Intraday Market Thoughts Archives

USD take a breather after weaker than expected US non-farm payrolls, dropping back towards the neckline support after a 4-day winning run. Ethereum, however, continues to rally, hitting new highs at $1764. GBP is the weakest of the day, after rallying across the board on Thursday as the BoE underscored the ongoing turn in central bank policy away from easing. Below is the chart showing USDX moving in tandem with real US yields against XAUUSD. 

Remember Jobs Data?

Once again, US NFP diverged with largely positive survey jobs data as payrolls rose 49k, 3x less than consensus expectations, while the prev 2 mths were revised down by 159k. The unemployment rate fell to 6.3%.

BoE off the Table ...again

With upbeat forecasts and a unanimous vote, the Bank of England signaled that negative rates are othe ff the table. Instead, the focus will now be on how quickly Bailey begins the taper and how long it will be before rates rise.

The QE program was kept at 895B pounds with the current 4.4B/week pace maintained until St Patrick's Day. It's likely to be trimmed by around 1b/week from there, baring any kind of surprise.

The market was caught off-guard by the level of confidence in the central bank despite the latest lockdown measures. Sterling jumped and as the only currency to hold off the ongoing rally in the US dollar (see yesterday's note).

The BOE is another example of central banks signaling (though not explicitly) that the easing cycle is over. The pandemic has been highly uncertain but after the first wave, consumers, businesses and governments have been able to better muddle along. Though some places may see negative GDP in Q1, optimism about the post-vaccine economy is building.

As is tradition, the end of the easing cycle means a quick pivot in markets to a focus on when the hiking cycle will begin. Despite the Fed's insistence that it will let inflation run hot, the market is focused on the US, because growth has held up much better there. Rates are ticking higher and the US dollar gained for seven straight days against the yen.

Indices attempt a recovery in a quiet day, dominated by sharp rallies in cryptrocurrencies and solid bounce in bond yields. The enthusiasm for meme stocks collapsed on Tuesday in a 60% drop in GME and 8% decline in silver. Below is the charts highlighting the latest record-breaking run by Ethereum, overshadowing the gains in other cryptos. Ethereum is +1093% since Jan 2020 vs Bitcoin's +374% and  +72% and 10% respectively since Jan 2021. 

As we highlighted early on, the meme stock madness led to some equity market liquidation on fear of hedge funds blowing up, or having to sell winners to raise cash. There has been a clear inverse correlation between broader equities and meme stocks in the past week and with the craze crashing down, the market has quickly bounced back. As we wrote earlier in the week, this was just a thing that happened, not a sign of an imminent change in the market or the economy.

What's more of a puzzle is the US dollar, which was strong again on Tuesday even as risk appetite picked up. It's still early and it could be flows but we're seeing stronger signs of the death of the old 'risk trade'. There is increasing evidence that US growth is going to outperform in 2021 and 2022; closing the covid output gap well ahead of others. With the US continuing to pile on fiscal stimulus, there's a very good chance the Fed is the first to hike.

Whenever something new and unusual occurs in markets, the temptation is to cut and run. We're wired to recoil and retreat from things we've never seen before; be it in nature or in markets. Even with that, we're surprised at the number of people we've heard from who have seen the madness in meme stocks and are clearing out of everything.  Less than 1 hour ago, the CME raised margin requirements on XAG Silver by 18% in an effort to stem speculation. CFTC positioning highlights the tepid attitude of sterling longs. The chart below, posted by Ashraf on here weeks ago, continues to steer the main markets as it did 3 years ago this week. 

Is this really a gamechanger?

From a monetary policy stand point, the North Star re-appeared to traders last week when the Federal Reserve and other central banks reiterated their core message: Cheap money isn't ending in the near or distant future.  From a fiscal policy angle, Senate Republicans offered a nearly $700B stimulus package of their own with $1000 checks, so it's safe to say that US spending is coming.

At some point we will see if the market belief/expectation about the post-vaccine world match the reality but, until then-- investors will have to reach for that rainbow.

In the shorter-term, the pattern is clear. The broader equity market is moving inversely to meme stocks. The thinking – at least initially – was that funds might be forced to liquidate and others wanted to get out of the way of the downdraft. On Monday, as it became the squeeze was running out of gas, the dip buyers arrived.

Meanwhile in the FX market, the US dollar held a strong bid to start the week. It didn't line up with market moves elsewhere and will be something to watch. US economic data continues to impress and if inflation materializes, it will be in the US first and that's the bull case for USD.