Plenty in the report is familiar, he said the Party would
Coming into New York trade the market mood was fairly neutral. There were some concerns about China/Evergrande but the moves in FX were small.
However once again the equity tail was wagging the dog. After a flat start, US equities slumped had at the open for the eighth time in the past 10 trading days. The dip buyers tried to step in at the European close but after a fledgling rally there was another round of selling.
With the dip in equities came a broad bid in the US dollar, even against CHF and JPY. It wasn’t exactly a risk off trade in bonds either as rates pushed close to the Sept/Aug highs before stalling.
The Canadian dollar was hit on falling energy prices and the mood in equities, along with some concerns about Monday’s Canadian election. USD/CAD cut through 1.2700 easily to break the weekly high then cruised up to 1.2760.
It was quadruple witching on Friday and one thing that argues that flows were responsible for price action is the outperformance of AUD and NZD versus CAD. If Evergrande was truly a driver, you would expect to see that antipodeans struggling more, especially the way that iron ore is trading.
Cable finished poorly on Thursday and Friday after hitting a one-month high early in the week. The selling was steady but didn’t kick off until well into New York trade. It’s on track to finish at the lows of the day as well. The Sept low of 1.3726 is now a hiccup away.
The chart I’m most interested in at the moment is USD/CHF. Despite the mood today, it extended the breakout above the June highs to the best levels since April. Many pairs are stuck in ranges but this one is making a move. There have been signs of SNB intervention recently but this is part of a broader USD move. Could the market be sniffing out a surprise taper announcement?
Have a great weekend.Full Article
There’s been a brewing controversy around covid booster shots, which the President touted last month. Biden said they would start rolling out next week.
However public health officials have some concerns around the quality of data mandating them. Many argue that the current vaccine regiment is extremely effective at preventing hospitalizations and deaths; and that only the vulnerable need doses. A second vote is coming on boosters for older Americans and that could pass.
Today’s vote highlights that divide and the lack of quality studies. This certainly isn’t the end of the issue but the mixed messaging isn’t helpful for anyone.
The one-way trade in natural gas markets has finally stopped, at least in the US.
Natty is down 5% today and now up just 2.6% on the week. If you scroll out though, it’s been a one-way trade since April and a remarkable bull run.
The heat might have come out of the market on forecasts for moderate weather in October that are beginning to circulate. The thing about gas is that it’s so heavily driven by weather and that’s a world of its own. There is a seasonal tailwind though through November and when the cold comes, it will rally again.
While gas is an interesting point in North America, it’s a crisis in Europe and parts of Asia. European benchmark gas was higher again today after yesterday’s dip.
ANZ Research sees limited upside for AUD and fellow commodity FX in the near-term.
“We think challenges in emerging markets -in terms of China’s
asset-market volatility and growth -are likely to continue to weigh on
sentiment amid deleveraging and sectoral adjustments. Despite being
above trend, we expect growth momentum in developed markets to be mixed,
with US growth vulnerable given relatively low vaccination rates,” ANZ
“On net, the muted growth impulse, alongside modestly tighter
liquidity is likely to leave the AUD and its fellow commodity
currencies in a bind for some time,” ANZ adds.
For bank trade ideas, check out eFX Plus.
There was a nice bounce after Europe logged off but it’s faded in the last 40 minutes.
The S&P 500 is now retesting the lows of the day. It’s a pivotal moment here for risk assets into the weekend.
That said, even if we get a terrible close does that really make a difference for Monday’s trade?
Even if something goes wrong at Evergrande, there are PBOC and Fed decision coming Wednesday that could reverse any negativity (or compound it for that matter).
the Baker Hughes weekly rig count is out and:
The price of WTI crude oil is trading down around $0.71 or -0.98% at $71.89
With Europe headed home for the weekend, the dollar remains near the best levels of the day and risk trades in FX near the lows.
There has been some stabilization in the last hour but signs of a retracement right now are absent.
The euro is at the lowest in nearly a month after today’s 33 pip fall.
That chart looks dramatic but if you zoom out, so many FX charts are still in the rangers of the past few months, though it’s now within striking distance of the lower bound.
I’m sympathetic to the idea that equity bulls don’t want to take weekend risk around Evergrande.
China works on its own timelines but with the company already saying it won’t make a September interest payment, a broader default is looming on its $305B in obligations.
I’ve seen some compelling arguments for why that shouldn’t lead to contagion and you have to imagine that Wednesday’s PBOC meeting could include a cut in the LPR, so there’s a backstop there.
At the same time, $305B is a lot of money and talk of 1.5m people losing deposits on homes can’t be good for the Chinese property sector.
I’ve been worried about China for awhile and the timing is so tough. While the music is playing you gotta dance. The problem is that you don’t want to be the guy locked into the dancefloor for the weekend when the music stops on a weekend.
What doesn’t quite add up is fixed income. If it gets ugly in China the #1 asset you’d want to own is US Treasuries and those are selling off hard today. Some seem to think that’s Asian accounts raising domestic cash and that may be the case but not everything is adding up here.
Toss in quadruple witching and it’s a puzzle that can’t be solved.
We now have a pattern of equity selling at the open in 8 of the past 10 trading days.
The next question to ask is, when does the selling stop? There’s also a clear pattern of roughly when the dip buyers return.
Time of the daily lows since Sept 3, on days of heavy selling at the open:
There’s certainly not a perfect pattern there but between now and the European close is a better time to be buying risk assets than selling them.
That move has led to a broad ‘risk off’ tone in FX. The dollar and yen are climbing against the loonie, AUD, NZD, GBP and euro.
USD/CAD has risen through 1.27, which was yesterday’s high. It’s been a sharp run to the upside with oil down about $1 in the last hour and $1.35 on the day. The weekly high of 1.2708 is a sneeze away.
This report drew intense interest last month when it collapsed through the pandemic lows. However the August retail sales report didn’t mirror that weakness as it widely beat expectations.
The problem with this report is that it’s increasingly a political barometer, which you can see when you break down sentiment by Democrats and Republicans.
The Fed does look closely at the inflation expectations numbers though. The buying intentions data for homes, vehicles and durables is also instructive.
Here’s the commentary in the survey:
The steep August falloff in consumer sentiment ended in early September,
but the small gain still meant that consumers expected the least
favorable economic prospects in more than a decade. Just two components
posted additional declines: buying attitudes for household durables
fell again in early September to a low reached only once before in 1980,
and long term economic prospects fell to a decade low. The decline in
assessments of buying conditions for homes, vehicles, and household
durables left all three near all-time record lows (see the chart), with
the declines due to spontaneous references to high prices. Some
observers anticipated that the early August plunge in confidence would
quickly disappear since it was driven by emotions. Emotions have long
been known to speed responses, the so-called fight or flight response,
which was the adaptive function they performed in early August. Many
other sources of economic data have since shifted in the same direction,
and point toward slower growth in consumer expenditures and purchases
of housing to the end of 2021.
There are at least three potential
reactions to inflation. Consumers have initially reacted by viewing
the rise in inflation as transitory, believing that prices will
stabilize or could even fall in the future. As a result, postponing
purchases is seen as a viable strategy. This implies a slowdown of
spending in the months ahead and a more robust rebound later in 2022.
The main alternative is that inflation will not be transient but will
rise further due to an unprecedented expansion in fiscal and monetary
policies. The resulting rise in inflationary psychology will lessen
resistance to rising prices and stiffen demands for increased wage
gains. This reaction takes a long time to fully develop, and is
contingent on significant increases in long-term inflation expectations,
which have yet to be observed. The final alternative is that consumers
may believe that the most effective strategy to maintaining their
purchasing power is to emphasize increases in their incomes, net of
taxes and transfers. The effectiveness of pandemic transfers were shown
by their successes in offsetting hardships among those most vulnerable
to economic disparities. Transfers to offset the inflationary erosion
of living standards could be justified in a similar manner.