Intraday Market Thoughts Archives
Displaying results for week of Apr 25, 2021Yen Back on The Defensive
Two weeks ago, it looked like a deeper correction in yen crosses was coming as several broke the March lows but there has been a quick turnaround in improving risk sentiment.
On Thursday, EUR/JPY and CAD/JPY both hit a two-and-a-half year highs following four days of strong gains. NZD/JPY and AUD/JPY are also within striking distance of new highs as risk trades continue to improve.
Another factor is the rise in sovereign yields with US 10s touching 1.68% on Thursday. Some of that might be month-end flows (which will continue to be a factor on Friday) but yields are likely to be finished their retracement phase and that could stoke a further leg in the yen trade.
The other driver will be inflation and the eventual tapers from major central banks, especially if the BOJ doesn't join in.
The heavy newsflow this week has taken the focus of inflation for a moment but that won't last with the PCE report due on Friday. Headline inflation is expected up 2.3% y/y with core to rise 1.8%. Powell already dismissed a 'transient' rise in inflation this year and said it won't meet the criteria for meeting and moderately exceeding the target. That could limit the market reaction, but perhaps not the hand-wringing. Another spot to watch is the personal spending portion. Q1 GDP highlighted a strong consumer and we're likely to see more of that here, but even if the number is week, economists will simply shift expectations to April.Powell Shuts Down Taper Talk & USD
The Fed is sticking to its plan of lower rates for longer. The FOMC statement barely acknowledged the improved economic outlook and Powell followed that up with comments that left no room for a hawkish interpretation.
“It's not the time to start talking about a taper,” he said. The Fed chair also said that a transitory rise above 2% this year won't qualify as the moderate overshoot they're looking for before taping the brakes.
The US dollar responded by slumping 30-50 pips across the board. The commodity currencies were particularly strong on the day and the loonie benefited from strong Feb and March retail sales numbers. USD/CAD fell to a three-year low.
In a bit of a warning sign, US equities finished narrowly lower on the day. Note that after 4 of the previous 8 FOMC meetings, there was a substantial risk off move immediately afterwards.
Looking ahead, USD/JPY may get some support from Thursday's first look at Q1 US GDP. The consensus is +6.6% annualized but risks are to the upside after Wednesday's wholesale inventories report for March beat expectations and February was revised higher. The headline though could be overlooked if personal consumption doesn't hit the +10.5%. Weekly initial jobless claims will also be released at the same time and could weigh.Beware A Strong Fed Consensus
More data confirmed the upbeat mood in the US on Tuesday as the consumer confidence reading from the Conference Board rose to 121.7 from 109.0. That easily beat the 113.0 consensus and is the best reading since the pandemic.
The Richmond Fed headline was flat at 17 and missed the 21 consensus but metrics on wages, prices and orders were all high – something that's been an ongoing theme.
Up next is the Fed decision at 1800 GMT. There's a strong consensus that nothing new is coming and that Powell will continue to emphasize that inflation will be transitory and that it will take many months to recover job losses.
That's probably the right take, but such strong consensus and market complacency often leave traders vulnerable. Foreshadowing a taper would be a dramatic U-turn from Powell, who just days ago said that the Fed would shift after realized progress, not better forecasts. Still, he can't help but being more optimistic in the press conference and the market could take that as hawkish. In the past 8 months, Fed decisions have repeatedly set off rounds of risk aversion and that's the main thing to watch. Even the smallest hints at less-loose policy from Powell have led to punishing swings.
Aside from the Fed, CAD will be a spot to watch with February retail sales. If the theme of consumer resilience shines through here it will bode well for the current lockdown.Industrial Metals Breaks Out
Copper has consolidated for the past eight weeks but broke out on Monday, hitting the best levels since 2011. The climb comes on widespread speculation of looming supply shortages as government spending and private demand jump following the pandemic. If copper can rally another 8%, it will clear the 2010 high and rise into technical blue skies.
There is little debate that the global economy will be strong over the next year, it's more of a question of how strong and how sustainable it will be. Followed by questions about inflation.
Monday's US durable goods report was soft with non-defense capital goods orders excluding aircraft up 0.9% compared to 1.8% expected. Despite that, overall orders have risen in 10 of the past 11 months and commentary from manufacturing surveys has been almost universally upbeat.
Ultimately, it will be consumers and how willing they are to spend pent up savings (and new housing wealth) that determines the length and strength of the expansion.ندوة أوربكس مساء اليوم مع أشرف العايدي
The Summer Sizzle is Coming
There's no post-pandemic playbook. Economists were in uncharted territory heading into the pandemic and will be sailing blind coming out. Almost every step of the way so far, the returns are better than anticipated.
As the US reopens, the latest signs are impressive. Survey data is the most-forward looking and on Friday the Markit services PMI was at a record high (since 2008) at 63.1 compared to 61.5 expected. It was the same thing in similar surveys elsewhere and nearly all of them cited strong orders and soaring input prices.
Some of the anecdotal reports are so glowing, they were hard to believe at first but now they're widespread.
“Restaurants spent much of the past year trying to win back customers. Now, they are struggling to win back employees,” the WSJ wrote on Sunday.
A similar boom is brewing in the UK, which is just behind the US in vaccines. The BOE's Broadbent highlighted “very rapid “ growth on the weekend. Forecasts are nearing +7% for the year.
The week ahead is very heavy on economic data and earnings, with the FOMC decision as a highlight. It starts with the US durable goods orders report for March at 1230 GMT.
CFTC Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.EUR +81K vs +67K prior
GBP +25K vs +26K prior
JPY -60K vs -58K prior
CHF +2K vs +1K prior
CAD +13K vs +2K prior
AUD -2K vs +4K prior
NZD +4K vs +3K prior
What's fascinating about the rise in CAD longs is that it came on Tuesday, ahead of the BOC decision. The loonie fell hard in the day ahead of the decision but someone was clearly wading in on the other side and was quickly proven right. Expect CAD positioning to stretch further in next week's report.