Intraday Market Thoughts

Ashraf & Adam on the Markets

Nov 13, 2019 21:47 | by Ashraf Laidi

Ashraf Laidi and Adam Button met in London, discussing a few topics, ranging from gold to the British Pound's prospects, the Bank of Canada's next step and the euro's growing role as a funding currency. Full video.

شكوك جديدة في المؤشرات الأميركية

Nov 13, 2019 13:51 | by Ashraf Laidi

يوضح الرسم البياني الاختلاف الواضح بين مؤشر “داو جونز الصناعي” (المعروف باسم “داو جونز” لمعظم المتداولين) ومؤشر الظروف المالية في الولايات المتحدة، الصادر عن شركة “بلومبرج” للأنباء المالية. التحليل الكامل

Threats, Hearings & Testimonies

Nov 13, 2019 11:03 | by Adam Button

Global equity indices are a lower across the board due to a number of factors after the S&P500 posted its 19th record high of the year, matching the same number of highs in 2018. The DOW30 remarkably matched (but did not break above) its high from earlier this week. Not only Trump's speech stayed far away from confirming reports of removing US tariffs on China, but also renewed his threats towards Beijing. The RBNZ's surprise decision to not cut rates is also contributing to the risk-off climate, especially as Fed chair Powell will be expected to deliver the same message to Congress (no need for any more rate cuts any time soon). A new trade was issued yesterday, backed by 5 charts.

القمة التي تنبأناها الاسبوع الماضي لمست و قشلت مجددا. تابعوا فيديو أمس انطلاق المحاولة الثالثة

Powell's testimony to lawmakers at 10 Eastern text of speech may be released as early as 8:30 Eastern or 13:130 London) is expected to maintain the same neutral tone he held at last month's post-FOMC press conference, but the extended Q&A period will shed light on the extent to which he is deviating away from a December rate cut. So far, the market sees no chance of a rate cut until Spring.

Trump (and the markets) will be busy watching the first day of the hearings on his impeachment, but no urgency is expected to weigh on markets unless there is a sign that Republicans are clearly starting to turn on their president.

One more regarding to China –Remarks from US officials expressing denouncing the violence in Hong Kong and backing their support for protesters may lead to a pushback from Beijing in the form of bellicose statements relating to the trade talks, especially after Trump's renewed threat that tariffs will “raised very substantially” if no truce was reached.

Act Exp Prev GMT
Fed Chair Powell Testifies
Nov 13 16:00
FOMC's Quarles Speaks
Nov 14 10:30
RBNZ Gov Orr Speaks
Nov 13 19:10

Pound Jumps, China Inflation Surges

Nov 11, 2019 16:43 | by Adam Button

The pound jumped by a full cent to 1.2898 after Brexit Party chief Nigel Farage said his party will not run in Conservative-held seats in next month's election so as to help result into a victory for the Conservatives and for Brexit (More below). China's consumer inflation hit 7-year highs, complicating the PBOC's decision to cut rates last week. CFTC positioning data showed growing CAD longs and EUR shorts. This week's market highlights include: UK jobs (Tues), UK and US CPI (Wed), Powell's Congressional testimony (Wed), RBNZ rate decision (Thurs), UK retail sales (Thurs) and US retail sales (Fri). Gold printed 1448, stopping us out at 1450. A new Charts analysis on gold has been sent to the Premium subscribers.

Click To Enlarge
Pound Jumps, China Inflation Surges - Cable Nov 11 2019 (Chart 1)

Farage Decides

The pound's surge emerged after Farage said his party will not contest the 317 seats held by the Conservatives in order to help Conservatives' chances of winning Parliamentary majority and achieving Brexit. Farage said his Brexit Party will only contest the +320 seats in mainland Britain that are not held by the Conservatives on the rationale and assumption that they will be successful in defeating Labour in the Leave constituencies.

It would be a risk and danger to pound bulls in the event that Leave constituencies with marginal Conservative or Labour majority would vote for Labour instead of the Brexit Party, in which case would produce Conservatives win and Hung Parliament.

China Inflation Dilemma

Chinese CPI rose to 3.8% y/y in October in a surge from 3.0% in September. That was much higher than 3.4% anticipated as inflation has accelerated from 1.5% y/y in February. It's the highest reading since January 2012.

The big caveat in the report is pork prices. They've jumped recently because of African swine fever and the trade war. The PPI report showed pipeline prices down 1.6% y/y, slightly worse than the 1.5% expected.

Last week, China's central bank lowered one-year medium-term lending facility by 5 basis points from 3.30% to 3.25%. That has the spillover effect of lowering the loan prime rate (LPR) which is a growing part of the PBOC's toolkit as new banking regulations come into effect next year.

While the drop in rates is token in size, it was likely a signal of more easing to come. A Global Times report Friday said monetary policy may 'switch gears' in the coming months to follow the worldwide easing trend. The CPI report probably won't derail that plan but it may forced policymakers to be more cautious or patient.

Much of that will depend on how the trade war shakes out. Surging Treasury yields and record highs in the S&P 500 signal optimism but the White House continues to send mixed signals. Peter Navarro said on the weekend that there is no agreement to rollback any existing tariffs as part of the Phase One deal while Trump said reporting on tariffs had been incorrect.

No one has forgotten how Trump flipped the tariff script on July 31 with a tweet and everyone remains on guard for a repeat.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -61K vs -53K prior GBP -29K vs -32K prior JPY -27K vs -20K prior CHF -14K vs -12K prior CAD +54K vs 44K prior AUD -27K vs -40K prior NZD -39K vs -40K prior

The soft Canadian jobs report on Friday surely sent a shudder through the crowded long CAD position but it's a minor setback as job growth stands at its strongest pace in 16 years. Meanwhile, the euro continues to cement its reputation as the funding currency of choice. That should cap its upside even if the global economy picks up. Finally, AUD shorts were quick to cover following the RBA. This week, it will be interesting to see if NZD can rally even if/when the RBNZ cuts rates. That would be an early signal of a bottom.

Act Exp Prev GMT
FOMC's Clarida Speaks
Nov 12 10:30

Cracks Appear in Trade Deal

Nov 8, 2019 17:07 | by Ashraf Laidi

The US-China trade deal may be pushed back with sides struggling to agree on a location, and more likely on the contents of an agreement. On Friday, US indices moved further away from their highs after pres Trump told reporters the US has not agreed to roll back tariffs on China (more below). The US dollar ends the week higher against all currencies as gold and silver were pummeled relative to coppper in a sign of growing optimism. Some key market levels are outlined below.

Cracks Appear in Trade Deal - Tweet Navarro (Chart 1)

US-Chinese disagreements about the location of signing the trade deal appear to be the least of traders' concerns at this point.

Those Market Levels

Fundamentals apart, XAUUSD broke below the 1480 horizontal base, now attempting to a hold above the 1455 (prev resistance extension). A break below it, risks dragging it to 1429. US 10 year yields broke the 2-month trend line resistance, paving the way for a required breach of 1.95% in order for the 3-month uptrend to remain intact. Similarly, USDJPY faces trendline resistance at 110.10, but only after a confirmed close above 109.55.

With regards to indices, we were stopped out of 2 shorts in indices after 5 consecutive trades hit their targets (4 shorts and 1 long). In this week's video, we mentioned an upside target, which was hit.  Next week, the Premium Insights will be the time to act on that rationale and formulate a trade for it. Stay tuned.

The yield curve is further steepening after a brief inversion, which helps explain the records in US indices. The Fed wants to stay out of the conversation, leaving the US-China trade talks approach a positive compromise. Said differently, the Fed aims at returning to a phase where it makes minor changes to its assessment and no changes in rates. Such would be the ideal scenario for stocks. The only issue, is whether the world (and US) economy manage to shake off their pockets of weakness and if stocks avoid another round of VIX indigestion. Watch the sectors and their technicals--The leaders vs the laggards --the defensives vs cyclicals.

https://twitter.com/alaidi/status/1192832427401580544

Cracks Appear in Trade Deal - Tweet Dec 9 Events (Chart 2)


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