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fx:macro Summary Changes 2023_05_27

Created 11 months agoDiff never expires

43 removals

118 lines

53 additions

128 lines

"20.05.23

"27.05.23

***** MACRO *****

>>BULL<<

▶︎ FX volatility is still pretty low and falling

▶︎ FX volatility is still pretty low

▶︎ The VIX term structure is steep and well above cash VIX

▶︎ Credit spreads aren't widening

▶︎ COT data for the ES is very bullish

▶︎ The Chinese OECD CLI has turned around

>>BEAR<<

▶︎ The US debt ceiling is approaching fast

▶︎ Risk-on currencies aren't performing sustainably

▶︎ Most Asian and EM PMIs are weaker

▶︎ Latest PMIs and Asia aren't looking good on the Bloomberg heatmap

▶︎ The Global CESI is falling

▶︎ Market breadth isn't looking healthy and the A/D line is diverging lower

▶︎ Sectors are weakening: only Tech, Utilities and Staples have outperformed the SPX

▶︎ The entire market is carried by Tech (and only Tech) at the moment

▶︎ VVIX and MOVE aren't falling as they should

▶︎ Treasury futures COT positioning is mostly bullish

▶︎ Industrial metals and CL aren't performing

▶︎ Recession probability according to the Cleveland Fed model now at 80%

>>SUMMARY<<

Data-wise not much has changed since last week: we got more weak data from all over the place, especially China. European stock markets are at or near all-time highs (!), the US stock market is divided into a few stocks and sectors that go up and many that don't, and breadth is looking worse every week. Saying that it's not a healthy market feels like pissing against the wind.

There's nothing substantially new compared to last week: the market is going up because Tech and Semiconductors are being bought like there's no tomorrow but it's only these sectors and nothing else. I see SPY and QQQ going up but most of the market isn't, and I don't believe it's sustainable if everyone piles into the same trades. Could I be wrong? Of course. How long can this last? I have no idea but if volatility goes lower and/or it just doesn't die down soon then everybody who hasn't made money so far this year will just have to get on board unless they want to lose their job, and that would take us even higher. You can probably guess that I'm not long, and I'm glad that I don't have to put money into the pot - but if I had to, I'd be FOMO'ing hard.

***** USD *****

>>BULL<<

▶︎ Pricing for rate cuts is pushed further out

▶︎ Fedspeak is more hawkish than dovish at least compared to what the market has been pricing

▶︎ Pricing for rate cuts is pushed further out and the terminal rate is priced higher

▶︎ Bear flattening of the 2s10s

▶︎ COT positioning is still bullish

▶︎ Positive seasonality

▶︎ GDPNow is still solidly positive

▶︎ GDPNow is approaching 3%

▶︎ Mostly good data last week, CESI is higher too

▶︎ Sentiment is bearish

>>BEAR<<

▶︎ The 5y breakeven rate is below the 10y

▶︎ The 5y breakeven rate is below the 10y and the 5y-10y spread is falling fast

▶︎ Dovish FOMC statement, the door is open to a pause

▶︎ CSII is lower too

▶︎ CESI has dropped, CSII is lower too

▶︎ Weaker PMI on the heatmap

>>SUMMARY<<

Next week's data is expected to come in mostly bearish for USD, and we'll also get the FOMC Minutes (after what feels like 150 Fed speakers since the FOMC meeting which means that we shouldn't expect too much from the minutes anyway). Logan was the most hawkish speaker this week and Powell is keeping all options open. Positioning in EUR, GBP and now AUD as well are still bullish factors, and I like that rate cuts are being priced further out in time as we go.

Last week's data was surprisingly positive with Q1 GDP revised higher and a hot PCE print. Next week, virtually everthing is expected to come in bearish again. Real yields have also been going up which is bullish USD but I can imagine some weakness because of what the calendar looks like.

***** EUR *****

>>BULL<<

▶︎ ECB hawks are still trying to go for more hikes

▶︎ All in all, the ECB statement was a mixed bag but Lagarde tried to sound hawkish and no one argued for unchanged rates

▶︎ DAX and FESX are at highs

>>BEAR<<

▶︎ PMIs this week mentioned a collapse in new orders and foreign demand for manufacturing

▶︎ CESI is heading lower

▶︎ German and Eurozone PMIs on the heatmap are weaker

▶︎ OECD CLI for Germany has picked up

▶︎ COT positioning is at a bearish extreme and Large Trader net positions aren't confirming the strength in EUR

▶︎ COT positioning is at a bearish extreme

▶︎ Bearish seasonality

▶︎ Bullish sentiment

>>SUMMARY<<

The strength of European stocks is remarkable, especially since the Chinese reopening narrative has completely fizzled out. But as I wrote last week: we have deteriorating economic data, a falling CESI and the positioning issue that makes EUR a short.

Germany is now officially in a recession with two subsequent quarters of negative GDP growth. The German PMIs also didn't paint a rosy picture for the domestic or global economy. Positioning is still extreme, the incoming data is still surprising to the downside and next week we're expecting lower inflation numbers, so it remains a short.

***** GBP *****

>>BULL<<

▶︎ Hot (core) CPI: it's not disinflationary and it's surprising to the upside

▶︎ CESI is at a high... but it's a mean reverting index

▶︎ CSII has been going up

▶︎ Yields are still outperforming

▶︎ Yields are still outperforming and 2s10s are bear flattening, the 10y yield is already near levels of the Gilt crisis last year

>>BEAR<<

▶︎ Weak labour market report this week with GBP reacting bearishly

▶︎ Weakest PMIs this week with both Manufacturing and Services lower and missing expectations but relatively upbeat commentary

▶︎ COT positioning is bearish

▶︎ Bearish seasonality

>>SUMMARY<<

GBP hasn't done much since the BoE meeting last week. Wednesday's CPI will be the main event since Bailey mentioned it explicitly in his comments, and it's expected to come in lower. I'm leaning to trade GBP from the short side this week.

When I read through the list of positives vs. negatives, the bullish case clearly comes out ahead. I haven't had a good grasp on GBP for months, so I'll leave the bias unchaged.

***** AUD *****

>>BULL<<

▶︎ Surprise hike by the RBA but dovish-sounding statement

▶︎ CESI has picked up

▶︎ CSII is higher

▶︎ COT positioning is bullish

▶︎ Bullish seasonality

>>BEAR<<

▶︎ Worsening labour market data this week

▶︎ China isn't performing

▶︎ Weaker PMI on the Bloomberg heatmap

▶︎ Bearish seasonality

▶︎ Bullish sentiment

>>SUMMARY<<

Most of what I wrote last week still applies: AUD just isn't performing well, the RBA hike two weeks ago hasn't helped, economic data is surprising to the upside but weakening, and there's not much of a positive impulse from China. It remains a short.

We got more weak data (PMIs, Retail Sales), and copper and iron ore had another down week. Next week, Chinese PMIs are expected to come in mixed, so I don't expect much positive impulse here either.

***** NZD *****

>>BULL<<

▶︎ The RBNZ might surprise with a 50 bps hike

>>BEAR<<

▶︎ Disappointing inflation expectations print last week

▶︎ Everything about the RBNZ was dovish: from the statement to the minutes to the MPS to Orr's and Silk's comments

▶︎ Bull steepening of the 2s10s yield curve

▶︎ Most of the economic data over the last four weeks was bad

▶︎ It's inherently weak

▶︎ CESI is low, the CESI spread AUD-NZD is rising

▶︎ Sentiment is bullish

▶︎ CESI is low but the CESI spread AUD-NZD has flattened

▶︎ CSII has dropped too

>>SUMMARY<<

That's pretty interesting: NZD is the recent outperformer by quite a margin but I didn't have one single bullish bullet point listed last week, and I don't have a real one today either. Pricing for a 50 bps hike next week is about 40% vs. 60% for 25 bps. The Kiwi strength this week and expectations for next week's meeting make it vulnerable if the RBNZ comes in dovish (which my not very sophisticated gut feeling says they will because we've had a CPI miss and lower inflation expectations in the last two weeks and because they won't want to overdo it with another surprise).

My not very sophisticated gut feeling from last week was right: the RBNZ did come in dovish but I had not expected them to be that dovish. And we're back to no bullish arguments for NZD.

***** CAD *****

>>BULL<<

▶︎ Hot-ish CPI with a bullish reaction in CAD

▶︎ Macklem sounded more hawkish than dovish this week

▶︎ PMI has improved on the heatmap

▶︎ Bear flattening of the 2s10s

▶︎ CESI has picked up

▶︎ COT positioning is bullish, Dealers are near multi-year long levels

>>BEAR<<

▶︎ Crude oil just isn't performing

▶︎ Bullish sentiment

▶︎ Bearish seasonality

>>SUMMARY<<

Not too much news here that would make me change the bias. The correlation to CL has become a bit lower to about 0.35, so the weakness in crude oil is less of a negative factor by now.

Mostly unchanged from last week: nothing new here that would make me change the bias. The correlation to CL has become a bit lower to about 0.3, so the weakness in crude oil is less of a negative factor by now.

***** CHF *****

>>BULL<<

▶︎ The SNB is still sounding hawkish

▶︎ It's the currency with by far the worst sentiment; USDCHF and EURCHF are still the two FX pairs with the most bulls

▶︎ Bearish sentiment

▶︎ Bullish seasonality

>>BEAR<<

▶︎ COT positioning is bearish and doesn't confirm CHF strength

▶︎ CESI and CSII are both dropping

▶︎ Weaker PMI on the heatmap

>>SUMMARY<<

There's no new information since last week or the week before. I'm changing the bias to neutral because it's highly correlated to the EUR and its performance seems to hang on the SNB just buying it.

There's nothing new for CHF. It's not performing because the economy is doing well but because a) there are enough currencies doing worse, and b) the SNB is probably still buying it.

***** JPY *****

>>BULL<<

▶︎ GDP surprised (but JPY looked through that completely)

▶︎ The economy is performing better (but JPY is looking through that)

▶︎ Tokyo Core CPI still >3%, new print this week expected lower

▶︎ Ueda left the door open to a pivot, and inflation forecasts in the BOJ's Outlook have been upgraded

▶︎ Bullish seasonality

>>BEAR<<

▶︎ Tokyo Core CPI still >3% but latest print disinflationary and a miss

▶︎ Still the most dovish central bank out there

▶︎ Bullish sentiment

▶︎ Inherent weakness

>>SUMMARY<<

This week's reaction to the much-better-than-expected GDP number shows that the yen is mostly a risk-off proxy at the moment plus the week-long disappointment with the BOJ's non-action at the last meeting."

The bearish factors outweigh the bullish ones at the moment and the Yen isn't able to find a bottom. There's no way for me to predict a turnaround as long as the general market sentiment is as risk-on as it is and the BOJ isn't changing course."

Saved diffs

Original text

Open file

"20.05.23
***** MACRO *****
     >>BULL<<
▶︎ FX volatility is still pretty low and falling
▶︎ The VIX term structure is steep and well above cash VIX
▶︎ Credit spreads aren't widening
▶︎ COT data for the ES is very bullish
▶︎ The Chinese OECD CLI has turned around
     >>BEAR<<
▶︎ The US debt ceiling is approaching fast
▶︎ Risk-on currencies aren't performing sustainably
▶︎ Most Asian and EM PMIs are weaker
▶︎ The Global CESI is falling
▶︎ Market breadth isn't looking healthy and the A/D line is diverging lower
▶︎ Sectors are weakening: only Tech, Utilities and Staples have outperformed the SPX
▶︎ Treasury futures COT positioning is mostly bullish
▶︎ Industrial metals and CL aren't performing
     >>SUMMARY<<
Data-wise not much has changed since last week: we got more weak data from all over the place, especially China. European stock markets are at or near all-time highs (!), the US stock market is divided into a few stocks and sectors that go up and many that don't, and breadth is looking worse every week. Saying that it's not a healthy market feels like pissing against the wind.

***** USD *****
     >>BULL<<
▶︎ Pricing for rate cuts is pushed further out
▶︎ COT positioning is still bullish
▶︎ Positive seasonality
▶︎ GDPNow is approaching 3%
     >>BEAR<<
▶︎ The 5y breakeven rate is below the 10y
▶︎ Dovish FOMC statement, the door is open to a pause
▶︎ CESI has dropped, CSII is lower too
     >>SUMMARY<<
Next week's data is expected to come in mostly bearish for USD, and we'll also get the FOMC Minutes (after what feels like 150 Fed speakers since the FOMC meeting which means that we shouldn't expect too much from the minutes anyway). Logan was the most hawkish speaker this week and Powell is keeping all options open. Positioning in EUR, GBP and now AUD as well are still bullish factors, and I like that rate cuts are being priced further out in time as we go.

***** EUR *****
     >>BULL<<
▶︎ ECB hawks are still trying to go for more hikes
▶︎ All in all, the ECB statement was a mixed bag but Lagarde tried to sound hawkish and no one argued for unchanged rates
     >>BEAR<<
▶︎ CESI is heading lower
▶︎ German and Eurozone PMIs on the heatmap are weaker
▶︎ OECD CLI for Germany has picked up
▶︎ COT positioning is at a bearish extreme and Large Trader net positions aren't confirming the strength in EUR
▶︎ Bearish seasonality
     >>SUMMARY<<
The strength of European stocks is remarkable, especially since the Chinese reopening narrative has completely fizzled out. But as I wrote last week: we have deteriorating economic data, a falling CESI and the positioning issue that makes EUR a short.

***** GBP *****
     >>BULL<<
▶︎ CESI is at a high... but it's a mean reverting index
▶︎ CSII has been going up
▶︎ Yields are still outperforming
     >>BEAR<<
▶︎ Weak labour market report this week with GBP reacting bearishly
▶︎ COT positioning is bearish
▶︎ Bearish seasonality
     >>SUMMARY<<
GBP hasn't done much since the BoE meeting last week. Wednesday's CPI will be the main event since Bailey mentioned it explicitly in his comments, and it's expected to come in lower. I'm leaning to trade GBP from the short side this week.

***** AUD *****
     >>BULL<<
▶︎ Surprise hike by the RBA but dovish-sounding statement
▶︎ CESI has picked up
▶︎ CSII is higher
▶︎ COT positioning is bullish
     >>BEAR<<
▶︎ Worsening labour market data this week
▶︎ China isn't performing
▶︎ Weaker PMI on the Bloomberg heatmap
▶︎ Bearish seasonality
▶︎ Bullish sentiment
     >>SUMMARY<<
Most of what I wrote last week still applies: AUD just isn't performing well, the RBA hike two weeks ago hasn't helped, economic data is surprising to the upside but weakening, and there's not much of a positive impulse from China. It remains a short.

***** NZD *****
     >>BULL<<
▶︎ The RBNZ might surprise with a 50 bps hike
     >>BEAR<<
▶︎ Disappointing inflation expectations print last week
▶︎ It's inherently weak
▶︎ CESI is low, the CESI spread AUD-NZD is rising
▶︎ CSII has dropped too
     >>SUMMARY<<
That's pretty interesting: NZD is the recent outperformer by quite a margin but I didn't have one single bullish bullet point listed last week, and I don't have a real one today either. Pricing for a 50 bps hike next week is about 40% vs. 60% for 25 bps. The Kiwi strength this week and expectations for next week's meeting make it vulnerable if the RBNZ comes in dovish (which my not very sophisticated gut feeling says they will because we've had a CPI miss and lower inflation expectations in the last two weeks and because they won't want to overdo it with another surprise).

***** CAD *****
     >>BULL<<
▶︎ Hot-ish CPI with a bullish reaction in CAD
▶︎ Macklem sounded more hawkish than dovish this week
▶︎ PMI has improved on the heatmap
▶︎ COT positioning is bullish, Dealers are near multi-year long levels
     >>BEAR<<
▶︎ Crude oil just isn't performing
▶︎ Bullish sentiment
     >>SUMMARY<<
Not too much news here that would make me change the bias. The correlation to CL has become a bit lower to about 0.35, so the weakness in crude oil is less of a negative factor by now.

***** CHF *****
     >>BULL<<
▶︎ The SNB is still sounding hawkish
▶︎ It's the currency with by far the worst sentiment; USDCHF and EURCHF are still the two FX pairs with the most bulls
     >>BEAR<<
▶︎ COT positioning is bearish and doesn't confirm CHF strength
▶︎ CESI and CSII are both dropping
▶︎ Weaker PMI on the heatmap
     >>SUMMARY<<
There's no new information since last week or the week before. I'm changing the bias to neutral because it's highly correlated to the EUR and its performance seems to hang on the SNB just buying it. 

***** JPY *****
     >>BULL<<
▶︎ GDP surprised (but JPY looked through that completely)
▶︎ Tokyo Core CPI still >3%, new print this week expected lower
▶︎ Ueda left the door open to a pivot, and inflation forecasts in the BOJ's Outlook have been upgraded
     >>BEAR<<
▶︎ Still the most dovish central bank out there
▶︎ Bullish sentiment
▶︎ Inherent weakness
     >>SUMMARY<<
This week's reaction to the much-better-than-expected GDP number shows that the yen is mostly a risk-off proxy at the moment plus the week-long disappointment with the BOJ's non-action at the last meeting."

Changed text

Open file

"27.05.23
***** MACRO *****
     >>BULL<<
▶︎ FX volatility is still pretty low
▶︎ The VIX term structure is steep and well above cash VIX
▶︎ Credit spreads aren't widening
▶︎ COT data for the ES is very bullish
▶︎ The Chinese OECD CLI has turned around
     >>BEAR<<
▶︎ The US debt ceiling is approaching fast
▶︎ Risk-on currencies aren't performing sustainably
▶︎ Latest PMIs and Asia aren't looking good on the Bloomberg heatmap
▶︎ The Global CESI is falling
▶︎ Market breadth isn't looking healthy and the A/D line is diverging lower
▶︎ The entire market is carried by Tech (and only Tech) at the moment
▶︎ VVIX and MOVE aren't falling as they should
▶︎ Treasury futures COT positioning is mostly bullish
▶︎ Industrial metals and CL aren't performing
▶︎ Recession probability according to the Cleveland Fed model now at 80%
     >>SUMMARY<<
There's nothing substantially new compared to last week: the market is going up because Tech and Semiconductors are being bought like there's no tomorrow but it's only these sectors and nothing else. I see SPY and QQQ going up but most of the market isn't, and I don't believe it's sustainable if everyone piles into the same trades. Could I be wrong? Of course. How long can this last? I have no idea but if volatility goes lower and/or it just doesn't die down soon then everybody who hasn't made money so far this year will just have to get on board unless they want to lose their job, and that would take us even higher. You can probably guess that I'm not long, and I'm glad that I don't have to put money into the pot - but if I had to, I'd be FOMO'ing hard.

***** USD *****
     >>BULL<<
▶︎ Fedspeak is more hawkish than dovish at least compared to what the market has been pricing
▶︎ Pricing for rate cuts is pushed further out and the terminal rate is priced higher
▶︎ Bear flattening of the 2s10s
▶︎ COT positioning is still bullish
▶︎ GDPNow is still solidly positive
▶︎ Mostly good data last week, CESI is higher too
▶︎ Sentiment is bearish
     >>BEAR<<
▶︎ The 5y breakeven rate is below the 10y and the 5y-10y spread is falling fast
▶︎ CSII is lower too
▶︎ Weaker PMI on the heatmap
     >>SUMMARY<<
Last week's data was surprisingly positive with Q1 GDP revised higher and a hot PCE print. Next week, virtually everthing is expected to come in bearish again. Real yields have also been going up which is bullish USD but I can imagine some weakness because of what the calendar looks like.

***** EUR *****
     >>BULL<<
▶︎ ECB hawks are still trying to go for more hikes
▶︎ All in all, the ECB statement was a mixed bag but Lagarde tried to sound hawkish and no one argued for unchanged rates
▶︎ DAX and FESX are at highs
     >>BEAR<<
▶︎ PMIs this week mentioned a collapse in new orders and foreign demand for manufacturing
▶︎ CESI is heading lower
▶︎ German and Eurozone PMIs on the heatmap are weaker
▶︎ OECD CLI for Germany has picked up
▶︎ COT positioning is at a bearish extreme
▶︎ Bullish sentiment
     >>SUMMARY<<
Germany is now officially in a recession with two subsequent quarters of negative GDP growth. The German PMIs also didn't paint a rosy picture for the domestic or global economy. Positioning is still extreme, the incoming data is still surprising to the downside and next week we're expecting lower inflation numbers, so it remains a short.

***** GBP *****
     >>BULL<<
▶︎ Hot (core) CPI: it's not disinflationary and it's surprising to the upside
▶︎ CESI is at a high... but it's a mean reverting index
▶︎ CSII has been going up
▶︎ Yields are still outperforming and 2s10s are bear flattening, the 10y yield is already near levels of the Gilt crisis last year
     >>BEAR<<
▶︎ Weakest PMIs this week with both Manufacturing and Services lower and missing expectations but relatively upbeat commentary
▶︎ COT positioning is bearish
     >>SUMMARY<<
When I read through the list of positives vs. negatives, the bullish case clearly comes out ahead. I haven't had a good grasp on GBP for months, so I'll leave the bias unchaged. 

***** AUD *****
     >>BULL<<
▶︎ Surprise hike by the RBA but dovish-sounding statement
▶︎ CSII is higher
▶︎ COT positioning is bullish
▶︎ Bullish seasonality
     >>BEAR<<
▶︎ Worsening labour market data this week
▶︎ China isn't performing
▶︎ Weaker PMI on the Bloomberg heatmap
▶︎ Bullish sentiment
     >>SUMMARY<<
We got more weak data (PMIs, Retail Sales), and copper and iron ore had another down week. Next week, Chinese PMIs are expected to come in mixed, so I don't expect much positive impulse here either. 

***** NZD *****
     >>BULL<<

     >>BEAR<<
▶︎ Everything about the RBNZ was dovish: from the statement to the minutes to the MPS to Orr's and Silk's comments
▶︎ Bull steepening of the 2s10s yield curve
▶︎ Most of the economic data over the last four weeks was bad 
▶︎ It's inherently weak
▶︎ Sentiment is bullish
▶︎ CESI is low but the CESI spread AUD-NZD has flattened
▶︎ CSII has dropped too
     >>SUMMARY<<
My not very sophisticated gut feeling from last week was right: the RBNZ did come in dovish but I had not expected them to be that dovish. And we're back to no bullish arguments for NZD.

***** CAD *****
     >>BULL<<
▶︎ PMI has improved on the heatmap
▶︎ Bear flattening of the 2s10s
▶︎ CESI has picked up
▶︎ COT positioning is bullish, Dealers are near multi-year long levels
     >>BEAR<<
▶︎ Crude oil just isn't performing
▶︎ Bearish seasonality
     >>SUMMARY<<
Mostly unchanged from last week: nothing new here that would make me change the bias. The correlation to CL has become a bit lower to about 0.3, so the weakness in crude oil is less of a negative factor by now.

***** CHF *****
     >>BULL<<
▶︎ The SNB is still sounding hawkish
▶︎ Bearish sentiment
▶︎ Bullish seasonality
     >>BEAR<<
▶︎ COT positioning is bearish and doesn't confirm CHF strength
▶︎ CESI and CSII are both dropping
▶︎ Weaker PMI on the heatmap
     >>SUMMARY<<
There's nothing new for CHF. It's not performing because the economy is doing well but because a) there are enough currencies doing worse, and b) the SNB is probably still buying it.

***** JPY *****
     >>BULL<<
▶︎ The economy is performing better (but JPY is looking through that)
▶︎ Ueda left the door open to a pivot, and inflation forecasts in the BOJ's Outlook have been upgraded
▶︎ Bullish seasonality
     >>BEAR<<
▶︎ Tokyo Core CPI still >3% but latest print disinflationary and a miss
▶︎ Still the most dovish central bank out there
▶︎ Bullish sentiment
▶︎ Inherent weakness
     >>SUMMARY<<
The bearish factors outweigh the bullish ones at the moment and the Yen isn't able to find a bottom. There's no way for me to predict a turnaround as long as the general market sentiment is as risk-on as it is and the BOJ isn't changing course."