Intraday Market Thoughts

What Does the Bond Market Know?

Oct 1, 2014 23:23 | by Ashraf Laidi

Sometimes a headline stands out as a catalyst for a market move but on many days it's impossible to point to a driving force. Wednesday was one of those days as the yen rallied in a flight to quality as the kiwi lagged. Markets will have a chance to digest the moves in Asian trading with a light calendar featuring RBA speakers.  Our latest Premium trades include 2 USDCAD and 2 in AUDUSD with Charts and trade ideas found in the Premium Insights.

The end/beginning of a quarter is always a tricky time to make sense of markets and that was especially true Wednesday with changeover happening a day ahead of the ECB meeting. Aside from broad yen strength the moves in the FX markets were relatively subdued but it was a full-fledged 'risk off' trade in bonds and stocks.

The debt markets seemed to lead Friday's moves, especially German and US bonds. The US 10-year yield fell more than 10 bps to 2.38% and German bunds fell below 0.90% once again.

A few of the reasons we heard for the moves:

1)Hong Kong protests 

2) Soft German/UK PMIs 

3) ISM manufacturing at 56.6 vs 58.5 exp 

4) Ebola 

5) PIMCO flows 

6) Talk about fresh Russian sanctions 7) Fund liquidation 

8) The calendar

Nothing quite adds up (and ADP was solid at 213K vs 205K exp) and we're suspicious of such dramatic flows into bunds ahead of the ECB. At the same time, Blackrock's global bond head said traders buying Eurozone sovereigns on expectations of QE are making a “mistake”. Blackrock is the firm running the ECB's ABS program.

Looking ahead, Chinese markets remain on holiday with the focus on the RBA. Policymakers Edey and Ellis will be grilled in parliament on housing  at 2330 GMT and HIA home sales are due at 0100 GMT. At 0130 GMT, Australian trade balance is expected at -800m and August building approvals are expected up 12.7% y/y in August.

Given the soft Aussie retail sales data and the wave of risk aversion, the 15-pip daily decline in AUD/USD on Wed should count as a small victory for the bulls.

Act Exp Prev GMT
Manufacturing PMI (Sep)
57.5 58.2 57.9 Oct 01 13:45
ISM Manufacturing PMI (SEP)
56.6 58.5 59.0 Oct 01 14:00
Markit PMI Manufacturing (SEP)
51.6 52.5 52.5 Oct 01 8:30
PMI Construction (SEP)
63.5 64.0 Oct 02 8:30
51.1 51.1 51.1 Oct 01 1:00
Eurozone Spanish PMI Manufacturing
52.6 52.3 52.8 Oct 01 7:15
Eurozone PMI Manufacturing (Sep)
50.3 50.5 50.5 Oct 01 8:00
Germany Markit PMI Manufacturing (SEP)
49.9 50.3 51.4 Oct 01 7:55
ISM Manufacturing Employment (Sep)
54.6 57.5 58.1 Oct 01 14:00
ISM Manufacturing New Orders Index
60.0 66.7 Oct 01 14:00
ISM Manufacturing Prices (Sep)
59.5 57.0 58.0 Oct 01 14:00
ADP Employment Change (SEP)
213K 210K 202K Oct 01 12:15
Trade Balance (AUG)
-700M -1,359M Oct 02 1:30
Building Approvals (AUG) (m/m)
1.0% 2.5% Oct 02 1:30
Building Approvals (AUG) (y/y)
9.4% Oct 02 1:30
Retail Sales (AUG) (m/m)
0.1% 0.4% 0.4% Oct 01 1:30

Awaiting Draghi's ABS Plan

Oct 1, 2014 20:13 | by Ashraf Laidi

Will this week's release of fresh lows in Eurozone inflation at 0.2% and evidence of contraction in German and France manufacturing PMIs force the ECB to announce the much-anticipated purchases of asset–backed securities and covered bonds at Thursday's meeting? Charts & analysis

Act Exp Prev GMT
Eurozone Spanish PMI Manufacturing
52.6 52.3 52.8 Oct 01 7:15
Eurozone PMI Manufacturing (Sep)
50.3 50.5 50.5 Oct 01 8:00
France PMI Manufacturing
48.8 48.8 48.8 Oct 01 7:50
Germany Markit PMI Manufacturing (SEP)
49.9 50.3 51.4 Oct 01 7:55

Loonie Sags, Tankan Hits With China on Holiday

Sep 30, 2014 23:04 | by Adam Button

The second quarter ended with a rout on oil and a break in the Canadian dollar. The New Zealand dollar was the top performer while the euro lagged. The fourth quarter begins in the Asia-Pacific region with the Japanese Tankan, Aussie retail sales and China's manufacturing PMI – all with China on holiday.  Our latest Premium trades include 2 USDCAD issued ahead of today's Canada data and the existing AUDUSD.

USD/CAD broke 1.12 for the first time since March. Four factors contributed to the move:

1. Canadian July GDP flat compared to +0.3% expected

2. The BOC's Cote said Canada is at risk from a sharp housing correction

3. WTI crude oil falling to $91.07 from $94.90

4. Mild risk aversion with stocks sliding to end the month

The pair ended the month on a tear climbing in 7 of the past 8 days and now threatening the 2014 high of 1.1280.

Overall, markets were without a clear theme, which is typical at quarter-end as flows dominate. A spell of fright hit at one point as a report circulated that Russia would consider capital controls if outflows accelerated. Naturally, Russia denied it.

The US dollar also came under pressure after a soft Chicago PMI and consumer confidence report.

A big day is scheduled in Asia-Pacific trading and liquidity will be lower with China closed for the holiday. The main event is Japan's Tankan at 2350 GMT. The large manufacturing index is expected at 10, down from 12. This is a major report and could put pressure on the BOJ to do more.

Despite the holiday, China also publishes the official PMI for Sept. It's expected at 51.0.

Finally, at 0130 GMT, Australian retail sales for August are expected up 0.4%. It will be a good chance to gauge sentiment in the beaten-up Aussie.

Act Exp Prev GMT
Retail Sales (y/y)
1.2% 0.3% 0.5% Sep 29 23:50
Retail Sales (AUG) (m/m)
0.4% 0.4% Oct 01 1:30
Nomura/ JMMA PMI Manufacturing (SEP)
51.7 52.2 Oct 01 1:35
Chicago PMI
60.5 61.9 64.3 Sep 30 13:45
Markit Manufacturing PMI (SEP)
58.5 57.9 Oct 01 13:45
ISM Manufacturing PMI (SEP)
58.5 59.0 Oct 01 14:00
RBC PMI Manufacturing (SEP)
54.8 Oct 01 13:30
50.2 50.5 50.5 Sep 30 1:45
51.0 51.1 Oct 01 1:00
Eurozone Markit PMI Manufacturing (SEP)
50.5 50.7 Oct 01 8:00
GDP (JUL) (m/m)
0.0% 0.2% 0.3% Sep 30 12:30
CB Consumer Confidence (SEP)
86.0 92.5 93.4 Sep 30 14:00
Tankan Large Manufacturing Index (Q3)
10 12 Sep 30 23:50
Tankan Large Manufacturing Outlook (Q3)
12 15 Sep 30 23:50
Tankan Non - Manufacturing Index (Q3)
17 19 Sep 30 23:50
Tankan Non - Manufacturing Outlook (Q3)
18 19 Sep 30 23:50

Russell 2000 / S&P500 ratio & triple Death Cross

Sep 30, 2014 18:57 | by Ashraf Laidi

The Russel2000/SPX500 ratio is down 12% from its March highs, the biggest peak-to-trough decline since Sep-Dec 2008. Full charts & analysis.

Kiwi Crunched, Big Day in Japan

Sep 29, 2014 22:36 | by Adam Button

The New Zealand dollar closed at the lowest levels in a year but held above the 2013 lows. The euro was the top performer Monday while the Aussie lagged along with the kiwi dollar. It's a major day for Japanese economic data with reports on jobs, industrial production and retail sales due. 2 new Premium NZD trades have been issued ahead of the upcoming NZ data.

Intervention talk in New Zealand is the major theme in the FX market to start the week. NZD/USD fell as low as 0.7707 in Asia-Pacific trading as the market digested evidence that a deliberate RBNZ attempt is underway to cripple the kiwi.Support at the 2013 low of 0.7689 wasn't seriously challenged and the pair bounced as high as 0.7795 before settling near 0.7765 at the end of US trading.

Politicians have been quick to distance themselves from the moves Prime Minister John Key disavowed any knowledge of intervention and the finance minister said the decision was taken independently at the RBNZ. We find it hard to believe the highest levels of government wouldn't be consulted in any FX intervention and even less believable in this case because Key was formerly an FX trader.

That may indicate Key knows the risks of failure and doesn't want his political life tied to the whims of the FX market, even though he was just re-elected. In any case, the lack of total government commitment is one reason the kiwi could bounce but that phase may not yet have arrived.

Up next the focus shifts northward in the Pacific to Japan – another place where officials would be happy to hasten a currency decline.

They may have additional ammunition after today's round of economic reports. The slate starts with the jobs report at 2330 GMT but that's rarely a market mover in Japan. The riskier reports are 20 minutes later with industrial production and retail trade. Production is expected down 1.1% y/y and retail sales up just 0.1% compared to last year. Soft numbers could rekindle talk of Japanese action.

Act Exp Prev GMT
Industrial Production (AUG) (m/m) [P]
0.2% 0.4% Sep 29 23:50
Industrial Production (AUG) (y/y) [P]
-0.7% Sep 29 23:50
Retail Trade s.a (AUG) (m/m)
-0.5% Sep 29 23:50
Retail Trade (AUG) (y/y)
0.3% 0.5% Sep 29 23:50