fx:macro Summary Changes 2023_06_17

Created Diff never expires
36 removals
128 lines
51 additions
137 lines
"10.06.23
"16.06.23
***** MACRO *****
***** MACRO *****
>>BULL<<
>>BULL<<
▶︎ FX volatility continues to decline further
▶︎ Positive growth and falling inflation: goldilocks for stocks
▶︎ FX volatility is dropping further
▶︎ VIX is at a 13 handle...
▶︎ VIX is at a 13 handle...
▶︎ The pain trade is still higher in stocks (says BofA FMS)
▶︎ Credit spreads aren't widening
▶︎ Credit spreads aren't widening
▶︎ The Chinese OECD CLI has turned around and outperforming
▶︎ The rally is increasingly broad-based with market breadth improving
▶︎ Until one or two weeks ago, it was only Tech driving the rally but this has broadened too
▶︎ 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<<
▶︎ Short-term warning signal from ES/VVIX correlation spiking
▶︎ Short-term warning signal from ES/VVIX correlation spiking is still in effect
▶︎ Risk-on currencies aren't performing sustainably
▶︎ Latest PMIs and Asia aren't looking good on the Bloomberg heatmap
▶︎ Latest PMIs and Asia aren't looking good on the Bloomberg heatmap
▶︎ The Global CESI is falling
▶︎ The Global CESI is falling
▶︎ Market breadth has improved but the divergence between SPX and the NYSE A/D line is still live
▶︎ The entire market is carried by Tech at the moment, sector breadth is weak
▶︎ Treasury futures COT positioning is mostly bullish
▶︎ Treasury futures COT positioning is mostly bullish
▶︎ Industrial metals and CL aren't performing
▶︎ Industrial metals and CL aren't performing
▶︎ Sentiment is bullish with AAII Bull-Bear at an 18-month high and CNN F&G in Extreme Greed
▶︎ Sentiment is bullish with AAII Bull-Bear at an 18-month high and CNN F&G in Extreme Greed
▶︎ 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<<
The last issue was out two weeks ago, and fundamentally not much has gotten better: data from China has mostly been weak despite the Caixin PMIs surprising, US data was mixed at best (aside from everything labour market) and two central banks hiked again which came as more or less of a surprise. What actually is decidely better today is the VIX at 13.9, which is impossible to argue with and which likely will pull more money into stocks. Breadth is trying to catch up as well. Looking sideways, every asset class seems to be in a different part of the business cycle. As for stocks, ES/VVIX correlation spiked which is a short-term warning sign and 1-week COT positioning changes in ES also flashed a warning. I'm staying on the sidelines here.
Stocks are in full reflation-mode, ripping higher with vol dropping. The rally is now lifting more boats than just a few tech names. Industrial metals and energy are less optimistic but have shown a few signs of life last week. The bond market is still calling for a recession with 2s10s flattening globally and nearing levels from before the banking crisis. No re-steepening yet, so the recession isn't going to happen next week. Currencies seem to have changed their mind recently and play risk-on along with stocks. Next week we'll probably see the PBOC cutting the LPRs, plus there was a WSJ report on a big stimulus package coming. This could be a catalyst for more risk-on, especially now that the Fed has paused. Chart-wise, stocks look pretty overextended and the ES/VVIX warning is still in effect.


***** USD *****
***** USD *****
>>BULL<<
>>BULL<<
▶︎ 2y and 10y yields have only gone sideways but bear flattening of the 2s10s
▶︎ Hawkish dot plot but dovish press conference post FOMC
▶︎ Rising real yields with lower breakevens should be bullish
▶︎ Only two Fed speakers since Powell and they were both hawkish
▶︎ 10y yields have only gone sideways but bear flattening of the 2s10s
▶︎ Rising real yields with lower (or sideways) breakevens should be bullish
▶︎ COT positioning is still bullish
▶︎ COT positioning is still bullish
▶︎ GDPNow is still solidly positive
▶︎ GDPNow is still solidly positive
>>BEAR<<
>>BEAR<<
▶︎ The market reaction to the Fed's hold was clearly negative, Powell even refused to call it a ""skip"" and talked down the dots
▶︎ Higher for longer (no cuts this year) is already priced into STIRs, and 2y yields have barely seen any follow-through post FOMC
▶︎ The 5y breakeven rate is below the 10y and the 5y-10y spread is falling fast
▶︎ The 5y breakeven rate is below the 10y and the 5y-10y spread is falling fast
▶︎ Lower inflation prints this week, falling Consumer Inflation Expectations
▶︎ CSII is lower too
▶︎ CSII is lower too
▶︎ Weaker PMI on the heatmap
▶︎ Weaker PMI on the heatmap
>>SUMMARY<<
>>SUMMARY<<
I have no idea if the Fed will hike or hold this week but aside from that, I like the argument that we're in a positive environment for the dollar with weaker data from China, headlines of possible LPR and RRR cuts over there, the CESI spread between EUR and USD, and rising real yields while breakevens are lower or sideways. As for next week, though, data is expected mixed-to-weaker with the obvious wildcards CPI and FOMC. I'm changing the bias to bullish again but that's definitely not a call for this week.
I'm conflicted. The market was clearly disappointed by the FOMC. USD was higher on the statement but down on the press conference, and 2y yields have hardly seen any follow-through. Waller and Barkin have come out hawkish but that didn't help the dollar either. China is going to cut rates, which should be positive crossflow-wise via USDCNY, the ECB hike and the EUR's reaction (and crossflows into Europe on Chinese stimulus) will be negative via EURUSD. From a dollar-smile perspective, I see more negatives than positive. To keep it simple: US real yields rising and breakevens are barely moving, so I'm sticking with the bullish bias for now.


***** EUR *****
***** EUR *****
>>BULL<<
>>BULL<<
▶︎ If the Fed decides to pause or skip we have a policy divergence in favour of the EUR
▶︎ Central bank policy divergence in favour of the EUR with at least one more hike very likely
▶︎ ECB speakers still mostly sound hawkish
▶︎ Bear flattening of the 2s10s goes on
▶︎ BTP-Bund spread isn't widening
▶︎ BTP-Bund spread isn't widening
>>BEAR<<
>>BEAR<<
▶︎ CESI is heading lower, and the EUR-USD CESI spread is falling fast
▶︎ Dovish sounding sources report after the ECB decision
▶︎ Incoming data is clearly getting weaker
▶︎ CESI is still down but has paused, same for CESI spread EUR-USD
▶︎ The Eurozone PMI on the heatmap is weaker
▶︎ The Eurozone PMI on the heatmap is weaker
▶︎ COT positioning has pared back from its extreme but it's still relatively bearish
▶︎ COT positioning has pared back from its extreme but it's still relatively bearish
▶︎ Sentiment in EURGBP and EURCHF is extremely bullish
▶︎ Sentiment in EURGBP and EURCHF is extremely bullish
>>SUMMARY<<
>>SUMMARY<<
Things haven't changed fundamentally, so I'll leave the bias at bearish. The ECB is going to hike by 25 bps, and I think the market's reaction will depend on what the Fed will have done the day before. Overall, I don't believe we're going to see sustained strength from the EUR because the fundamentals are too weak.
Last week, I wrote that I don't believe in sustained strength in the Euro because the fundamentals are too weak, and that's still the case. It does hang on the dollar, though, so if I'm wrong there I'll be wrong here. Also, I do see that the CESI hasn't dropped futher and is near a low, so we could be in for better-than-expected data.


***** GBP *****
***** GBP *****
>>BULL<<
>>BULL<<
▶︎ A blowout jobs report this week
▶︎ Yields are still outperforming and 2s10s are bear flattening with the highest rate of change
▶︎ Inherent strength
▶︎ The CLI is rising fast even though it's still below the G7 average
▶︎ The CLI is rising fast even though it's still below the G7 average
▶︎ CESI is at a high... but it's a mean reverting index
▶︎ CESI is at a high... but it's a mean reverting index
▶︎ Yields are still outperforming and 2s10s are bear flattening, the 10y yield is already near levels of the Gilt crisis last year
▶︎ Inherent strength
▶︎ Bearish sentiment
▶︎ Bearish sentiment
>>BEAR<<
>>BEAR<<
▶︎ COT positioning is bearish
▶︎ COT positioning is bearish
▶︎ The (Manufacturing) PMI on the heatmap is unchanged but compared to the Eurozone, Services have come in worse; new prints this week
>>SUMMARY<<
>>SUMMARY<<
I'm going to burn myself by changing the bias to bullish again, but: the bullish arguments are clearly in favour even though I don't like the crowded long in 6B. Inflation has surprised to the upside much more than in other economies and GBP is just not going down. I also like how the OECD CLI has developed. Next week's data is expected to be mixed but that hasn't stopped GBP before.
As last week, the bullish arguments outweigh the bearish ones, so I'm going to stick with the bullish bias. I don't have a very good read on what the market expects from the BoE aside from what's priced in, so Thursday is going to be a wildcard.


***** AUD *****
***** AUD *****
>>BULL<<
>>BULL<<
▶︎ Another surprise hike by the RBA
▶︎ Another hot labour market report
▶︎ AUD traded well despite weak China data this week
▶︎ The RBA is comparatively hawkish with two surprise hikes in a row
▶︎ ASX Rate Indicator shows that market-implied odds for another hike continue to increase
▶︎ AUD traded well despite weak China data this week and last
▶︎ Yields are outperforming
▶︎ Yields are outperforming
▶︎ COT positioning is bullish
▶︎ COT positioning is bullish
▶︎ Bullish seasonality
▶︎ Bullish seasonality
>>BEAR<<
>>BEAR<<
▶︎ Weaker economic data, CESI is falling again
▶︎ CSII is dropping
▶︎ CSII is dropping
▶︎ China isn't performing
▶︎ China isn't performing
>>SUMMARY<<
>>SUMMARY<<
The RBA put in the second surprise hike in a row, and the market clearly believes that there's more to come. I don't think the newfound strength in AUD is sustainable with the ongoing slowdown of the Chinese economy and the disappointing commodity performance (correlation to Iron Ore is at 0.75 right now). I leave the bias at short.
We've now seen two weeks with AUD trading will despite data from China being weak. The last days have seen one headline after the other about more Chinese stimulus, plus the hot labour market report, plus the increasing expectations for more hikes from the RBA, plus Iron Ore finding a bit of strength. I'm changing the bias to long.


***** NZD *****
***** NZD *****
>>BULL<<
>>BULL<<
▶︎ 25-delta risk reversal has some upside
▶︎ CESI seems to have picked up a bit
>>BEAR<<
>>BEAR<<
▶︎ Everything about the RBNZ was dovish: from the statement to the minutes to the MPS to Orr's and Silk's comments
▶︎ Officially in a recession now with two quarters of negative GDP growth
▶︎ Yields are underperforming and bull steepening of the 2s10s spread
▶︎ Yields are underperforming, 2s clearly believe that the RBNZ is done with their hiking cycle
▶︎ Most of the economic data over the last four weeks was bad
▶︎ It's inherently weak
▶︎ It's inherently weak
▶︎ Sentiment is bullish
▶︎ Sentiment is bullish
▶︎ CESI is low
▶︎ CSII has dropped too
▶︎ CSII has dropped too
>>SUMMARY<<
>>SUMMARY<<
It clearly remains a short.
I expect it to underperform AUD because of the central bank divergence and the increasingly weak data. The CESI spread AUD-NZD isn't showing much movement but the contrast between the (retrospective) negative Kiwi GDP print and the hot Aussie labour market is emblematic. But: last time we played China reopening, it took a good while for AUDNZD to get going.


***** CAD *****
***** CAD *****
>>BULL<<
>>BULL<<
▶︎ Yields are outperforming, bear flattening of the 2s10s (but much less than in AUD or GBP)
▶︎ The BOC hiked by 25 bps but made forward guidance more dovish by dropping the bit about being prepared to raise rates further if needed
▶︎ The BOC hiked by 25 bps but made forward guidance more dovish by dropping the bit about being prepared to raise rates further if needed
▶︎ Yields are outperforming, bear flattening of the 2s10s
▶︎ COT positioning is bullish, Dealers are near multi-year long levels
▶︎ COT positioning is bullish, Dealers are near multi-year long levels
▶︎ Bearish sentiment
▶︎ Bearish sentiment in USDCAD
>>BEAR<<
>>BEAR<<
▶︎ Crude oil just isn't performing but correlation to CL is currently zero
▶︎ Crude oil just isn't performing but correlation to CL is currently zero
▶︎ Bearish seasonality
▶︎ Bearish seasonality
▶︎ Has the worst CLI among the G7
▶︎ Has the worst CLI among the G7
>>SUMMARY<<
>>SUMMARY<<
The BOC resumed rate hikes but they toned down their forward guidance. That itself is a bit meh but the economy is doing well and it's also been trading that way. I'm changing the bias to bullish.
I don't have much to add to what I wrote last week: it's doing it's own thing separate from CL (correlation at -0.29 now), and a stronger dollar should help CAD as well.


***** CHF *****
***** CHF *****
>>BULL<<
>>BULL<<
▶︎ The SNB is still sounding hawkish
▶︎ The SNB is still sounding hawkish
▶︎ Bearish sentiment
▶︎ Bearish sentiment
▶︎ Bullish seasonality
▶︎ Bullish seasonality
>>BEAR<<
>>BEAR<<
▶︎ Yields are underperforming
▶︎ Yields are underperforming
▶︎ CESI and CSII are both dropping
▶︎ CSII has dropped
▶︎ Weaker PMI on the heatmap
▶︎ Weaker PMI on the heatmap
>>SUMMARY<<
>>SUMMARY<<
I don't have an opinion on the Swissie at the moment. CPI isn't a big problem compared to other economies yet the SNB is still quite hawkish. Yield differentials in CHF pairs are all over the place and correlation to its own 2s and 10s is non-existent. The only correlation that's halfway decent is vs. EUR at 0.64.
I still don't know what to do with the Swissie at the moment for the same reasons I listed last week. We'll get more information from the SNB on Thursday, expectations are for 25 bps.


***** JPY *****
***** JPY *****
>>BULL<<
>>BULL<<
▶︎ The economy is performing better (but JPY is looking through that)
▶︎ 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
▶︎ Bullish seasonality
>>BEAR<<
>>BEAR<<
▶︎ Dovish BOJ sources see little need to tweak YCC at the upcoming meeting
▶︎ There was nothing hawkish about the BOJ decision or Ueda's presser
▶︎ BOJ jawboning re: intervention is still weak
▶︎ COT says it's still not a very crowded trade
▶︎ The 25-delta risk reversal for USDJPY is moving higher fast
▶︎ Tokyo Core CPI still >3% but latest print disinflationary and a miss
▶︎ Tokyo Core CPI still >3% but latest print disinflationary and a miss
▶︎ Still the most dovish central bank out there
▶︎ Still the most dovish central bank out there
▶︎ Bullish sentiment
▶︎ Bullish sentiment
▶︎ Inherent weakness
▶︎ Inherent weakness
>>SUMMARY<<
>>SUMMARY<<
We'll get another BOJ meeting on Friday. Everything we've heard from Ueda et al. is telling us to expect nothing, and FX vol is telling the same story. I leave the bias at neutral despite the bearish factors being clearly in control."
And we've had another BOJ meeting where they didn't give any food for the hawks. The jawboning from officials regarding the exchange rate has picked up but it's mild so far. A few Yen crosses are approaching (or have exceeded) multi-year or multi-decade highs but there's nothing to suggest that the train is stopping now. The fundamental way to go is clearly lower but I leave the bias at neutral because of how prone it is to risk-off strength but it's the go-to currency if I'm looking for a short-term short."