Intraday Market Thoughts

Trade Turmoil

Mar 22, 2018 21:41 | by Adam Button

A series of waivers of US steel and aluminum tariffs eased trade worries on one front but escalated them on another on Thursday as stock markets were battered. The yen was the top performer while the Australian dollar lagged in a classic risk-off move. Japanese CPI is due up next. The Premium DAX30 short was closed at 11980 for 360 pt-gain.

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Trade Turmoil - Performance 21 Mar 2018 (Chart 1)

The US trade position is increasingly clear. Levying tariffs against some of its closest trading partners was part of a negotiating strategy. They were a threat designed to bring them to the table, where the US gave them an ultimatum: take our side against China or face the consequences.

Leaks from EU tariff negotiations showed that support for the US against China at the WTO stood among the conditions. At the same time, the US hit China with fresh tariffs Thursday on imports of intellectual property.

So what had looked like a US-against-the-world trade spat may be the-world-against-China, led by the US. That puts the China in a tough spot but leaves them with several options: 1) play the long game by accepting the tariffs and wait for Trump to leave office, 7 more years if necessary. 2) Try to sway countries on the US side. 3) Try to hurt the US in swing states head of the US mid-terms.

At the moment, the third option is the most likely but markets will be watching China's next move very closely. The S&P 500 closed on the lows and narrowly below the worst levels of March. Technically, the picture is deteriorating.It's much the same in the yen crosses – many of which never recovered from the plunge in February anyway.

China's getting warmed up

The ink is barely dry on Trump's tariff attack and China is already setting to plan reciprocal tariffs on $3 billion of US imports (agriculture and steel) in the form of  15% in tariffs.

Going into the weekend, the market will be wary of negative headlines and risk aversion will probably continue. Yen traders will we watching for headlines from Japanese CPI at 2330 GMT. The consensus is for a 0.5% y/y rise ex-fresh food and energy.

Why the Dollar Sank on the Fed

Mar 21, 2018 22:06 | by Adam Button

The market expected something more hawkish from the FOMC on Wednesday. Instead, the dot plot continued to show three hikes and the US dollar stumbled. In early Asia-Pacific trading, the RBNZ left rates unchanged. A new Premium GBP trade was issued. Here is a tweet posted 7 hours before the Fed decision.

A Fed hike was entirely priced in on Wednesday so the market was more focused on signals about what is coming later in the year, particularly the debate about three or four rate hikes. Many thought the dot plot would move higher to indicate four hikes this year but it remained at three and the instant reaction in the US dollar was to slide. In case you missed Ashraf's Fed preview explaining why predicted the Fed will still stick with signalling 3 hikes, here is the video and here is the article.

Initially that was balanced out by a fresh line the statement that said economic growth has strengthened in recent months. Later, in the press conference, Powell chose not to highlight better growth prospects and instead noted the slow pace of wage gains. That might have been a reflection of the questions he was asked but the hawks were still left with little to get excited about.

In addition, the market was leaning towards something hawkish in the lead-up to the announcement. As seen by the rise in Treasury yields and the dollar beforehand. Much of that reversed in the hours after the statement.

In particular, GBP limbed above the mid-February high in a strong move ahead of Thursday's BOE rate decision and UK retail sales report. If Carney delivers a hint about a rate hike in May, a return to the February highs is likely. A recurring message about GBP Ashraf has been sending over the past 9 months to subscribers is that the Bank of England is more eager to contain inflation via talking up the pound than via actual rate hikes. Alluding to a potential May stands among the ways to jawbone the currency without actually pulling the rate trigger.

Another big move Wednesday came in the Canadian dollar as officials in Canada and the US highlighted progress on NAFTA talks. USD/CAD dropped more than 150 pips on the day. Tradewise, the Premium short in USDCAD survived the 1.3120 stop before re-entering the green, while the CADJPY short was closed for 200-pip gain at the right shoulder. 

The New Zealand dollar emerged from the RBNZ decision relatively unscathed. There was no move on rates as was expected with Grant Spencer's interim term as Governor wrapping up next week. Some m odest NZD selling came on a line in the statement saying that CPI inflation will weaken further in the near term but that was balanced by the absence of anti-NZD jawboning.

Four Points on the Fed

Mar 21, 2018 16:44 | by Ashraf Laidi

Will the Fed signal 3 or 4 Fed hikes? Will markets believe it? How will Powell fare in his 1st press conference as Fed Chair? How will USD reactFull analysis.

أربع نقاط لقرار الاحتياطي الفيدرالي

Mar 21, 2018 16:35 | by Ashraf Laidi

من المتوقع أن يرفع الاحتياطي الفيدرالي أسعار الفائدة بمقدار 25 نقطة أساس في اجتماع اليوم. يتم تثبيت الأسواق حول ما إذا كانت التوقعات المركزية لأعضاء اللجنة الفيدرالية للسوق المفتوحة ستتحول نحو إشارة إلى اربع ارتفاعات في سعر الفاءدة هذا العام من التوقعات الحالية لثلاثة ارتفاعات التحليل الكامل

Pre-Fed Charts Video

Mar 21, 2018 14:48 | by Ashraf Laidi

In this charts video for GKFX, I highlight the crucial points ahead of today's FOMC announcement, the dot plot forecasts & press conference with a close look at EURUSD, GBPUSD, GBPAUD and XAUUSD. Full video.