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fx:macro Summary Changes 2023_02_25

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"18.02.23

"25.02.23

***** MACRO *****

>>BULL<<

▶︎ Credit spreads seem contained, the Corporate Bond Market Distress Index is lower, bond volatility isn't high

▶︎ Credit spreads are still contained, the Corporate Bond Market Distress Index is calm, bond volatility isn't very high

▶︎ Last COT positioning in NQ was bullish but that's a few weeks old by now

▶︎ China reopening trade is pausing but it should still be a tailwind

>>BEAR<<

▶︎ ETF flows out of HY and IG credit, out of SPY

▶︎ ETF flows are very bearish: into short-term treasuries and out of HY and IG credit, out of SPY

▶︎ I don't like how volatiliy indexes look right now: VIX/VIX3M is too flat for the current VIX level, rising ATM vol and flatter skew have been bad for stocks in the past

▶︎ Copper has made a lower high and a lower low, at the least it's not bullish anymore

▶︎ Sentiment is very bullish with AAII bull-bear near a >1 year high

▶︎ Sector rotation seems more defensive than offensive now, and sector breadth is lagging

▶︎ VVIX is still diverging from VIX to the upside, the VIX term structure is pretty flat from the second expiration out

▶︎ Asian PMIs are still mixed-to-weak

▶︎ Asian PMIs are still pretty weak

▶︎ Six out of eight G8 2s10s have so far inverted

▶︎ The Cleveland Fed Yield-Curve-Predicted GDP Growth model gets more and more negative

>>SUMMARY<<

Things aren't looking very different from last week, and they're not looking too good. Equities are still holding near the top but they've come up pretty far in a pretty short time and with the new-found strength in the dollar and yields it feels like they should be lower. Flows are bearish, sector performance is bearish, and VVIX is front-running VIX higher.

The bearish points on the right are piling up, and the way volatility indexes behave is the most concerning thing to me on that list.

***** USD *****

>>BULL<<

▶︎ The tone from Fed speakers is consistent and it's more hawkish than dovish

▶︎ The FOMC Minutes read more hawkish than dovish but without any major news

▶︎ The terminal rate has been repriced higher accordingly, rate cuts are pushed further out

▶︎ Positive month-end flow expected

▶︎ GDPNow for Q1 is at 2.5% and rising

▶︎ Again this week: the terminal rate has been repriced higher, rate cuts have been pushed further out

▶︎ Inflation breakevens creeping higher

▶︎ GDPNow for Q1 is going up every week

▶︎ USD selling finally shows up in COT data and the PAIN index but there's still some way to go until we reach a stretched short

▶︎ CESI is rising too

▶︎ Improving PMI on the heatmap

▶︎ Inflation suprising to the upside and breakevens creeping higher

▶︎ Seasonality is positive

▶︎ Bearish sentiment

>>BEAR<<

▶︎ CSII continues to go down

▶︎ The two known hawks Mester and Bullard did not sound hawkish at all this week even though they could have, and Bullard's terminal rate is where the market is currently pricing it

▶︎ The China reopening should be bearish USD

▶︎ 25-delta risk reversal sees USD weaker

▶︎ Treasuries have bullish COT positioning which could weigh on yields (also a few weeks old now since we don't get any new COT data at the moment)

>>SUMMARY<<

Basically unchanged from last week, the only thing that is mildly concerning is that the magnitude of dollar strength seems a bit small compared to the repricing in 2s and the terminal rate. As for next week: almost every data point in every currency is expected to be better than the last one, so we could see some dollar-smile weakness in USD.

I will be looking for long trades in the dollar next week again, mainly because month-end flows are expected to be positive. But I wonder how high the dollar can go: the market has already fully priced in the terminal rate uber-hawk Bullard has aimed at, and both Mester and Bullard aren't arguing to go too much further.

***** EUR *****

>>BULL<<

▶︎ German 2y yields have been steadily going higher

▶︎ Stock markets are still outperforming

▶︎ Finally some strength on hawkish ECB comments

▶︎ 25-delta risk reversal looks bullish

▶︎ The ECB statement reflects that the ECB is the most hawkish central bank at the moment, they're the only one giving hard guidance

▶︎ BTP-Bund is making lower highs and lower lows

▶︎ CESI dropped a bit but is still going strong

▶︎ Stock markets are outperforming

>>BEAR<<

▶︎ The economic calendar is looking pretty red for next week

▶︎ Positioning is at bearish extremes

▶︎ CESI has rolled over

▶︎ German PMI on the heatmap is weaker

▶︎ Sentiment in EURCHF is very bullish, price action isn't constructive

▶︎ Not sure what it would take for the Ukraine war to spook the market again: Belarus attacking, another mobilization... not sure but it's still a relevant risk

▶︎ Bearish seasonality

>>SUMMARY<<

Friday saw the opposite of what I missed the week before: strength on hawkish ECB commentary (this time from Schnabel). We won't get the up-to-date Commitment of Traders data for a few more weeks but I doubt it has changed meaningfully, at least PAIN hasn't, and so it's still hard to imagine EUR going sustainably higher.

Every bit of good and/or hawkish news has seemingly been digested, and I wonder how long European stock markets will hold near their highs.

***** GBP *****

>>BULL<<

▶︎ Possible turnaround in the Economic Surprise Index

▶︎ PMIs have been surprising to the upside, especially in contrast to Germany and the Eurozone

>>BEAR<<

▶︎ CPI surprise to the downside

▶︎ Pricing for the BoE terminal rate is lower

▶︎ The first MPC member started talking about rate cuts (Tenreyro)

▶︎ Projections in the MPR were upgraded but they're still pretty bad

▶︎ The entire country seems to be in disarray with everyone on strike and people being squeezed; the strikes haven't been front-page lately but they're still going on

▶︎ CESI is weakening further

>>SUMMARY<<

It always feels bad when I don't have any bullish (or bearish) arguments listed but it is what it is.

This week's PMI report emphasized the resilience of the UK economy a few times. Reading it felt like we've seen every possible horror scenario by now but reality is turning out to be a lot less bad than that. My overall bias remains short but I'll try to be more flexible with short-term trades (also because its correlations to pretty much everything are low and/or mixed).

***** AUD *****

>>BULL<<

▶︎ Hawkish hike from the RBA (no sustained reaction from AUD, though)

▶︎ Commentary in the PMIs sounding pretty upbeat on the economy

▶︎ Last CPI releases surprised to the upside

▶︎ OECD CLI has it outperforming

▶︎ 25-delta risk reversal is bullish

>>BEAR<<

▶︎ Not sure what to make of the RBA leadership dilemma: hard to imagine it's good for the currency at the margin, and the market looked through Lowes hawkish comments on Friday at least

▶︎ Inherent weakness: AUD hasn't traded well since the hawkish RBA meeting three weeks ago and neither after this week's hawkish Minutes

▶︎ Iron Ore prices have collapsed, there still seems to be trouble with the Chinese import ban

▶︎ CESI is near lows, the CESI spread between AUD and NZD points to a lower AUD

▶︎ Weaker PMIs for Australia and most of Asia although China's PMIs have improved

▶︎ Bullish sentiment

▶︎ CESI is near lows

>>SUMMARY<<

It's not looking better for AUD than last week. Maybe we get some bullish action from the RBA Minutes but I doubt it's going to last.

Fundamentally it remains neutral. We get few data points next week but expectations are for a lower CPI and a higher GDP. Coupled with positive month-end flows into USD I'll be looking for shorts in AUD in the coming week.

***** NZD *****

>>BULL<<

▶︎ The RBNZ is still going with 50 bps and they actively discussed 75 bps, they now have the highest policy rate among the G8, and they say that policy has to tighten further

▶︎ CPI surprise to the upside

▶︎ 25-delta risk reversal is bullish

>>BEAR<<

▶︎ 2y and 10y yields are comparatively weak

▶︎ It showed inherent weakness in the wake of this week's RBNZ decision and hawkish comments from Orr and Silk

▶︎ Incoming economic data is getting weaker, the labour market is finally softening

▶︎ Positioning and sentiment are bearish

▶︎ CESI has rolled over

>>SUMMARY<<

Unchanged from last week: we've had a clearly bearish reaction to the soft labour market data and not many positive catalysts lately. Not sure how great the impact of cyclone Gabrielle will be, and there's the RBNZ rate decision on Wednesday morning.

The RBNZ decision was hawkish but the NZD is barely up this week. I'm changing the bias from short to neutral because of the RBNZ and because I can see NZD appreciating vs. the AUD.

***** CAD *****

>>BULL<<

▶︎ Another blowout jobs market report last week with a strong reaction from CAD

▶︎ CESI is now higher

▶︎ PMI has been improving

▶︎ Positioning is bullish

>>BEAR<<

▶︎ Dovish commentary from Macklem this week

▶︎ Mixed-to-disappointing inflation numbers this week

▶︎ The BOC has announced the end of their hiking cycle

▶︎ BOC Minutes were dovish

>>SUMMARY<<

The expected follow-through from the hot labour market report was pretty much absent this week. What did get a bit of reaction was the dovish comments from Macklem. I will leave the bullish bias because I'm looking for longs in USD and the correlation is north of 0.80.

The economy isn't performing badly but the central bank isn't helping anymore. It's not interesting from a fundamental point of view but its high correlation to USD makes it a long.

***** CHF *****

>>BULL<<

▶︎ EURCHF and USDCHF are the two currency pairs with the most bearish sentiment

▶︎ CESI has picked up a bit

>>BEAR<<

▶︎ Yields are underperforming

▶︎ PMI has weakened

▶︎ CESI is glued to its floor

▶︎ CSII is falling

▶︎ Last inflation print was deflationary and surprised to the downside, CSII is falling

▶︎ Seasonality is bearish

>>SUMMARY<<

Correlations suggest it's doing pretty much its own thing with no correlation to VIX, SPX or the EUR. Like last week: I'll leave things unchanged and I don't think I have a good grasp on it at the moment.

Like last week, I'll leave things unchanged because I don't have a very good grasp on it but there's nothing I particularly like at the moment.

***** JPY *****

>>BULL<<

▶︎ It seems clear that the BOJ is slowly steering towards some form of exit from their strict easing

▶︎ Positioning still has a pretty long way to go until it ""normalizes""

▶︎ Inflation has been surprising to the upside (not showing up in the CSII, though)

▶︎ 10y yield is glued to the upper band

▶︎ CESI is looking bullish

▶︎ OECD CLI outperformer

>>BEAR<<

▶︎ Nothing constructive from Ueda in his speech

▶︎ Implied volatility is relatively low, the market isn't expecting a short-term surprise from the BOJ

▶︎ Still the most dovish central bank out there

▶︎ 25-delta risk reversals are seeing it weaker

▶︎ Seasonality is bearish and sentiment is bullish

>>SUMMARY<<

So it's going to be Ueda: from what I've read, we can't expect sweeping changes to BOJ policy from day 1, and the timeline for policy normalization has been pushed further out. I change the bias to neutral because of that."

Everything Ueda has said this week points to a continuation of current monetary policy, and the options market seems to believe him if we look at IV. We get a Tokyo Core CPI print on Friday that's expected to be pretty disinflationary (down 1% from 4.3 to 3.3), and Ueda mentioned specifically that he expects inflation to slow substantially from the next print, so things will get interesting."

Gespeicherte Diffs

Originaltext

Datei öffnen

"18.02.23
***** MACRO *****
     >>BULL<<
▶︎ Credit spreads seem contained, the Corporate Bond Market Distress Index is lower, bond volatility isn't high
▶︎ Last COT positioning in NQ was bullish but that's a few weeks old by now
▶︎ China reopening trade is pausing but it should still be a tailwind
     >>BEAR<<
▶︎ ETF flows out of HY and IG credit, out of SPY
▶︎ Sentiment is very bullish with AAII bull-bear near a >1 year high
▶︎ Sector rotation seems more defensive than offensive now, and sector breadth is lagging
▶︎ VVIX is still diverging from VIX to the upside, the VIX term structure is pretty flat from the second expiration out
▶︎ Asian PMIs are still pretty weak
▶︎ Six out of eight G8 2s10s have so far inverted
     >>SUMMARY<<
Things aren't looking very different from last week, and they're not looking too good. Equities are still holding near the top but they've come up pretty far in a pretty short time and with the new-found strength in the dollar and yields it feels like they should be lower. Flows are bearish, sector performance is bearish, and VVIX is front-running VIX higher.

***** USD *****
     >>BULL<<
▶︎ The tone from Fed speakers is consistent and it's more hawkish than dovish
▶︎ The terminal rate has been repriced higher accordingly, rate cuts are pushed further out
▶︎ GDPNow for Q1 is at 2.5% and rising
▶︎ Inflation breakevens creeping higher
▶︎ USD selling finally shows up in COT data and the PAIN index but there's still some way to go until we reach a stretched short
▶︎ Seasonality is positive
     >>BEAR<<
▶︎ CSII continues to go down
▶︎ The China reopening should be bearish USD
▶︎ Treasuries have bullish COT positioning which could weigh on yields (also a few weeks old now since we don't get any new COT data at the moment)
     >>SUMMARY<<
Basically unchanged from last week, the only thing that is mildly concerning is that the magnitude of dollar strength seems a bit small compared to the repricing in 2s and the terminal rate. As for next week: almost every data point in every currency is expected to be better than the last one, so we could see some dollar-smile weakness in USD.

***** EUR *****
     >>BULL<<
▶︎ German 2y yields have been steadily going higher
▶︎ Finally some strength on hawkish ECB comments
▶︎ The ECB statement reflects that the ECB is the most hawkish central bank at the moment, they're the only one giving hard guidance
▶︎ BTP-Bund is making lower highs and lower lows
▶︎ CESI dropped a bit but is still going strong
▶︎ Stock markets are outperforming
     >>BEAR<<
▶︎ Positioning is at bearish extremes
▶︎ Sentiment in EURCHF is very bullish, price action isn't constructive
▶︎ Not sure what it would take for the Ukraine war to spook the market again: Belarus attacking, another mobilization... not sure but it's still a relevant risk
▶︎ Bearish seasonality

>>SUMMARY<<
Friday saw the opposite of what I missed the week before: strength on hawkish ECB commentary (this time from Schnabel). We won't get the up-to-date Commitment of Traders data for a few more weeks but I doubt it has changed meaningfully, at least PAIN hasn't, and so it's still hard to imagine EUR going sustainably higher.

***** GBP *****
     >>BULL<<

>>BEAR<<
▶︎ CPI surprise to the downside
▶︎ Pricing for the BoE terminal rate is lower
▶︎ The first MPC member started talking about rate cuts (Tenreyro)
▶︎ Projections in the MPR were upgraded but they're still pretty bad
▶︎ The entire country seems to be in disarray with everyone on strike and people being squeezed; the strikes haven't been front-page lately but they're still going on
▶︎ CESI is weakening further
     >>SUMMARY<<
It always feels bad when I don't have any bullish (or bearish) arguments listed but it is what it is.

***** AUD *****
     >>BULL<<
▶︎ Hawkish hike from the RBA (no sustained reaction from AUD, though)
▶︎ Last CPI releases surprised to the upside
▶︎ OECD CLI has it outperforming
     >>BEAR<<
▶︎ Not sure what to make of the RBA leadership dilemma: hard to imagine it's good for the currency at the margin, and the market looked through Lowes hawkish comments on Friday at least
▶︎ Iron Ore prices have collapsed, there still seems to be trouble with the Chinese import ban
▶︎ Weaker PMIs for Australia and most of Asia although China's PMIs have improved
▶︎ CESI is near lows

>>SUMMARY<<
It's not looking better for AUD than last week. Maybe we get some bullish action from the RBA Minutes but I doubt it's going to last.

***** NZD *****
     >>BULL<<
▶︎ CPI surprise to the upside
     >>BEAR<<
▶︎ 2y and 10y yields are comparatively weak
▶︎ Incoming economic data is getting weaker, the labour market is finally softening
▶︎ Positioning and sentiment are bearish
▶︎ CESI has rolled over
     >>SUMMARY<<
Unchanged from last week: we've had a clearly bearish reaction to the soft labour market data and not many positive catalysts lately. Not sure how great the impact of cyclone Gabrielle will be, and there's the RBNZ rate decision on Wednesday morning.

***** CAD *****
     >>BULL<<
▶︎ Another blowout jobs market report last week with a strong reaction from CAD
▶︎ CESI is now higher
▶︎ PMI has been improving
▶︎ Positioning is bullish
     >>BEAR<<
▶︎ Dovish commentary from Macklem this week
▶︎ The BOC has announced the end of their hiking cycle
▶︎ BOC Minutes were dovish
     >>SUMMARY<<
The expected follow-through from the hot labour market report was pretty much absent this week. What did get a bit of reaction was the dovish comments from Macklem. I will leave the bullish bias because I'm looking for longs in USD and the correlation is north of 0.80.

***** CHF *****
     >>BULL<<
▶︎ EURCHF and USDCHF are the two currency pairs with the most bearish sentiment
     >>BEAR<<
▶︎ Yields are underperforming
▶︎ PMI has weakened
▶︎ CESI is glued to its floor
▶︎ Last inflation print was deflationary and surprised to the downside, CSII is falling
▶︎ Seasonality is bearish
     >>SUMMARY<<
Correlations suggest it's doing pretty much its own thing with no correlation to VIX, SPX or the EUR. Like last week: I'll leave things unchanged and I don't think I have a good grasp on it at the moment.

***** JPY *****
     >>BULL<<
▶︎ It seems clear that the BOJ is slowly steering towards some form of exit from their strict easing
▶︎ Positioning still has a pretty long way to go until it ""normalizes""
▶︎ Inflation has been surprising to the upside (not showing up in the CSII, though)
▶︎ 10y yield is glued to the upper band
▶︎ OECD CLI outperformer
     >>BEAR<<
▶︎ Still the most dovish central bank out there
▶︎ 25-delta risk reversals are seeing it weaker
▶︎ Seasonality is bearish and sentiment is bullish
     >>SUMMARY<<
So it's going to be Ueda: from what I've read, we can't expect sweeping changes to BOJ policy from day 1, and the timeline for policy normalization has been pushed further out. I change the bias to neutral because of that."

Bearbeitung

Datei öffnen

"25.02.23
***** MACRO *****
     >>BULL<<
▶︎ Credit spreads are still contained, the Corporate Bond Market Distress Index is calm, bond volatility isn't very high
▶︎ China reopening trade is pausing but it should still be a tailwind
     >>BEAR<<
▶︎ ETF flows are very bearish: into short-term treasuries and out of HY and IG credit, out of SPY
▶︎ I don't like how volatiliy indexes look right now: VIX/VIX3M is too flat for the current VIX level, rising ATM vol and flatter skew have been bad for stocks in the past
▶︎ Copper has made a lower high and a lower low, at the least it's not bullish anymore
▶︎ Sentiment is very bullish with AAII bull-bear near a >1 year high
▶︎ Sector rotation seems more defensive than offensive now, and sector breadth is lagging
▶︎ Asian PMIs are still mixed-to-weak
▶︎ Six out of eight G8 2s10s have so far inverted
▶︎ The Cleveland Fed Yield-Curve-Predicted GDP Growth model gets more and more negative
     >>SUMMARY<<
The bearish points on the right are piling up, and the way volatility indexes behave is the most concerning thing to me on that list.

***** USD *****
     >>BULL<<
▶︎ The FOMC Minutes read more hawkish than dovish but without any major news
▶︎ Positive month-end flow expected
▶︎ Again this week: the terminal rate has been repriced higher, rate cuts have been pushed further out
▶︎ GDPNow for Q1 is going up every week
▶︎ CESI is rising too
▶︎ Improving PMI on the heatmap
▶︎ Inflation suprising to the upside and breakevens creeping higher
▶︎ Seasonality is positive
▶︎ Bearish sentiment
     >>BEAR<<
▶︎ The two known hawks Mester and Bullard did not sound hawkish at all this week even though they could have, and Bullard's terminal rate is where the market is currently pricing it
▶︎ 25-delta risk reversal sees USD weaker
     >>SUMMARY<<
I will be looking for long trades in the dollar next week again, mainly because month-end flows are expected to be positive. But I wonder how high the dollar can go: the market has already fully priced in the terminal rate uber-hawk Bullard has aimed at, and both Mester and Bullard aren't arguing to go too much further.

***** EUR *****
     >>BULL<<
▶︎ Stock markets are still outperforming
▶︎ 25-delta risk reversal looks bullish
     >>BEAR<<
▶︎ The economic calendar is looking pretty red for next week
▶︎ Positioning is at bearish extremes
▶︎ CESI has rolled over
▶︎ German PMI on the heatmap is weaker
▶︎ Sentiment in EURCHF is very bullish, price action isn't constructive
▶︎ Bearish seasonality

>>SUMMARY<<
Every bit of good and/or hawkish news has seemingly been digested, and I wonder how long European stock markets will hold near their highs.

***** GBP *****
     >>BULL<<
▶︎ Possible turnaround in the Economic Surprise Index
▶︎ PMIs have been surprising to the upside, especially in contrast to Germany and the Eurozone
     >>BEAR<<
▶︎ CPI surprise to the downside
▶︎ The first MPC member started talking about rate cuts (Tenreyro)
▶︎ Projections in the MPR were upgraded but they're still pretty bad
▶︎ The entire country seems to be in disarray with everyone on strike and people being squeezed; the strikes haven't been front-page lately but they're still going on
     >>SUMMARY<<
This week's PMI report emphasized the resilience of the UK economy a few times. Reading it felt like we've seen every possible horror scenario by now but reality is turning out to be a lot less bad than that. My overall bias remains short but I'll try to be more flexible with short-term trades (also because its correlations to pretty much everything are low and/or mixed).

***** AUD *****
     >>BULL<<
▶︎ Commentary in the PMIs sounding pretty upbeat on the economy
▶︎ Last CPI releases surprised to the upside
▶︎ 25-delta risk reversal is bullish
     >>BEAR<<
▶︎ Inherent weakness: AUD hasn't traded well since the hawkish RBA meeting three weeks ago and neither after this week's hawkish Minutes
▶︎ CESI is near lows, the CESI spread between AUD and NZD points to a lower AUD
▶︎ Bullish sentiment
     >>SUMMARY<<
Fundamentally it remains neutral. We get few data points next week but expectations are for a lower CPI and a higher GDP. Coupled with positive month-end flows into USD I'll be looking for shorts in AUD in the coming week.

***** NZD *****
     >>BULL<<
▶︎ The RBNZ is still going with 50 bps and they actively discussed 75 bps, they now have the highest policy rate among the G8, and they say that policy has to tighten further
▶︎ CPI surprise to the upside
▶︎ 25-delta risk reversal is bullish
     >>BEAR<<
▶︎ It showed inherent weakness in the wake of this week's RBNZ decision and hawkish comments from Orr and Silk
▶︎ Incoming economic data is getting weaker, the labour market is finally softening
▶︎ Positioning and sentiment are bearish
▶︎ CESI has rolled over
     >>SUMMARY<<
The RBNZ decision was hawkish but the NZD is barely up this week. I'm changing the bias from short to neutral because of the RBNZ and because I can see NZD appreciating vs. the AUD.

***** CAD *****
     >>BULL<<
▶︎ PMI has been improving
▶︎ Positioning is bullish
     >>BEAR<<
▶︎ Mixed-to-disappointing inflation numbers this week
▶︎ The BOC has announced the end of their hiking cycle
▶︎ BOC Minutes were dovish
     >>SUMMARY<<
The economy isn't performing badly but the central bank isn't helping anymore. It's not interesting from a fundamental point of view but its high correlation to USD makes it a long.

***** CHF *****
     >>BULL<<
▶︎ CESI has picked up a bit
     >>BEAR<<
▶︎ Yields are underperforming
▶︎ PMI has weakened
▶︎ CSII is falling
▶︎ Seasonality is bearish
     >>SUMMARY<<
Like last week, I'll leave things unchanged because I don't have a very good grasp on it but there's nothing I particularly like at the moment.

***** JPY *****
     >>BULL<<
▶︎ Inflation has been surprising to the upside (not showing up in the CSII, though)
▶︎ 10y yield is glued to the upper band
▶︎ CESI is looking bullish
▶︎ OECD CLI outperformer
     >>BEAR<<
▶︎ Nothing constructive from Ueda in his speech
▶︎ Implied volatility is relatively low, the market isn't expecting a short-term surprise from the BOJ
▶︎ Still the most dovish central bank out there
▶︎ Seasonality is bearish and sentiment is bullish
     >>SUMMARY<<
Everything Ueda has said this week points to a continuation of current monetary policy, and the options market seems to believe him if we look at IV. We get a Tokyo Core CPI print on Friday that's expected to be pretty disinflationary (down 1% from 4.3 to 3.3), and Ueda mentioned specifically that he expects inflation to slow substantially from the next print, so things will get interesting."