The Fed took further steps to relieve the US dollar crunch on Tuesday and we look at what is happening and why. USD strength is resurfacing today, but gold, silver and GBP remain higher against the greenback. The US ADP employment survey for March dropped to -27K, the lowest since 2017, but economists indicate the worst from Coronavirus hit was far from captured in the report. Meanwhile, the US March ISM manufacturing index fell to 49.1 vs 45.0 expected, from 50.1. Tuesday's Premium short in the DOW30 is currently +1000 pts in the green. Below is today's weekly Premium video for English speakers, focusing on indices, sectors and gold.
The Fed added to its USD-swap program on Tuesday, adding swaps for every country that has holdings at the New York Fed. Dollar liquidity is less severe than two weeks about but continued whippy moves in FX suggest that trouble-spots remain.
It's important to remember that the US is a major net debtor with inbound investment exceeding outbound. Lately, foreign firms, governments and central banks need to dollars. Normally they can borrow in USD but those markets have closed so their next option is to sell USD-denominated assets, like Treasuries.
The emerging thinking suggests that any renewed decline in indices may not trigger the same level of USD buying/Gold selling as was seen 2-3 weeks ago due to the highly targeted Fed effors to relieve stress in USD funding.
The Fed doesn't want that so they're stepping up to lend against those assets via swap lines in the hopes that markets will calm and assets won't need to be sold. It appears to be working but it's important to remember that it's not a long-term fix. Unless foreign economies find a footing in the weeks ahead, that selling pressure will resume. Of course, the Fed is buying what they're selling but many of those dollars will be converted to domestic currencies and that will put downward pressure on USD.
Initial jobless claims remains the best real-time look at employment but there are widespread reports of people unable to file because of the huge backlog, especially in hard-hit states.
فيديو إرشادي جديد حول إستعمال خدمة توصياتنا في تداول العملات و المؤشرات و الذهب و النفط. الفيديو الكامل
Each of equities indices, bonds and the US dollar rallied to start the week, save for oil prices which continued their battering. Is it a sign of a bottom, or quarter-end rebalancing? The Australian dollar was the top performer while the Canadian dollar lagged. China's official PMIs are due up next. In the Premium Insights, Wednesday's USDJPY short at 111.20 hits final target 108.00 on Friday, while the DOW30 short and EURUSD long were closed on Friday for 990 pt & 215-pip gain respectively. Below is Ashraf's video for subscribers on Gold/Silver/Indices open to all.
We're hesitant to take a signal from Monday's trading because of uarter-end flows that drove an unusually strong bid in everything USD-denominated.
On the fundamental side, we highlighted the Dallas Fed yesterday and it was far worse than anticipated at -70.0 vs +1.2 previously. Comments in the report highlighted strains on cashflow and worries about solvency. The area is being hit particularly hard because of low oil prices.
On that front, Brent hit at 17-year low of $21.65 and WTI fell below $20 once again. In Canada, oil is trading at less than $4 and that showed in the loonie. However it's clear that quarter-end flows were a factor in trading on the day as Canadian oil company shares rallied strongly despite falling prices.
Flow-driven trading may continue into Tuesday as the new month gets underway but should be less of a factor beyond that.
From Ashraf's TweetsA few tweets from Ashraf on seeking bottom signs On sector-driven rally On why Lombardia Ashraf's Gold Poll
Increasingly the market will turn to data as March numbers begin to roll in. One coming up at 0100 GMT is the China PMI for March. The manufacturing number is forecast to rebound to 44.8 from 35.7 and services to 42.0 from 29.6. Real-time numbers like car sales and vehicle traffic show a spotty rebound in China but these numbers might offer a better idea.