Intraday Market Thoughts

Ebola Fears Flair But They’re Fading

Oct 24, 2014 3:03 | by Adam Button

The yen tumbled Thursday as it finally caught up with stocks on a report that the Bank of Japan is losing patience in the fight against deflation. The US and Canadian dollars were the top performers. The Asia-Pacific week ends quietly but UK GDP is a highlight later.

Yen crosses ripped higher with USD/JPY touching as high as 108.35 as stocks continued to recover. We wrote that the dollar was likely to play catch up early in the week and the gains coincided with rising Treasury yields.

The excitement in markets was briefly pared by a report that a New York doctor recently returned from Guinea was rushed to hospital with ebola-like symptoms. The S&P 500 fell 12 points as the story circulated and USD/JPY slipped 30 pips but those declines were later erased.

With flu season coming, reports of ebola-like symptoms will become commonplace in the months ahead but the initial scare is over and unless there are reports of more widespread contagion then the impact of headlines will diminish over time.

Part of the reason the yen was so weak was a report in the WSJ saying the BOJ now sees a larger chance of CPI falling below 1%. That could lead to another round of stimulus and could come as soon as the meeting at the end of the month.

The other story that moved markets was an oil supply cut from Saudi Arabia in September data. Production wasn't lower but officials appear to be stockpiling crude rather than pushing it to market. That sparked a $2 rally in Brent as oil begins to show tentative signs of a bottom.

Asia-Pacific trading is light but one event to watch later will be the results of the first NYC ebola case, which should be released around 0700 GMT. Afterwards, UK GDP will be a major highlight at 0430 GMT. The consensus is for a 0.7% q/q rise.

 

The latest Premium trades are 2 USDCHF, while both GBPUSD shorts near deeper in the money after the double disappointment from the BoE minutes and UK retail sales. Tomorrow comes UK Q3 GDP.
Act Exp Prev GMT
GDP (Q3) (q/q) [P]
0.7% 0.9% Oct 24 8:30
GDP (Q3) (y/y) [P]
3.0% 3.2% Oct 24 8:30
Core Retail Sales (Sep) (m/m)
-0.3% -0.2% 0.3% Oct 23 8:30
Core Retail Sales (Sep) (y/y)
3.1% 3.4% 4.4% Oct 23 8:30
Retail Sales (Sep) (y/y)
2.7% 2.8% 3.7% Oct 23 8:30

BoC No Reason to Buy CAD, China PMI Next

Oct 22, 2014 23:11 | by Adam Button

The Canadian dollar rallied after the Bank of Canada decision but there was nothing in the documents pointing to a more hawkish BOC. The US dollar led the forex market on the day while the euro lagged. The NZD is lower in early Asia-Pacific trading on CPI data. CAD took the attacks in Canada's parliament in stride, while the major news of the week will likely be tonight's China flash HSBC manufacturing PMI and tomorrow's services PMI from the Eurozone. A new set of Premium Insights will be released tonight. All two GBPUSD remain in progress and nearing the final targets, following the BoE minutes and Thursday's UK retail sales. AUDUSD and NZDJPY also remain in progress.

The main headline from the BOC was the removal of the explicit “neutral” reference but it was simply replaced by other words that say the exact same thing. Moreover, Poloz warned that explicit forward guidance would be removed before the decision so it should have been no surprise.

In addition, the BOC pushed back its forecast for full capacity in the economy to H2 2016 from mid-2016, a signal rates will stay lower for longer.

Earlier in the day, Canadian retail sales also fell 0.3% ex autos compared to a flat reading. That number may overstate the weakness because it was driven by soft gasoline sales but it was still a soft report.

Mixed in was the tragic shooting near Canadian Parliament. It caused some fear in the Canadian stock market but was only a small factor, if any, for the loonie.

A larger factor is oil and prices continue to fall in something likely to hurt CAD. The $2 fall in WTI was large but the Canadian benchmark – Western Canada Select – fell nearly $4 to $65.02.

Yet another reason USD/CAD should be rising instead of falling is that it looks like hopes for billions of LNG investment on Canada's west coast is coming off the rails. The BC provincial government cut a proposed tax there in what looks like a panic move to keep projects alive.

In the bigger picture, the softening euro on expectations of a weak economy and corporate bond buying stands outside of the choppy risk trade that's dominating.

Early in Asia-Pacific trading the kiwi is down a half cent to 0.7877 after CPI rose just 1.0% y/y compared to 1.2% expected in the lowest reading in a year. The New Zealand dollar held up well in the risk rout but a fall below 0.7800 would end the string of higher lows.

Act Exp Prev GMT
Markit Manufacturing PMI (OCT) [P]
57.0 57.5 Oct 23 13:45
Markit PMI Composite (OCT) [P]
59 Oct 23 13:45
Markit Services PMI (OCT) [P]
58.9 Oct 23 13:45
PMI (OCT) [P]
50.3 50.2 Oct 23 1:45
Eurozone Markit PMI Composite (OCT) [P]
51.7 52.0 Oct 23 8:00
Eurozone Markit PMI Manufacturing (OCT) [P]
49.9 50.3 Oct 23 8:00
Eurozone Markit Services PMI (OCT) [P]
52.0 52.4 Oct 23 8:00
Consumer Price Index (Q3) (q/q)
0.5% 0.4% 0.5% Oct 22 0:30
RBA trimmed mean CPI (Q3) (q/q)
0.4% 0.5% 0.7% Oct 22 0:30
RBA trimmed mean CPI (Q3) (y/y)
2.5% 2.7% 2.8% Oct 22 0:30
Consumer Price Index (Q3) (y/y)
2.3% 2.3% 3.0% Oct 22 0:30
CPI (Q2) (q/q)
0.3% 0.5% 0.3% Oct 22 21:45
CPI (Q2) (y/y)
1.0% 1.3% 1.6% Oct 22 21:45
Retail Sales (Aug) (m/m)
-0.3% 0.2% -0.1% Oct 22 12:30
Retail Sales (SEP) (m/m)
-0.1% 0.4% Oct 23 8:30
Retail Sales ex-Fuel (SEP) (m/m)
-0.2% 0.2% Oct 23 8:30
Retail Sales (SEP) (y/y)
2.8% 3.9% Oct 23 8:30
Retail Sales ex-Fuel (SEP) (y/y)
3.4% 4.5% Oct 23 8:30

Connecting the Dots in the Dollar Disconnect

Oct 21, 2014 22:53 | by Adam Button

Stocks cheered on Tuesday in the largest gain in a year but the response remains lukewarm in FX and bonds. The Canadian dollar was the top performer while the Swiss franc lagged. The focus will be on the Aussie in the hours ahead with the CPI report due. 

The S&P 500 has retraced nearly 61.8% of its losses over the past month but USD/JPY has hardly regained 30%. Even after the best day for stocks in 12 months, the dollar failed to make any gains against the yen.

What's the forex market saying?

Part of the story is Treasury yields. The 10-year remains near 2.22% which is an unattractive level for foreign inflows. What's happened is that bonds and FX are weary of the Fed after Bullard's comments last week, while a more-dovish Fed is unambiguously bullish for stocks.

Expect that correlation to unwind next week and the US dollar to play catch-up if the Fed stays the course on the taper – something that's infinitely more likely with stocks rebounding.

At the same time, the ECB opened a new front Tuesday with a report saying they're considering buying corporate bonds late this year or early next. The usual denials even lacked urgency, saying only they weren't “currently” considering buys. If they do it could add rough 600-800 billion euros to the balance sheet.

The euro underperformed and finished near the session low at 1.2716. The leak on corporate bond buying could be aimed a cushioning the blow related to possibly bad news from next week's AQR and stress test.

Looking to the hours ahead, the focus is on the Australian dollar with Q3 inflation data due at 0030 GMT. The consensus is for a 2.3% y/y rise on headline and 2.7% rise on the trimmed mean. I see minimal reason to buy AUD on a higher number because the sequential changes will still be down significantly and much-lower oil prices put disinflationary pressures in the pipeline.

Our Premium trades remain AUDUSD, GBPUSD and NZDJPY. A new set of Premium  trades  shall be issued on Wednesday night.   
Act Exp Prev GMT
Consumer Price Index (Q3) (q/q)
0.4% 0.5% Oct 22 0:30
RBA trimmed mean CPI (Q3) (q/q)
0.5% 0.8% Oct 22 0:30
Consumer Price Index (Q3) (y/y)
2.3% 3.0% Oct 22 0:30
RBA trimmed mean CPI (Q3) (y/y)
2.7% 2.9% Oct 22 0:30

Fed to Stay the Course, China GDP Next

Oct 20, 2014 23:46 | by Adam Button

The main headlines Monday were from Fed members rejecting Bullard's talk of delaying the end of the taper but markets were unfazed. The US dollar was the laggard while the kiwi led the way as stocks drove upbeat risk appetite. The focus now switches to China with Q3 GDP due.  Our ongoing in Premium trades remain AUDUSD, GBPUSD our most recent Premium trades, there are 2 GBPUSD, AUDUSD and NZDJPY. A new set of Premium  trades  shall be issued on Wednesday night.   

Fed members Rosengren and Fisher – on opposite sides of the hawk/dove spectrum – both underscored a willingness to continue tapering heading into the trading week. That could have boosted the dollar and hurt risk assets. IT giant IBM also warned on profits in a blow to hopes for business investment.

Yet stock markets rallied nearly 1% and the US dollar sagged. We struggle to tie these events to news and instead point to strong weekend sentiment and talk about a bottom in stocks. The Treasury market was much more cautious with yields moving 1-2 bps lower.

There were also signs of strain in the periphery with Portuguese 10-year yields up 14bps, partly on talk of liquidation in Espirito Santo assets.

You could argue the market had a chance to get a better handle on the risks and has shifted worry to Europe. But that doesn't explain how the euro was able to climb against the US dollar throughout the day.

Overall, markets will need some better news in order to continue this rebound or it will quickly be over and the US dollar will resume its rally (excluding versus JPY).

The news starts with Chinese Q3 GDP at 0200 GMT. The consensus is for 7.2% y/y growth and anything else would be negative. The question is: Would a miss mean more stimulus? Probably and that could make any dip a worthwhile buy in AUD/USD. Meanwhile, a good number would boost the Aussie on better global growth and continue to help nerves heal.

Far Too Soon for the All Clear

Oct 19, 2014 23:26 | by Adam Button

Reading weekend commentary, you get a strong sense that many market watchers have called the bottom and expect a quick return to a low volatility environment.  

We doubt it. Periods of extreme swings in sentiment rarely end abruptly. For the moment, Bullard has calmed worries by adding a 'Yellen put' to markets but how much of a delay in the taper is now priced in? Unless some leaks slip from the FOMC that say otherwise, we suspect markets will put about an 80% probability on a taper delay by the time decision day rolls around.

The thing is, if the Fed disappoints, markets could go straight back to kicking and screaming -- perhaps worse.

At the same time, Europe is its own animal now and the economic worries there are real. It means every data point is elevated and AQR rumors will soon be rampant. Eurozone budgets are also in the spotlight with reports that Germany and France are in secret discussions to approve the French budget.

In the immediate term, the yen is slightly weaker in early trading in a sign that Friday's upbeat spirit will continue.

Events to watch include speeches from the RBA's Kent at 2300 GMT and the BOJ's Kuroda at 0030 GMT.

In our most recent Premium trades, there are 2 GBPUSD with 2 charts after Monday's GBPUSD trades hit their final targets .   Full trades & charts are in the Premium Insights.

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