180 to 1.2220
It’s possible there was a barrier at 1.2200 and below which the market knocked out.
CHF did end up weakening today.
December 17 – EUR/CHF breaking 1.2200 level. Which hasn’t happened in a very long time.
EUR/CHF tripped stops below 1.2190
December 16 – CHF up around 10-30 pips on the day. Not sure why. Maybe the market is pricing in slight higher chance of EZ sovereign debt concerns? But no other market is pricing that in so far.
December 20 – German PPI m/m at -0.1% / 0.0% / -0.2%
GfK German Consumer Climate at 7.6 / 7.4 / 7.4
EUR rose 5-10 pips
Italian Retail Sales m/m a -0.1% / 0.1% / 0.2%
Consumer Confidence at -14 / -15 / -15
DO NOT SHORT BOTTOM TICK in EUR/USD
EUR/USD tripped stops above 1.3700
The euro gained against the greenback even after Standard & Poor’s cut the European Union’s long-term rating to AA+ with a stable outlook. The region’s financial profile has deteriorated and “cohesion” among the member states has lessened, the rating company said.
“Euro-dollar will gradually grind lower” to less than $1.30 in a year, said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Next year, the risk is that the ECB may move to boost liquidity” while the Fed keeps reducing stimulus, he said.
ECB Weidmann: deflation risk very limited
– ECB is ready to act when necessary
December 19 – Current Account at 21.8B / 14.2B / 14.9B
I don’t know how low the EUR/USD can go. The Fed did taper, but they also strengthened the forward guidance. So I don’t think sustained USD strength can happen just yet, especially not in the EUR/USD and GBP/USD.
USD can go stronger vs JPY and AUD, but I am not sure about EUR, GBP.
Even though I am bearish on EUR/USD, I don’t want to stay short from the bottom tick after they fall 100 pips in ODVE.
There was the Italian PM complaining about the exchange rate. And I remember the Hungarian central banker saying that Draghi told him that if the EUR is at 1.10, the the Club Med countries can remain competitive. And that a strong EUR is only manageable by Germany. But the ECB denied that Draghi made those comments. That was in late November
Draghi came out with the OMT idea last year to help save the EUR. Will he also come out with fresh ideas to boost growth? He could do verbal intervention, without any policy action. He could at least try that. But perhaps he doesn’t want to get involved in a currency war with other central banks.
December 18 – German Ifo Business Climate at 109.5 / 109.7 / 109.3
EUR/USD tripped stops above 1.3800, then fell
DO NOT BUY TOP TICK
“The (EUR/USD) exchange rate is unbalanced, and the goal for the whole EU must be to change this bloody 1.36-1.38 rate” said Italian PM Enrico Letta in a talk to staff and diplomats at the Italian Foreign Ministry [ID:nR1N0I602R]. Letta had hoped the ECB interest rate cut on Nov 7 would allow a “re-balancing” of the EUR/USD exchange rate, after describing it as “a source of difficulty in recent months”
December 17 – German ZEW Economic Sentiment at 62.0 / 55.3 / 54.6
CPI y/y at .9% / 0.9% / 0.9%
Core CPI y/y at 0.9% / 1.0% / 0.8%
ZEW Economic Sentiment at 68.3 / 60.9 / 60.2
EUR/USD: +10 pips FM, then NS
EUR/GBP: +6 pips FM, then NS
Inflation doesn’t have to fall for the ECB to consider more action. If it just stays at this low level for an extended period of time, say between 0.7% – 1.1%, then the ECB can consider more action, since they would be falling short of their 2.0% mandate in the medium term.
Eurozone approved 1 bln aid release for Greece
EUR/USD fell 40 pips, then bounced back
DO NOT SHORT BOTTOM TICK
December 16 – French Flash Manufacturing PMI art 47.1 / 49.1 / 48.4
French Flash Services PMI at 47.4 / 48.9 / 48.0
EUR/USD: -23 pips FM, then NS
EUR/GBP: -13 pips FM, then NS
German Flash Manufacturing PMI at 54.2 / 53.1 / 52.7
German Flash Services PMI at 54.0 / 55.2 / 55.7
EUR/USD: +13 pips FM, then NS
EUR/GBP: +6 pips FM, then NS
Flash Manufacturing PMI at 52.7 / 51.9 / 51.6
Flash Services PMI at 51.0 / 51.5 / 51.2
Italian Trade Balance at 4.07B / 1.24B / 0.83B
Trade Balance at 14.5B / 15.2B / 12.4B
EUR/USD up 40 pips into NY open
I am not chasing this.
ECB Draghi: ECB ready to consider all available instruments
– price pressures remain subdued over medium term
– economic recovery in Euro Area is fragile
Well, if inflation is subdued over the medium term and the recovery is fragile, then why not talk down the EUR?
German data is still good/decent. French data again was bearish, but the EUR continues to shrug it off.
Market was forecasting French data to expand, but it contracted.
Euro-area factory output grew at a faster pace than economists forecast in December, led by Germany, as the currency bloc continued its gradual recovery from arecord-long recession.
“We expect euro-zone GDP momentum to strengthen as we enter 2014, reflecting a firming export impulse, more favorable corporate fundamentals and pent-up demand for capital goods,” said Marco Valli, chief euro-area economist at UniCredit SpA in Milan. “A slow improvement in the labor market, a further easing of fiscal tightening and very low inflation will also help push average GDP growth toward 1.5 percent over the course of next year.
In the euro area, ECB President Mario Draghi said on Dec. 5 that output growth should continue ‘‘in particular owing to some improvement in domestic demand supported by the accommodative monetary policy stance.” Expansion “should, in addition, benefit from a gradual strengthening of demand for exports,” he said.
“It’s the unbalanced nature of the upturn among member states that is the most worrying,” Chris Williamson, chief economist at Markit, said in today’s report. “France looks increasingly like the new ‘sick man of Europe,’ as a second successive monthly contraction may translate into another quarterly decline in GDP, pushing the country back into a technical recession.”
December 15 – EUR and GBP getting propped up lately because people have been buying EUR/JPY, EUR/AUD, EUR/NZD, EUR/CAD, and GBP/JPY, GBP/AUD, GBP/NZD, etc.
Because both AUD and NZD and JPY all have signaled they would like weaker currencies. While the ECB and the BoE have not signaled any strong verbal intervention yet. So people have been shorting the JPY, AUD, etc and buying up USD, EUR and GBP. But the EUR and GBP economies do not seem to be in the advanced recovery stages like the US is in. So that is why EUR/USD and GBP/USD are overvalued.
December 20 – Current Account at -20.7B / -13.8B / -6.2B
Final GDP q/q at 0.8% / 0.8% / 0.8%
Public Sector Net Borrowing at 14.8B / 6.6B / 7.4B
Index of Services 3m/3m at 0.8% / 0.4% / 0.8%
Revised Business Investment q/q at 2.0% / 1.6% / 1.4%
GBP fell 10 – 20 pips over five min
DO NOT SHORT BOTTOM TICK in GBP/USD
December 19 – Retail Sales m/m at 0.3% / 0.3% / -0.9%
Retail Sales y/y at 2.0% / 2.2% / 1.8%
GBP/USD: -12 pips FM, then NS
EUR/GBP: +6 pips FM, then NS
The y/y number fell slightly, so there was GBP spike down
I don’t want to sell GBP/USD at the lows, since my macro model says to only consider shorting at a fresh high. Yesterdays Fed taper I don’t think was a game changer for more USD strength. And if the EUR weakens, that can put pressure on EUR/GBP, propping up GBP. Both the Eurozone and UK are being a bit restrained by the strong currencies, but the Eurozone more so than the UK.
GfK Consumer Confidence at -13 / -11 / -12
December 18 – Claimant Count Change -36.7k / -35.2k / -42.8k
Unemployment Rate at 7.4% / 7.6% / 7.6%
Average Earnings Index 3m/y at 0.9% / 0.8% / 0.8%
MPC Asset Purchase Facility: all 9 voted no change
MPC Bank rate: All 9 voted no change
– suggesting that the domestic recovery remained robust with diminishing inflationary pressure
– Growth in the euro-area had remained weak.
– In the United States, the data had suggested that moderate expansion had continued
– In Asia, Japanese GDP growth had slowed to 0.5% in Q3, weaker than the Committee had expected
– The news on the month had continued to suggest a burgeoning recovery in the United Kingdom
– Business surveys pointed to growth rates of around 1¼% in each of the next two quarters, and although Bank staff took a more cautious view they nevertheless expected growth of 0.9% in the fourth quarter of 2013
– Although the extent of the final pass-through to domestic prices was uncertain, that appreciation would contribute to disinflationary pressure.
– But any further substantial appreciation of sterling would pose additional
risks to the balance of demand growth and to the recovery.
– Sterling’s appreciation should reduce inflation further out
GBP/USD: +40 pips FM, ret half, then +11 pips over next hour
EUR/GBP: -19 pips FM, ret half, then down sent shift
CBI Realized Sales at 34 / 9 / 1
GBP heavily bid across the board after surprise much lower UK unemp rate.
The market focused on the burgeoning recovery and drop in unemp rate, rather than the slight rhetoric that a further strengthening of the GBP can pose risks to the recovery.
Well, the BoE is not seriously going to consider QE with the current information flow. And they haven’t done any strong verbal intervention. So the GBP can grind higher into the elevated territory.
GBP/USD continues to grind higher. The market believes the BoE can actually be a position to tighten faster than the Fed, if the Fed takes its time to end QE, then it may want to wait
U.K. unemployment unexpectedly fell in the three months through October to the lowest in 4 1/2 years, lurching toward the 7 percent threshold at which Bank of England officials say they will consider raising interest rates.
The pound advanced as the figures raised the prospect that the BOE will increase interest rates earlier than forecast. Expectations a rise might come as early as the end of 2014 have led GovernorMark Carney to stress that reaching the 7 percent threshold wouldn’t automatically trigger tighter policy
December 17 – CPI y/y at 2.1% / 2.2% / 2.2%
PPI Input m/m at -0.7% / -0.5% / -0.4%
RPI y/y at 2.6% / 2.7% / 2.6%
Core CPI y/y at 1.8% / 1.8% / 1.7%
HPI y/y at 5.5% / 4.2% / 3.8%
PPI Output m/m at -0.2% / -1.2% / -0.3%
GBP/USD: -30 pips FM, slight down sent shift, for another -30 pips over a few hours
EUR/GBP: +10 pips FM, slight up sent shift for another +10 pips over a few hours
CBI Industrial Order Expectations at 12 / 12 / 11
GBP fell by 30-40 pips helped by lower UK CPI
Strong GBP helping to keep a lid on inflation.
The BoE prepared for if inflation reached higher than they expected and put in an inflation knockout. But what if the Inflation undershoots 2%? Then they would have to consider new measures? The market didn’t think of that and didn’t price it in. So the GBP is too high if that scenario starts to play out.
GBP/USD tripping stops below 1.6250, then bounced
DO NOT SHORT BOTTOM TICK
U.K. inflation unexpectedly slowed in November to the least in four years, moving closer to the Bank of England’s 2 percent target.
“Today’s figures should give reassurance to markets that the period of inflation being way above target is behind us,” said Philip Shaw, chief economist at Investec Securities in London. “It makes it slightly easier for the MPC to communicate its policy of keeping rates low. It’s not impossible that the 2 percent could be hit over the next three-to-four months.”
The pound fell for a fifth day against the dollar after a government report showed U.K. consumer-price inflation unexpectedly slowed in November to the lowest level in four years.
BoE Carney: Additional QE not currently warranted
– Unlikely to unwind QE for some time after raising rates
– We are facing period of lackluster global growth
– Recovery unlikely to be as strong as past recoveries
– Inflation pressures well contained
December 16 – GBP/USD up 40 pips into NY open.
I am not chasing this higher.
December 15 – Rightmove HPI m/m at -1.9% / -2.4%
Rightmove y/y at 5.4% / 4.0%
So from last year the prices are up 5.4%, but from the past month, the prices are down, probably from the removal of the housing stimulus.
December 20 – USD/JPY knocked out 104.50 barrier, then NS
USD/JPY do not buy top tick.
USD/JPY tripped light stops above 104.55, then fell
DO NOT BUY TOP TICK
The Japanese bond buying is kind of unique because they want to boot BOTH growth and inflation. So the BoJ is buying up all these bonds, pushing down yields, while at the same time they have a 2% inflation target. So in some sense that can be risky if inflation does move higher and erode the value of all its bond holdings. But that is more longer term in a few years probably.
USD/JPY has been able to be at elevated levels, even though bonds have been roughly flat. So that is interesting.
Under Governor Haruhiko Kuroda, the central bank is focused less on the risks associated with monetary policy and more on the importance of achieving price stability, the people familiar with the discussions said.
“The correction of an excessively strong yen has been a plus for Japan’s economy,” Kuroda said at a press conference after the meeting. “Corporate profits have been boosted, sentiment among economic players has turned positive, stocks have risen and growth has accelerated.”
“The wind is at the BOJ’s back,” Hideki Matsumura, senior economist at Japan Research Institute Ltd. in Tokyo, said before today’s decision. “The Fed’s action confirms that the yen will stay on a weakening trend and a U.S. recovery will help lift Japan’s exports.”
Japan’s economy will continue a moderate recovery even with an increase in the sales tax in April, Kuroda said. The central bank will monitor risks and adjust monetary policy as needed, he said.
Kuroda said there was no change in his view that Japan will reach the BOJ’s 2 percent inflation target.
BOJ officials see significant scope to boost government bond purchases if needed to achieve the price target, according to people familiar with the discussions.
The dollar reached a five-year high against the yen on optimism U.S. economic growth will outperform Japan’s next year.
December 19 – USD/JPY flat into NY open. It retraced from 104.30 down to 103.87, then retested the highs.
I would expect it to make fresh highs and potentially a run on the 105 barriers.
USD/JPY shrugging off weaker US data, so that is bullish sensitivity.
Bank of Japan officials see significant scope to increase government-bond purchases from 7 trillion yen a month if needed to achieve their 2 percent inflation target, according to people familiar with the central bank’s discussions. Of 37 economists surveyed by Bloomberg last month, 19 predicted the BOJ would extend monetary easing from April to June next year.
There are some people who say there can be a shift in the bond market with Japanese investors and institutions buying more US treasuries rather than Japanese govt bonds, to take advantage of the higher US yield. Which can also help USD/JPY go higher as well. If the JPY is going to depreciate for the next year or two, then they might as well get some of their money out of JPY and into USD or another currency. The EUR and GBP can benefit, but they seem a tad too high. The USD has not strengthened overall that much, so it can be a decent target to go into.
Monetary Policy Statement
December 18 – JPY dropped by 30-40 pips or so by the NY open
While the yen has fallen around 16 percent against the
dollar this year, export growth has so far largely fallen short
of early expectations, falling 0.2 percent in November from the
previous month on a seasonally adjusted basis.
USD/JPY 104.00 barriers knocked out.
It rose on risk appetite after Fed taper. Good housing data earlier in the day helped prop slight.
All Industries Activity m/m at -0.2% / -0.2% / 0.5%
December 17 – Both the CHF and the JPY up today.
Trade Balance at -1.35T / -1.13T / -1.09T
USD/JPY: +3 pips FM, then NS
Although, it may have caused a gradual sent shift throughout the day
December 16 – S&P is at the highs of the day at NY open, while USD/JPY is at the lower part of the day. So from that intraday 12-24 hour view, USD/JPY is acting slight bearish.
But from last week, USD/JPY was acting bullish since it was comparatively at a high while S&P was in retrace mode. So from a 1 week view, USD/JPY is acting bullish on JPY weakness.
Either way, DO NOT SHORT BOTTOM TICK
JPY overall flat on the day
December 15 – Tankan Manufacturing Index at 16 / 15 / 12
Tankan Non-Manufacturing Index at 20 / 16 / 14
JPY did rise 50 pips in Sunday session or so, then weakened
December 20 – NZD/USD hit 0.8150 support then bounced
DO NOT SHORT BOTTOM TICK
Part of the NZD future strength depends on how seriously the RBNZ considers it important to keep the NZD low. If they are just paying lip service to their current rhetoric, and secretly mostly care about the underlying strength of the economy, then they will raise rates anyways and the NZD will rise.
New Zealand is set to become the first developed economy to raise interest rates since 2011 as surging milk production, manufacturing and home building stoke inflation. Traders of overnight index swaps see a 62 percent chance for an increase to 2.75 percent in January with 38 percent odds for no change, data compiled by Bloomberg show.
December 19 – NZD/USD tripped stops below 0.8175, then bounced
DO NOT SHORT BOTTOM TICK
NZD fell today into NY open, while AUD was flat. I would fade this NZD weakness and go long and play for a snapback.
The Australian and New Zealand dollars fell against most of their major peers amid speculation the U.S. Federal Reserve will continue tapering stimulus that has buoyed asset prices around the world.
If the NZD cannot get propped up by the stronger GDP, then it may want to weaken further. Unless some concrete tightening steps are going to be taken.
Visitor Arrivals m/m at 2.8% / -1.9%
Credit Card Spending y/y at 6.9% / 3.3%
December 18 – NZD fell by 40 pips or so into NY open. Seem like some profit taking from yesterdays gains
GDP q/q at 1.4% / 1.1% / 0.3%
GDP y/y at 3.5% / 3.3% / 2.3%
NZD/USD: +40 pips FM, then NS
EUR/NZD: -82 pips FM, then NS
Not even good NZD GDP data enough to cause a bid for the NZD
Rebounding dairy production drove a 1.4 percent increase in gross domestic product (GDP) for the September 2013 quarter, Statistics New Zealand said today. This increase in GDP is the largest since the December 2009 quarter.
The strong increase in dairy production was the main contributor to a 17.0 percent rise in agriculture, which makes up about 5 percent of the New Zealand economy.
“Dairy farming has really bounced back from the drought this year,” acting national accounts manager Steffi Schuster said. “The increase in agriculture is the largest in more than 25 years, as good weather boosted production well above the weak June quarter.”
December 17 – NZD rose today, while AUD weakened, and CAD around flat
ANZ Business Confidence at 64.1 / 60.5
NZD +3 pips FM, then NS
“There’s a big contrast between Australia and New Zealand at the moment. The RBA minutes and New Zealand budget update reinforced that,” said Jonathan Cavenagh, a Singapore-based foreign-exchange strategist at Westpac Banking Corp. “We’re probably going to trend towards the NZ$1.05-NZ$1.06 region” in two to three months, Cavenagh said.
December 16 – NZD weakened 40 pips into NY open as well, pretty much tracking the AUD.
Any NZD specific catalysts are not influencing as of this moment.
December 15 – Westpac Consumer Sentiment at 120.1 / 115.4
December 20 – Final GDP q/q at 4.1% / 3.6% / 3.6%
Final GDP Price Index q/q at 2.0% / 2.0% / 2.0%
EUR/USD: -6 pips FM, -6 pips over next few min
GBP/USD: -5 pips FM, -12 pips over next few min
USD/JPY: +7 pips FM, then NS
AUD/USD: -7 pips FM, then NS
S&P: +1 pt FM, slight up sent shift
Bonds: -7 ticks FM, -3 ticks in second min, then NS
Crude Oil: NMI
I am not sure if this US dollar strength can last. It just seems to be small small 100-200 pip move after the Fed taper.
On the bullish case you could say the Fed has finally begun.
On the bearish case, you could say that the market has been pricing that small taper in for a while now, and any future Fed tapers will be data dependent and gradual and after that the Fed will only raise rates slowly, etc. So this scenario and current information flow doesn’t argue for shorting EUR/USD or GBP/USD at the current levels. It would only argue for considering shorting them if they make a new lows. That is from a USD perspective. If a EUR or GBP catalyst comes into the picture, that is a different story.
USD selling off 30-50 pips or so in Ny session.
The U.S. economy expanded in the third quarter at a faster rate than previously estimated as consumers stepped up spending on services such as health care and companies invested more in software.
“You have equity markets supporting household net worth, rising home values and also payroll gains and falling unemployment, so we do really look for consumption to start picking up,” said Robert Rosener, associate economist at Credit Agricole CIB in New York, whose forecast for growth of 3.8 percent was the highest among those surveyed by Bloomberg. “This is a very good sign for momentum going into the fourth quarter.”
The Federal Reserve will probably reduce its bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, economists said.
“If we’re making progress in terms of inflation and continued job gains, then I imagine we’ll continue to do, probably at each meeting, a measured reduction” in purchases, Bernanke said, calling $10 billion in the “general range” for a “modest” reduction. If the economy slows, the Fed may “skip a meeting or two,” and if the economy accelerates it may taper a “bit faster.”
Fed officials raised their assessment of the employment outlook, predicting the jobless rate will fall as low as 6.3 percent by the end of next year, compared with a September forecast of 6.4 percent to 6.8 percent.
Fed Rosengren: not sufficient confidence was time to remove accommodation
December 19 – Unemployment Claims at 379k / 336k / 369k
EUR/USD: +6 pips FM
GBP/USD: +6 pips FM
USD/JPY: -6 pips FM, -8 pips over next few min
Bonds: +3 ticks FM, then NS
This is the second big rise in unemp claims. They say it is just seasonal tendencies and holiday distortions. If that is so, then the market will shrug it off. If it isn’t seasonal tendencies, then it shows some labor market weakness, and the USD can weaken again.
Existing Home Sales at 4.90M / 5.04M / 5.12M
Philly Fed Manufacturing Index at 7.0 / 10.3 / 6.5
CB Leading Index m/m at 0.8% / 0.7% / 0.1%
EUR/USD: +7 pips FM
GBP/USD: -8 pips FM
USD/JPY: -6 pips FM
Bonds: +5 ticks FM, then NS
Gold: -3 pts FM, then NS
The USD is shrugging off the weaker data.
Previously (ETSLTOTL) owned U.S. home sales declined for the third consecutive month in November to the lowest level of the year as rising mortgage rates and a limited supply of properties discouraged buyers.
December 18 – Building Permits at 1.01M / 0.99M / 1.04M
Housing Starts at 1.09M / 0.95M / 0.89M
USD/JPY: +10 pips FM, then NS
Bonds: -5 ticks FM, then NS
Gold: 2 pt whipsaw
Federal Funds Rate at <0.25% / <0.25% / <0.25%
FOMC Press Conference
– economic activity is expanding at a moderate pace
– Labor market conditions have shown further improvement; the unemployment rate has declined but remains elevated
– Fiscal policy is restraining economic growth, although the extent of restraint may be diminishing
– economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate.
– The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.
– the Committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy
– Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month
– If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings
– However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.
– The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal
EUR/USD: -100 pips FM, then NS and rallied to recover whole drop
GBP/USD: -50 pips FM, then NS, and rallied to recover whole drop
USD/JPY: -50 pips FM, then NS and rallied the 50 pips of FM spike down, + another 40 pips higher
AUD/USD: -90 pips FM, then NS
NZD/USD: -70 pips FM, then NS
EUR/GBP: -20 pips FM, then NS, whipsaw
EUR/JPY: -50 pips FM, then NS and rose the 50 pips, then +60 pips
GBP/AUD: +125 pips FM, then NS and fell back
S&P: -11 pts FM, then NS and rose
Bonds: -1 pt FM, then NS
Crude: -40 cents FM, then NS
Gold: -20 pts FM, then NS
Fed tapers -10bln. So small taper. They still wanted to reiterate that there is still going to be a lot of stimulus in place, etc.
USD is selling off in the after effects. The market seems to realize that even if they cut all the QE down to nothing, they may still keep rates low for a long time. So there are only so many dollar buyers from a cut in Fed taper. The currency market doesn’t seem to want to grow bullish on the USD.
So the weaker USD will continue to help US equities.
– Bernanke says fiscal drag is reduced
– Bernanke said they may wind down the program by the end of 2014, rather than
Well, USD eventually did catch a bid of 50-100 pips or so later in the day.
EUR/USD and GBP/USD fell. AUD/USD fell, etc.
December 17 – Core CPI m/m at 0.2% / 0.1% / 0.1%
CPI m/m at 0.0% / 0.1% / -0.1%
Current Account at -95B / -101B / -97B
Core CPI y/y at 1.7% / 1.7% / 1.7%
CPI y/y at 1.2% / 1.3% / 1.0%
Bonds: +6 ticks over a few min
The CPI including food and energy is at 1.2%, which is lower than the 1.7% excluding the food and energy. So the lower commodity prices really helping to keep a lid on global inflation.
NAHB Housing Market Index at 58 / 55 / 54
December 16 – Its possible the USD may weaken after this week’s FOMC decision. But I really don’t know. I don’t know if they will taper and if so, how much, and how they will word the forward guidance, etc. So I am not really sure. So there are a few different things to look at.
The market may be convinced that the Fed is going to keep rates at or near zero until mid 2015 or something, even after they end QE, which could cause USD weakness. So currently it is some USD sellers from that scenario, and some USD buyers from the scenario that they are on track to taper.
But I will have to see how the market handles any Fed tapers of -10bln and -20bln, etc. I want to see the market sensitivity.
Empire State Manufacturing Index at 1.0 / 4.9 / -2.2
Revised Nonfarm Productivity q/q at 3.0% / 2.9% / 1.9%
Revised Unit Labor Costs q/q at -1.4% / 1.5% / -0.6%
USD/JPY: -8 pips FM, then NS
Gold: +1 pt FM, then NS
Flash Manufacturing PMI at 54.4 / 54.9 / 54.7
TIC Long-Term Purchases at 35.4B / 31.4B / 31.3B
Capacity Utilization Rate at 79.0% / 78.5% / 78.2%
Industrial Production m/m at 1.1% / 0.6% / 0.1%
EUR/USD: -10 pips FM, then NS
USD/JPY: +8 pips FM, then NS
Bonds: -4 ticks FM, then NS
Gold: -1 pt FM, then NS
December 20 – Crude flat into NY open
With the increase in US growth, this can help push up Crude a little bit. Granted, that data was for the third quarter. But it helps to counterbalance some of the slight weaker data this week.
So I am making sure not to short the lows in Crude. It may want to grind higher.
December 19 – Crude oil tripped stops above 98.30
I am not buying top tick
Crude above 99.00, then pulled back
DO NOT BUY TOP TICK
December 18 – Crude flat into NY open
Crude tripping topside stops above 97.90
DO NOT BUY TOP TICK
Crude overall flat for the day. Not sure if prices will rise from general risk appetite or not. I wouldn’t go buy top tick.
“Oil prices went up yesterday on growth optimism,” said Bjarne Schieldrop, chief commodity analyst at SEB AB in Oslo. “We’re continuing to see solid implied crude demand in the U.S. The message from the Fed is that of course they will not go cold turkey on the U.S. economic recovery.”
December 17 – Crude tripping stops above 97.70, then fell back
DO NOT BUY TOP TICK
Perhaps the potential of removing the export restriction is going to cause more demand for Crude Oil? There could be some logic to that if it increases demand for North American Crude.
But there is also the bearish scenario where it increases production as well as companies realize they can export to other countries as well.
So there are different ways to look at it.
U.S. oil production is nearing a record, stoking calls to eliminate 1970s-era limits on petroleum exports as analysts warn that refineries could be overwhelmed as early as July.
Aided by new drilling techniques, U.S. production will grow to 9.5 million barrels a day in 2016, close to a record, according to the U.S. Energy Information Administration’s Annual Energy Outlook that was released yesterday.
December 16 – Crude Oil rallied from 96.20 to 97.30 into NY open.
DO NOT SHORT BOTTOM TICK
Mexico may end monopoly, which could mean more foreign investment and increase in Mexican Crude production over coming years.
So Crude Oil rallies and upside may be restrained. So I wouldn’t go chasing top tick. Although I will say, the market doesn’t seem to care much about that Mexican ending of monopoly. It may be too far into the future.
Brent crude advanced the most in almost two weeks after Libyan rebels refused to hand over control of three oil ports to the government.
“The market thought the recent suggestions of a deal were the most realistic Libyan negotiations have been since July,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a London-based consultant which last week predicted the terminals would probably stay closed. “We had expected a short-covering rally this morning.”
The U.S. will account for about 21 percent of global oil demand this year, compared with 11 percent from China, the second-largest consuming country, according to forecasts from the International Energy Agency.
December 20 – Gold consolidating into NY open.
It looks like the consolidation before another drop lower.
I think it is possible that some technical and momo speculators are joining it and going freshly short.
DO NOT SHORT BOTTOM TICK
Gold tripped some light stops above 1200
“Money always goes where it’s well treated,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion, said in an interview. “If you were doing well in equities, you didn’t need to be in gold. As long as the economic data continues to gain traction, we should see the dollar rise and the Fed continue to taper. That’s typically negative for gold.”
December 19 – Gold tripped stops below 1209 and 1200
Gold spiked higher on lower claims, but didn’t spike higher on the weaker existing home sales, etc.
Gold is falling more than bonds today. Even though USD is roughly flat today, Gold is falling.
Is this the Gold breakout and mini crash happening?
Gold fell below $1,200 an ounce in London and New York for the first time since June as an improving U.S. economy prompted theFederal Reserve to cut stimulus and reduced demand for precious metals as alternative assets.
December 18 – Gold flat into NY open
Gold bouncing along with bonds pre FOMC
If Gold cannot sustain a drop on a -10bln taper, and there isn’t a case for USD strength, then there isn’t a reason to be bearish on gold from these prices.
Unless the Fed tapers in big amounts like -20bln, and the U.S. economy really heats up, etc. But that is not the current information flow.
There doesn’t seem to be any enticing case for any big bearish macro positions to put on their positions.
On the other hand, you could make the case that given the scenario of while the Fed is tapering gradually throughout the year, then Gold shouldn’t go up, it should gradually go down. And that the bonds and gold have gone down in expectations of a taper, and now that it finally is occurring, it should reinforce the downward trend. You could make that case as well.
There isn’t a case for gold bullish trades. Neither is there a case for bond bullish trades. So I am not buying top tick.
Well, Gold eventually did start falling along with EUR/USD falling and USD strength.
Gold is acting more bearish than bonds from the sense that it closed near the lows, but bonds closed more towards the middle of the days range.
December 17 – Gold fell, while bonds went up for the day
December 16 – Gold fell slight, then recovered the losses to be flat at the NY open.
A lot of the profit taking and selling in gold has already happened. To entice more profit taking and more fresh macro shorts, Gold will need new catalysts, etc.
Market is sold out, so Gold can rally just a tad if the Fed delays taper, and economic growth is not as fast as the market is pricing in. I remember the last time two weeks or so ago they ran an article about how people are dumping Gold. Then Gold rose that day.
Gold tripping stops above 1238.
Gold hit 1250. Gold elevated while bonds tumbling. Gold to follow bonds lower?
DO NOT BUY TOP TICK
Investors are dumping gold-backed exchange-traded products at the fastest pace since the securities were created a decade ago, mirroring the steepest price drop in 32 years.
December 20 –
YM hit fresh highs, then pulled back
DO NOT BUY TOP TICK
Some people say the budget deal doesn’t solve much. It may be true, but if it reduces uncertainty, and the higher tax revenues from a growing economy can help contain the deficit rather than needing a perfect budget deal.
The equity volatility from the first hint of Fed taper in May, compared to what happened this past week is very different. Last May the equity volatility was very high. This week, it was very low and the equities actually went higher. So overall, this bodes well for equities backdrop for the next year. So if there is going to be any risk aversion, it probably won’t come from Fed taper as the Fed has been successful in getting their message across that it will be gradual and rates will stay low well after they finish ending QE.
So if there will be risk aversion and equity correction, it may have to happen from outside the US. Some exogenous market shock.
S&P above 1807 to fresh highs. It seems the GDP data caused slight extra macro buyers.
Better reward risk in individual stocks.
Better to buy S&P before it breakouts, rather than after it breakouts.
Yields aren’t rising, so that is helping to prop up equities.
Crude is still below $100, so that is helping to prop up equities.
Budget deal got done, so that is helping to prop up.
USD is still flat, helping to prop up equities.
If the bonds do continue to go up a bit, that also continues to help companies borrow cheaply and they can do more and bigger share buybacks, etc.
U.S. stocks rose, with the Standard & Poor’s 500 Index poised for its biggest weekly gain since July, as data showing faster-than-estimated growth boosted confidence in the world’s largest economy.
“The market is feeling somewhat confident,” said Robert Pavlik, chief market strategist in New York at Banyan Partners LLC, which manages about $4.5 billion. “It’s encouraging as an investor and consumer to see GDP get up to these levels. GDP reaching 4 percent makes you feel good about the economy and where we’re headed.”
Nikkei is up a bit while JPY is flat, so that is bullish sensitivity.
December 19 – S&P flat into NY open.
I would expect another surge higher to make fresh highs. Although today there are some potential fresh headwinds. Stronger dollar and higher yields may cap topside.
Obviously the reward risk of long S&P position today is a lot less favorable than it was yesterday, since the S&P has rallied from the retracement lows to the highs again. The easy volatility may be over.
If bonds start plunging today, then the S&P can be capped on the topside.
DO NOT BUY TOP TICK. Better to buy a 6pt dip, rather than top tick if going to go long for any intraday trades.
Budget risks have diminished, so any fiscal uncertainty should be diminished as well.
But they have a budget, but haven’t resolve the debt ceiling yet.
“Uncertainty was definitely reduced,” said Mueller, who is also chief investment officer of the Multi Asset Group Germany for Deutsche Asset & Wealth. “They only reduced by $10 billion. There were concerns that once they started, they would continue quite quickly, but the message they gave yesterday was that it would be at a muted pace and would take the overall environment into account.”
President Barack Obama is poised to sign into law the first bipartisan budget produced by a divided Congress in 27 years, abating the fiscal discord that spurred a government shutdown in October.
Nikkei flat into NY open
Wealthy investors in Japan are selling or transferring shares before the capital-gains tax doubles in two weeks, according to Mizuho Financial Group Inc., which has seen a surge in such transactions.
Japan eliminated a withholding tax of 1.05 percent on the selling price of stocks at the end of 2002 and replaced it with a 20 percent levy on profits from sales. In 2003, the rate was lowered to 10 percent due to a slumping economy and stock market, with a plan to return it to 20 percent after five years, according to the Finance Ministry. It’s been extended every year since the deadline as the global financial crisis and 2011 earthquake and tsunami roiled Japan.
December 18 – S&P flat into NY open
S&P falling in profit taking before FOMC decision.
Now that the Fed taper profit taking is over on the FOMC FM spike down, some buyers coming back. This may occur, up until the market gets scared of when the next taper is going to come.
S&P fell into the FOMC decision, so the bias was for higher prices since part of the profit taking is already done. The last profit taking was from the -10bln cut in QE. But there were some bargain hunters from the Fed tweaking the guidance so that rates will be low well after unemp rate hits 6.5%
S&P tripping topside stops after FOMC decision.
S&P and equities acting very bullish after FOMC decision. They like it.
People are tripping over themselves to buy equities into the market close.
This equity surge looks like it could last for the next two days into Friday.
Nikkei surged. Some of it was from JPY weakness. Other portion may have come from the weaker Trade balance which spurred the bets that the BoJ will do more, etc.
Japanese shares rose, with the Topix index gaining the most in more than a week, boosted by exporters as the ye
Nikkei rose further on combo of JPY weakness and general risk appetite.
December 17 – S&P and equities resilient to yesterdays end of day bond sell off and higher yields.
S&P flat into NY open
S&P getting hit at the NY open with some profit taking.
December 16 –
S&P got hit with 10 pts of profit taking in Asian session to take out stops below 1762, then bounced back
DO NOT SHORT BOTTOM TICK
Equities the only game in town. outflows out of bond funds, so bond upside can be restrained. Commodity strength may be restrained. So the only game in town is to be long equities.
There are still a lot of bargain hunters on equity retracements.
Some S&P sell orders came in at the 9:30 NY opens last week. But today, buy orders are coming in. So that is a shift of sensitivity. It was retrace mode last week, and some profit taking at the NY open. But today it was buyers coming in and being aggressive.
S&P tripping stops above 1780
Nikkei fell in Tokyo open and tripped stops below 15,250 and 15,200 low, then bounced
DO NOT SHORT BOTTOM TICK
The Nikkei is more artificially propped up by a lot of Japan QE. The S&P is propped up by a lot of Fed QE as well, but there is more economic improvement in the US so far compared to Japan.
Nikkei would be going higher much faster and safer, if it was based on both QE and improvement in econ. But currently it is more QE and Yen depreciation driven, and that is susceptible to some profit taking. But you still don’t want to short it, as it is going against the general macro forces. Abe is waiting for this “third arrow” structural reforms to help boost growth, etc. The relatively low bond yields, and surge in equity prices from last year, and the JPY depreciation are all potent short term and medium term bullish catalysts for the Japanese economy. But they know they need to follow through with structural reforms, otherwise everything will come crashing down when they eventually stop QE. They can’t QE to infinity. It will have to stop at some point. And they economy and markets better have underlying macro improvement to absorb the taper and end of QE from Japan.
December 20 – 5 and 10 yr notes falling to new lows and tripping downside stops over the past 2 days compared to 30 yr bonds.
DO NOT SHORT BOTTOM TICK
30yr bonds flat into NY open.
Bonds are resilient. They don’t want to go lower that much. That doesn’t mean I will go long them. But that just means I don’t go shorting bottom tick. As the rallied in bonds are limited as well.
It is possible that there is some money flowing from overseas into US bonds to take advantage of the higher relative yields.
In German 30 year yields are only at 2.70%
In Japan they are only at 1.70
While in the U.S. they are at 3.90%
So some people may be finding value in those US treasuries. Despite the Fed taper, some bargain hunters are propping them up. And if they are foreign, they get exposure to US dollars, so they benefit if the US dollar rallies.
Or perhaps some people are buying the bonds due to the continued outlook for benign inflation and prospect for no rate hike until around Sept 2015.
Bonds rose to 130.00
I am not chasing these highs.
Bonds tripping stops above 130.00, then fell back
DO NOT BUY TOP TICK
“The perception was the curve would steepen because the Fed wouldn’t taper,” said Thomas di Galoma, head of U.S. rates sales at ED&F Man Capital Markets in New York. “The exposure everybody had was a steepening trade. What’s happening is a lot of these trades are coming off. There are too many trades in the market, they’ve got to be sorted out.”
“The flattening of the yield curve is continuing,” said Barra Sheridan, a rates trader at Bank of Montreal in London. “Five- and seven-year notes are getting crushed versus the long bond. Too many guys had steepeners on and didn’t believe the Fed was going to taper,” he said, referring to a bet that longer-maturity yields would rise compared with shorter-term ones.
December 19 – 5 and 10 year notes breaking the lows, while the 30yr bonds have not broken the lows yet.
Gold is at fresh lows, the 5 and 10 year are at fresh lows, but the 30 yr bonds are not yet.
Bonds roughly flat for the day, while Gold makes fresh lows.
December 18 – Bonds fell from 130 down to 129-10 into NY open.
They are trying to correct yesterdays divergence with Gold.
DO NOT BUY TOP TICK
Bonds tripped stops below 129-05, then bounced
DO NOT SHORT BOTTOM TICK
Bonds FM spike down on -10bln Fed taper, then rose
Bonds tripping stops above 130-00
The Fed did say they may have to keep rates low, well past the 6.5% unemployment threshold. So that is keeping bonds propped up.
If risk appetite picks up, then that can cause more rotation out of bonds and into equities, even though a sizable shift of that has already occurred this year.
Bonds fell into the range after tripping stops above 130-00
DO NOT BUY TOP TICK
December 17 – Bonds ripped stops below 129-06, then bounced
DO NOT SHORT BOTTOM TICK
There are some bargain hunters from low inflation, and expectation that rates will stay low for a while even after QE ends.
There is another theory floating around that the bonds may not go down that much because that the Federal deficit is shrinking, so there will be less supply of Treasuries being issued, which will help prop up the market, even if it won’t stop it from completely falling.
Why are bonds up for the day? Is it due to general bargain hunting? Or is it due to risk aversion from CHF and JPY going up and bonds rising due to safe haven bid? But S&P is flat, so it doesn’t look like risk aversion.
But the CHF strengthening should continue to be watched.
Bonds rose, while Gold fell for the day.
December 16 – Bonds rallied +10 ticks or so into NY open
I am not chasing bonds higher. Reward risk is poor for long trade given current information flow.
Bonds selling off later in the day. Perhaps on taper fears.
DO NOT BUY TOP TICK
Correlation / Sensitivity Sheet for Friday, December 20, 2013
Still bearish on the AUD. Spendign cuts in the AUD budget will mean that the only form of stimulus is in the form of AUD depreciation or rate cuts. Stevens said depreciation was preferable to rate cuts at the current moment. Just have to time it properly.
China to slowdown or not due to domestic reforms, cleaning up bad loans, stronger Yuan?
CAD I don’t have a view.
NZD is getting dragged lower with AUD sometimes. With the higher NZD GDP, I would consider going long NZD if the NZD depreciates a few hundred pips or so.
Growth and inflation to pick up in NZ? Home prices to stall or not?
I am not certain if there will be more USD strength versus EUR and GBP. I find it better to wait for EUR/USD and GBP/USD to make fresh highs first, and only then consider shorting them. I do think there is more USD/JPY upside and AUD/USD downside due to JPY and AUD weakness. It is just a matter of timing.
S&P rose from the retracement lows to fresh highs. Buoyed by lower yields, budget deal, stronger US Q3 GDP, people buying back after they saw the market rise on Fed taper. Still more upside potential for equities, but better reward risk in individual equities.
Bonds rising for some reason. I wouldn’t chase them higher. It looks like ti will require a faster taper of 20bln per meeting and higher infaltion to really cause bonds to go down.
Gold did make fresh lows, while Bonds are in the top of the range. I am really not sure how much gold downside potential there is. I do think there is more downside in Gold than Bonds, but it may be gradual and choppy downtrend.
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 Fed taper or not? Growth drop if they taper?
Mediocre U.S. data and low inflation to cause Fed to delay further taper?
Mediocre U.S. data and low inflation to cause Fed to expand bond buying?
Fed to taper hard and fast, despite mediocre data?
Any risk aversion scenarios on the horizon?