fx:macro Summary Changes 2023_07_22

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53 removals
128 lines
68 additions
143 lines
"08.07.23
"22.07.23
***** MACRO *****
***** MACRO *****
>>BULL<<
>>BULL<<
▶︎ Positive growth and falling inflation in the US: goldilocks for stocks
▶︎ Positive growth and falling inflation in the US: goldilocks for stocks
▶︎ FX and equity volatility is still low
▶︎ Equity volatility is still low, FX vol has picked up a bit but so far nothing to worry
▶︎ The pain trade is still higher in stocks (says BofA FMS)
▶︎ Credit spreads aren't widening
▶︎ Credit spreads aren't widening
▶︎ The rally is increasingly broad-based with market breadth improving and sectors confirming
▶︎ Sector rotation and breadth confirm current action in stocks
▶︎ The Chinese OECD CLI has turned around and is outperforming
▶︎ The Chinese OECD CLI has turned around and is outperforming
▶︎ TD Ameritrade IMX is moving up and is far from extreme
▶︎ TD Ameritrade IMX is moving up and is far from extreme
>>BEAR<<
>>BEAR<<
▶︎ Sentiment is becoming exuberant with AAII Bull-Bear approaching streched highs and CNN F&G in extreme greed mode
▶︎ Sentiment is too bullish: AAII Bull-Bear and CNN's Fear & Greed Index both in extreme territories
▶︎ The Bloomberg PMI heatmap isn't looking good, World PMI has worsened
▶︎ The Bloomberg PMI heatmap isn't looking good, World PMI has worsened and Asian PMIs aren't improving
▶︎ Treasury futures COT positioning is mostly bullish
▶︎ Industrial metals and CL aren't performing
▶︎ Industrial metals and CL aren't performing
▶︎ Recession probability according to the Cleveland Fed model now at 80%
▶︎ Recession probability according to the Cleveland Fed model now at 80%
▶︎ All of the G8 2s10s except for JPY are inverted now
▶︎ All of the G8 2s10s except for JPY are inverted now
>>SUMMARY<<
>>SUMMARY<<
It's been three weeks since the last bigger picture analysis but macro-wise things haven't changed too much. The US is still going relatively strong, the rally in stocks looks stretched but market internals and sectors have improved to the point where it's impossible to count them as negative. On the not-so-good side, pretty much every data point from China over the last five weeks has disappointed, the China CESI is near a low, the PBOC LPR cuts have underwhelmed, activity currencies are still not performing, and commodities aren't doing anything constructive. Every asset class is still in its own little business cycle.
The last update was two weeks ago, and I wrote that the situation had been stable for a couple of weeks. And we're still at the same point: the underlying factors haven't changed much, at least not for the worse.

Everything is still trading in its own little bubble with its own business cycle. Stocks are overextended, sentiment has run pretty far, and breadth oscillators have reached overbought levels. A pullback would make a lot of sense here.

Data from China continues to be weak(ish), stimulus measures are seen as half-hearted and commodities are still not doing much.


***** USD *****
***** USD *****
>>BULL<<
>>BULL<<
▶︎ The FOMC Minutes were more hawkish than expected
▶︎ GDPNow is still solidly positive and the NY Fed WEI has started to improve
▶︎ Recent Fed speakers have been broadly more hawish than dovish
▶︎ Rising real yields with lower (or sideways) breakevens should be bullish
▶︎ GDPNow is still solidly positive
▶︎ CESI is up - but it's a mean-reverting index
▶︎ OECD CLI is slowly picking up
▶︎ OECD CLI is slowly picking up
>>BEAR<<
>>BEAR<<
▶︎ The market is still pricing in higher for (even) longer but the dollar isn't really following
▶︎ Lower real yields and higher breakevens are bearish USD
▶︎ The 5y breakeven rate is below the 10y and the 5y-10y spread is falling fast
▶︎ CESI is about to roll over lower
▶︎ CSII is lower
▶︎ CSII is lower, CPI is coming down, 1yr ahead consumer inflation expectations are down
▶︎ Weaker PMI on the heatmap
▶︎ Weaker PMI on the heatmap
▶︎ Bearish seasonality
▶︎ Bearish seasonality
▶︎ 25-delta risk reversal for USDCNY is lower
▶︎ 25-delta risk reversal for USDCNY is lower
▶︎ The 5y breakeven rate is below the 10y and the 5y-10y spread is falling fast
▶︎ Bullish sentiment
>>SUMMARY<<
>>SUMMARY<<
The USD has performed less well than expected. US data has been more positive than negative over the last few weeks, real yield proxies have gone up, USDCNY looks like a one-way street and yield differentials point to a stronger dollar. I keep the bullish bias here but when I see that the Citi Economic Surprise Index is at its high then we're probably not far from peak optimism among economists and forecasters.
There are clearly a lot more negatives than positives. The most important one, in my opinion, is that we've seen real yields lower and breakeven inflation rates higher, which is a bad cocktail for USD longs.

We'll get new information from the Fed this week. With everything we've heard from Fed speakers recently, I don't expect a major hawkish surprise and I think that's what would be needed for a long USD bias here.

One (important) argument for a long is the dollar smile. Right now, the US is clearly outperforming pretty much everyone, so the dollar smile is still supportive.

Nevertheless, I'm changing the bias to neutral but I'll be looking for short-term shorts as long as real yields are moving the way they do.


***** EUR *****
***** EUR *****
>>BULL<<
>>BULL<<
▶︎ Central bank policy divergence in favour of the EUR with at least one more hike in July very likely
▶︎ CESI is still down but it has picked up a tiny bit, same for the CESI spread EUR-USD
>>BEAR<<
>>BEAR<<
▶︎ CESI is still down but it has picked up a tiny bit, same for the CESI spread EUR-USD
▶︎ The German PMI on the heatmap is weaker, the Eurozone one remains deeply red
▶︎ The German PMI on the heatmap is weaker, the Eurozone one remains deeply red
▶︎ COT positioning has pared back from its extreme but it's still relatively bearish
▶︎ COT positioning back at bearish extreme plus bearish 1-week change in positioning
▶︎ Sentiment in EURGBP and EURCHF is very bullish
▶︎ Sentiment is bearish, except for EURCHF where it's the opposite
▶︎ OECD CLI for Germany has turned lower again
▶︎ OECD CLI for Germany has turned lower again
>>SUMMARY<<
>>SUMMARY<<
Similar to the USD, EUR has performed better than I had expected. EUR hawks were clearly in control of the narrative over the last few weeks, especially during the Sintra conference. Economic data has come in mostly worse than expected, and I still see some downside but the CESI is already at an extreme low, so my expectation is that realized economic data will start to improve relative to forecasts soon.
There isn't too much positve to say about the Euro at the moment, and this week, even uber-hawk Knot and Nagel have refrained from arguing for a September rate hike.

I think it's likely that we won't get any clear guidance for September this week given the sources reports we've had since the last meeting. And I doubt the market will take that as a positive.


***** GBP *****
***** GBP *****
>>BULL<<
>>BULL<<
▶︎ Yields are still outperforming by a wide margin, the bear flattener over the last weeks had a huge rate of change
▶︎ It's inherently strong even in the face of weaker data
▶︎ CESI is at a high... but it's a mean reverting index
▶︎ Bearish sentiment
▶︎ Bearish sentiment
▶︎ OECD CLI has slowed but is still trending higher
▶︎ OECD CLI has slowed but is still trending higher
▶︎ Bullish seasonality
▶︎ Bullish seasonality
>>BEAR<<
>>BEAR<<
▶︎ Yields have not taken this week's CPI miss well
▶︎ COT positioning is bearish
▶︎ COT positioning is bearish
▶︎ CESI is past its peak and moving lower
▶︎ The (Manufacturing) PMI on the heatmap has worsened
▶︎ The (Manufacturing) PMI on the heatmap has worsened
>>SUMMARY<<
>>SUMMARY<<
Every data point has either seen no reaction or a higher GBP, the terminal rate gets continuously bid higher, and yields are going insane. Everyone (including me) wonders how long this can go on but there's just no catalyst on the horizon that I would judge to stop that for good. That being said, upcoming UK data this week is looking pretty bad but we've seen that before.
GBP has not taken this week's CPI data well, and gilt yields haven't fully recovered. That reaction is different from what we've seen over the last months, which usually was something like a quick selloff on dovish/bearish data followed by a higher high.

Two weeks ago, I wrote that I didn't see a catalyst why this would stop now. This week's CPI data may have been that catalyst. GBP pairs don't look in too bad shape but I think the time where it's a long is probably over. Changing the bias to neutral and looking for short-term shorts until I feel convinced it's headed lower (which it could very well do just given that positioning is at multi-year extremes).


***** AUD *****
***** AUD *****
>>BULL<<
>>BULL<<
▶︎ The RBA paused again, their statement wasn't very hawkish but they left their guidance of maybe more tightening in place and were more upbeat about the economy despite higher rates
▶︎ Expectations for another hike are increasing again
▶︎ Bullish seasonality
▶︎ Bullish seasonality
▶︎ CESI has picked up
▶︎ CESI has picked up
▶︎ OECD CLI looks like it is bottoming
▶︎ OECD CLI looks like it is bottoming
>>BEAR<<
>>BEAR<<
▶︎ The market was a bit disappointed with the RBA decision this week
▶︎ Weak Chinese data is still weighing on AUD
▶︎ Weak Chinese data is still weighing on AUD
▶︎ Deteriorating PMI on the Bloomberg map
▶︎ Bullish sentiment
▶︎ Bullish sentiment

>>SUMMARY<<
>>SUMMARY<<
I changed the bias to bullish three weeks ago because I expected better data from China, incoming Aussie data started to look good and related commodities picking up. Since then we've had: dovish RBA minutes, weaker PMIs, lower CPI, the not-very-hawkish rate statement last week, all of the disappointing China data and commodities still going nowhere. Changing the bias to neutral.
I don't see anything I particularly like about AUD right now. The labour market report this week was hot but AUD didn't follow through. We'll get a weaker-expected CPI in the coming week while expectations for another rate hike have increased again.

My best guess is that AUD will go lower again this week. Changing the bias to bearish.


***** NZD *****
***** NZD *****
>>BULL<<
>>BULL<<
▶︎ CESI seems to have picked up a bit
▶︎ 2s10s have bear flattened recently
▶︎ CESI has picked up further
▶︎ Bullish seasonality
▶︎ Bullish seasonality
>>BEAR<<
>>BEAR<<
▶︎ RBNZ last week with a relatively dovish statement that didn't mention further rate hikes
▶︎ Officially in a recession now with two quarters of negative GDP growth
▶︎ Officially in a recession now with two quarters of negative GDP growth
▶︎ The only curency with a flattening yield curve over the last week
▶︎ It's inherently weak
▶︎ It's inherently weak
▶︎ Sentiment is bullish
▶︎ Sentiment is bullish
▶︎ CSII has dropped too
>>SUMMARY<<
>>SUMMARY<<
There isn't a lot of new information since three weeks ago. Economic data has improved a bit but nothing to get too excited about. Pricing for a 25 bps hike at the upcoming meeting this week is virtually non-existent, there was barely any commentary from the RBNZ since their last meeting and no major data points. AUDNZD is right in the middle of a wide range, so I have no good idea of where we could or should go from here.
We've had a hawkish CPI surprise (higher than expected albeit lower than previously) but absolutely no follow-through from NZD. Also no support from the RBNZ who removed guidance for possible further hikes last week. Changing the bias to bearish.


***** CAD *****
***** CAD *****
>>BULL<<
>>BULL<<
▶︎ Positive seasonality
▶︎ Positive seasonality
>>BEAR<<
>>BEAR<<
▶︎ Dovish BOC statement last week, looks like they've ended their hiking cycle too, ""prepared to hike further"" only via press conference
▶︎ 2s10s bull steepening after, i.e. the market isn't taking the CPI surprise too seriously
▶︎ Data over the last few weeks has mostly disappointed and weakened
▶︎ Data over the last few weeks has mostly disappointed and weakened
▶︎ COT/TFF dealer net positions have nosedived with a high rate of change
▶︎ Crude oil just isn't performing but correlation to CL is currently negative
▶︎ Crude oil just isn't performing but correlation to CL is currently zero
▶︎ Has the worst CLI among the G7
▶︎ Has the worst CLI among the G7
▶︎ CSII has dropped
▶︎ Bullish sentiment
>>SUMMARY<<
>>SUMMARY<<
Data for CAD has come in mostly weaker over the last few weeks and the CAD has reacted to that. And we've seen a pretty fast reduction of the short position in the market in COT/TFF data. It's still not driven by CL or USD (no correlation at the moment). I'm changing the bias to bearish.
Another CPI surprise this week, and CAD ended the week higher but I think that was mostly driven by USD strength as Canadian yields haven't followed through.

We'll get the BOC Minutes on Wednesday. They usually aren't very detailed, and I'm not sure they will be market-moving. I think they might come in a bit more hawkish compared to the statement last week because Macklem said they are prepared to hike further and they certainly discussed this.

I'm changing the bias to bearish.


***** CHF *****
***** CHF *****
>>BULL<<
>>BULL<<
▶︎ The SNB decision two weeks ago was disappointing but every comment since then was hawkish
▶︎ The SNB is still trying to sound hawkish, I just wonder why
▶︎ SNB still buying CHF
▶︎ Bearish sentiment via EURCHF and USDCHF
▶︎ Bearish sentiment via EURCHF and USDCHF
▶︎ CESI is off lows
▶︎ CESI is off lows
▶︎ CSII has ticked higher
▶︎ Inherent strength
>>BEAR<<
>>BEAR<<
▶︎ Yields are underperforming (absolutely no positive correlation to CHF, though)
▶︎ Bearish seasonality
▶︎ Bearish seasonality
▶︎ Bearish 25-delta risk reversal
▶︎ Huge divergence between COT Large Trader net positions and price
>>SUMMARY<<
>>SUMMARY<<
I don't really understand the Swissie: CPI has come down (again this week) but they're still sounding hawkish, and it just doesn't feel like it makes sense.
There's no fundamental reason why CHF has outperformed recently, so my guess is on the SNB buying it. I also don't understand why they're still as hawkish as they are given that CPI m/m is at 0.1% and has missed expectations. And what really stands out is that COT positioning is showing Large Traders positioning diverge from spot price. I'm changing the bias to bearish.


***** JPY *****
***** JPY *****
>>BULL<<
>>BULL<<
▶︎ A bit of a hawkish tilt in the latest BOJ Summary of Opinions
▶︎ We're back at/near/in BOJ intervention territory
>>BEAR<<
>>BEAR<<
▶︎ BOJ jawboning re: intervention is still weak
▶︎ Market hopes for a YCC or policy tweak this week has been met with dovish comments and sources reports
▶︎ Jawboning re: FX intervention is still very weak
▶︎ COT still says it's still not a very crowded trade
▶︎ COT still says it's still not a very crowded trade
▶︎ The disinflationary momentum has slowed, CSII has dropped too
▶︎ The disinflationary momentum has slowed, CSII has dropped too
▶︎ Still the most dovish central bank out there
▶︎ Still the most dovish central bank out there
▶︎ Inherent weakness
▶︎ Inherent weakness
>>SUMMARY<<
>>SUMMARY<<
Nothing has really changed from three weeks ago. We get tiny signals from the BOJ that they might do something with YCC but we've gotten those again and again over the last months, so that's nothing fundamentally new. What's a bit surprising is that there's comparatively less pushback now than there was last year before the MOF intervened, so we might still see some more downside."
The market has priced in hopes for a July policy tweak without any good reasons, and that has seen some dovish pushback, especially on Friday.

Nothing makes me want to be long JPY right now. I'm leaving the bias at neutral because of its risk-on/risk-off properties."