Instraday Market Thoughts

Housing Worries, RBNZ Hikes

Apr 23, 2014 23:30 | by Adam Button

Uneasiness about US and Canadian housing could be going mainstream on fresh signs of weakness. On the day, the Swiss franc was the top performer while the Australian dollar lagged after the weak CPI print. The RBNZ hiked rates as widely expected and maintained a hawkish tone despite last week's soft inflation numbers. 

The big surprise on the day was the miss on US new home sales at 384K compared to 450K expected. Worries about the housing market are beginning to percolate after a series of misses and no signs of a spring thaw. We'll be keeping a close eye on how the story develops.

The market briefly reacted to the report but the 15 pip moves were later erased in a tide of US dollar strength. The Markit manufacturing PMI for April was also slightly weak but that hardly dented dollar sentiment.

The Canadian dollar briefly weakened after the retail sales report. Feb sales rose 0.5% as expected but the prior was revised down. Digging into the figures also raises some questions about housing. Sales in the building materials section were down for the fifth time in six months and furniture sales were down 0.9% y/y. Those are both proxies for home sales and raise fresh questions.

The main event came later in the day when the RBNZ announced a second rate hike this year to 3.00%. The move was entirely expected but a 20% fall in dairy prices and a weak CPI report last week led many to believe the RBNZ would hint at a pause for June.

Instead, the statement focused on upside risks to inflation and NZD/USD climbed to 0.8620 from 0.8585. Wheeler said future hikes still depend on data and made another attempt to jawbone the kiwi, saying the exchange rate is not sustainable.

The remainder of the Asia-Pacific session is light on data. At 2350 GMT, the Japanese corporate service price index is expected to rise 0.7%. The main event will be a day later with CPI data due. 

In today's new set of Premium Insights, a new USDJPY trade was added after the last 2 trades in the pair hit their final targets. EURUSD GBPUSD USDCAD USDCHF AUDNZD and gold trades are all in progress.
Act Exp Prev GMT
Trimmed Mean CPI (q/q)
0.5% 0.7% 0.9% Apr 23 1:30
Weighted mean CPI (q/q)
0.6% 0.7% 0.9% Apr 23 1:30
CPI (y/y)
2.9% 3.2% 2.7% Apr 23 1:30
Trimmed Mean CPI (y/y)
2.6% 2.9% 2.6% Apr 23 1:30
Weighted mean CPI (y/y)
2.7% 2.9% 2.5% Apr 23 1:30
CPI Index Number
105.40 104.80 Apr 23 1:30
New Home Sales (MAR) (m/m)
0.384M 0.450M 0.449M Apr 23 14:00
New Home Sales Change (MAR) (m/m)
-14.5% -4.5% Apr 23 14:00
Manufacturing PMI
55.4 56.0 55.5 Apr 23 13:45
Retail Sales (FEB) (m/m)
0.5% 0.4% 0.9% Apr 23 12:30
Retail Sales ex Autos (FEB) (m/m)
0.6% 0.5% 0.5% Apr 23 12:30
Corporate Service Price (MAR) (y/y)
0.8% 0.7% Apr 23 23:50

Plunging US home sales not weather's fault

Apr 23, 2014 18:30 | by Ashraf Laidi

Sales of new homes in the US plunged 14.5% in March to 384,000 annualized units, the lowest level in eight months. The 14.5% decline was the 3rd biggest monthly drop in 20 years, with the larger declines seen in July 2013 and May 2010 at -17.1% and -33.5% respectively. Full charts & analysis here

Act Exp Prev GMT
New Home Sales (MAR) (m/m)
0.384M 0.450M 0.449M Apr 23 14:00
New Home Sales Change (MAR) (m/m)
-14.5% -4.5% Apr 23 14:00

China, Australia to Set the Tone

Apr 22, 2014 23:28 | by Adam Button

Solid US data made for a choppy market as traders returned from a long weekend. The Aussie dollar was tops while the Canadian dollar lagged. Australian CPI and the Chinese manufacturing PMI are major events in the hours ahead.  

A measure of G7 FX volatility from JPMorgan fell to the lowest since 2007, in a concrete measure of what many traders are lamenting at the moment. But nothing points to impending volatility like a quiet market. Once complacency give way momentum traders erupt. EUR/USD is particularly quiet with only a 1.25% range in the past two weeks. A hint at change in the BOJ or ECB could get the pair moving.

The market is also looking for a better sense of the strength of the US economy. The April Richmond Fed was at +7 compared to +2 expected. Existing home sales also edged estimates at 4.59m vs 4.56m expected but it was the lowest reading since July 2012.

A WSJ story didn't get the market's attention but it could prove important. Citing sources, it said the BOJ could upgrade its inflation forecast – something that would severely diminish the chance of further easing.

In any case, market are likely headed into a higher gear in the hours ahead with Australian Q1 CPI due at 0130 GMT. The consensus is for a rise to 3.2% on headline inflation and 2.9% on the trimmed mean. A higher or lower reading is sure to jolt AUD.

But the initial move might be restrained by the China PMI from HSBC due 15 minutes later. The preliminary reading is expected to tick higher to 48.3 from 48.0 but remain solidly in contractionary, sub-50 territory.

If both releases point in the same direction, a big move in Australian dollar could be coming. 

Latest Premium Insights invilved 2 new trades in gold with 3 related charts, in addition to our longs in EURUSD, GBPUSD, USDCAD, USDCHF and AUDNZD.  A new set of Premium Trades will be added Wednesday. 
Act Exp Prev GMT
Consumer Price Index (Q1) (q/q)
0.8% 0.8% Apr 23 1:30
RBA trimmed mean CPI (Q1) (q/q)
0.7% 0.9% Apr 23 1:30
Consumer Price Index (Q1) (y/y)
3.2% 2.7% Apr 23 1:30
RBA trimmed mean CPI (Q1) (y/y)
2.9% 2.6% Apr 23 1:30
Existing Home Sales (MAR) (m/m)
4.59M 4.55M 4.60M Apr 22 14:00
Existing Home Sales Change (MAR) (m/m)
-0.2% -0.4% Apr 22 14:00
New Home Sales (MAR) (m/m)
0.45M 0.44M Apr 23 14:00
New Home Sales Change (MAR) (m/m)
-3.3% Apr 23 14:00
Richmond Fed Manufacturing Index (APR)
7 0 -7 Apr 22 14:00

Japan Turns to Pensions, Not Printing

Apr 21, 2014 23:02 | by Adam Button

The Japanese government is instigating changes at its massive public pension in a move that could take pressure of the BOJ. In light trading Monday, the Canadian dollar was the top performer while the kiwi lagged. The Japanese and Australian leading indexes are the lone items on the upcoming calendar.

Japan may look to spur growth by re-allocating its $1.2 trillion pension fund rather than BOJ stimulus – at least for now. On Friday, the government said it planned changes and today it delivered by appointing 7 new members to the 11-person pension investment team.

Several of the appointees have argued for steering investments into more dangerous assets from the traditionally domestic-bond-heavy portfolio. Changes won't be dramatic but they may push out the timeline for BOJ easing, especially as policymakers take their time evaluating the consumption tax.

Elsewhere,  the New Zealand dollar has been under pressure for the past 10 days. A large part of the reason is falling milk prices  and that's a trend that threatens to continue. In the near-term, however, the focus will shift to the RBNZ decision on Wednesday. All 15 economists surveyed by Bloomberg expect Wheeler to hike so hawkish/dovish comments will be key. Look for moves on pre-decision positioning in the 24 hours ahead.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
  • EUR +28 vs +23K prior
  • JPY -67K vs -87K prior
  • GBP +51K vs +46K prior
  • AUD +8K vs +3K prior
  • CAD -35K vs -34K prior
  • CHF +14K vs +11K prior
  • NZD +20K vs +20K prior
The notable move is in the yen where long-term bears are beginning to clear out. The crux of their case was that the BOJ would ease shortly after the consumption tax hike but that's growing less likely. Ex-gov Suto was on the wires Monday say the BOJ is likely to wait until hitting its targets is impossible before taking action. 

 Latest Premium Insights invilved 2 new trades in gold with 3 related charts, in addition to our longs in EURUSD, GBPUSD, USDCAD, USDCHF and AUDNZD.

Bonds Shrug Off Risks, Dollar Higher

Apr 17, 2014 23:22 | by Adam Button

A better tone on Ukraine pushed up Treasury yields after all parties agreed separatists would exit government buildings. USD was the top performer while NZD lagged. The day ahead is likely to be extremely quiet with many markets closed for Good Friday.  

A prevailing school of thought headed into the weekend was that risk trades might suffer on fears of a Ukranian flare up over the long weekend. Instead, leaders emerged from four-party meetings with a conciliatory tone. The largest impact was in the Treasury market where 10 year yields moved up 9 basis points – the most since the FOMC decision on March 19.

Higher yields fuelled US dollar buying across the board. The correlation with yields and USD/JPY is notable and with Kuroda opening the door to further easing on Thursday, the upside is considerable. Dollar buying was also supported by the Philly Fed at +16.6 compared to +10 expected. Initial jobless claims were at 304K versus the 315K consensus. Most of this week's economic data was dollar positive, especially retail sales and CPI.

The euro was particularly soft after Mersch warned of the growing likelihood of cuts due to the higher euro and a Reuters source said Weidmann was open to QE in the right circumstances.

One currency that kept pace with the US dollar was the loonie after Canadian CPI was higher than expected. It's the second month of strong inflation numbers and talk of rate cuts is dwindling.

The key for the next stage of growth in North America is business investment. Corporate earnings are a spot to watch and so far it's a mixed bag as companies continued to wait for better signs of growth before putting cash to work.

Latest Premium Insights invilved 2 new trades in gold with 3 related charts, in addition to our longs in EURUSD, GBPUSD, USDCAD, USDCHF and AUDNZD.
Act Exp Prev GMT
CPI (m/m)
0.6% 0.4% 0.8% Apr 17 12:30
Core CPI (y/y)
1.3% 1.3% 1.2% Apr 17 12:30
CPI (y/y)
1.5% 1.4% 1.1% Apr 17 12:30
Continuing Jobless Claims (APR 4)
2.739M 2.795M 2.750M Apr 17 12:30
Initial Jobless Claims (APR 11)
304K 315K 300K Apr 17 12:30
Philly Fed Business Conditions
26.6 35.4 Apr 17 14:00
Philly Fed Employment
6.9 1.7 Apr 17 14:00