fx:macro Summary Changes

Created Diff never expires
54 removals
128 lines
55 additions
128 lines
"27.05.23
"10.06.23
***** MACRO *****
***** MACRO *****
>>BULL<<
>>BULL<<
▶︎ FX volatility is still pretty low
▶︎ FX volatility continues to decline further
▶︎ The VIX term structure is steep and well above cash VIX
▶︎ VIX is at a 13 handle...
▶︎ Credit spreads aren't widening
▶︎ Credit spreads aren't widening
▶︎ COT data for the ES is very bullish
▶︎ The Chinese OECD CLI has turned around and outperforming
▶︎ The Chinese OECD CLI has turned around
▶︎ TD Ameritrade IMX is moving up and is far from extreme
>>BEAR<<
>>BEAR<<
▶︎ The US debt ceiling is approaching fast
▶︎ Short-term warning signal from ES/VVIX correlation spiking
▶︎ Risk-on currencies aren't performing sustainably
▶︎ 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 isn't looking healthy and the A/D line is diverging lower
▶︎ 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 (and only Tech) at the moment
▶︎ The entire market is carried by Tech at the moment, sector breadth is weak
▶︎ VVIX and MOVE aren't falling as they should
▶︎ 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
▶︎ 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
>>SUMMARY<<
>>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.
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.


***** USD *****
***** USD *****
>>BULL<<
>>BULL<<
▶︎ Fedspeak is more hawkish than dovish at least compared to what the market has been pricing
▶︎ 2y and 10y yields have only gone sideways but bear flattening of the 2s10s
▶︎ Pricing for rate cuts is pushed further out and the terminal rate is priced higher
▶︎ Rising real yields with lower breakevens should be bullish
▶︎ Bear flattening of the 2s10s
▶︎ COT positioning is still bullish
▶︎ COT positioning is still bullish
▶︎ GDPNow is still solidly positive
▶︎ GDPNow is still solidly positive
▶︎ Mostly good data last week, CESI is higher too
▶︎ Sentiment is bearish
>>BEAR<<
>>BEAR<<
▶︎ 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
▶︎ CSII is lower too
▶︎ CSII is lower too
▶︎ Weaker PMI on the heatmap
▶︎ Weaker PMI on the heatmap
>>SUMMARY<<
>>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.
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.


***** EUR *****
***** EUR *****
>>BULL<<
>>BULL<<
▶︎ ECB hawks are still trying to go for more hikes
▶︎ If the Fed decides to pause or skip we have a policy divergence in favour of the EUR
▶︎ All in all, the ECB statement was a mixed bag but Lagarde tried to sound hawkish and no one argued for unchanged rates
▶︎ ECB speakers still mostly sound hawkish
▶︎ DAX and FESX are at highs
▶︎ BTP-Bund spread isn't widening
>>BEAR<<
>>BEAR<<
▶︎ PMIs this week mentioned a collapse in new orders and foreign demand for manufacturing
▶︎ CESI is heading lower, and the EUR-USD CESI spread is falling fast
▶︎ CESI is heading lower
▶︎ Incoming data is clearly getting weaker
▶︎ German and Eurozone PMIs on the heatmap are weaker
▶︎ The Eurozone PMI on the heatmap is weaker
▶︎ OECD CLI for Germany has picked up
▶︎ COT positioning has pared back from its extreme but it's still relatively bearish
▶︎ COT positioning is at a bearish extreme
▶︎ Sentiment in EURGBP and EURCHF is extremely bullish
▶︎ Bullish sentiment
>>SUMMARY<<
>>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.
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.


***** GBP *****
***** GBP *****
>>BULL<<
>>BULL<<
▶︎ Hot (core) CPI: it's not disinflationary and it's surprising to the upside
▶︎ 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
▶︎ 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
▶︎ 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
>>BEAR<<
>>BEAR<<
▶︎ Weakest PMIs this week with both Manufacturing and Services lower and missing expectations but relatively upbeat commentary
▶︎ COT positioning is bearish
▶︎ COT positioning is bearish
>>SUMMARY<<
>>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.
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.


***** AUD *****
***** AUD *****
>>BULL<<
>>BULL<<
▶︎ Surprise hike by the RBA but dovish-sounding statement
▶︎ Another surprise hike by the RBA
▶︎ CSII is higher
▶︎ AUD traded well despite weak China data this week
▶︎ Yields are outperforming
▶︎ COT positioning is bullish
▶︎ COT positioning is bullish
▶︎ Bullish seasonality
▶︎ Bullish seasonality
>>BEAR<<
>>BEAR<<
▶︎ Worsening labour market data this week
▶︎ Weaker economic data, CESI is falling again
▶︎ CSII is dropping
▶︎ China isn't performing
▶︎ China isn't performing
▶︎ Weaker PMI on the Bloomberg heatmap
▶︎ Bullish sentiment
>>SUMMARY<<
>>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.
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.


***** NZD *****
***** NZD *****
>>BULL<<
>>BULL<<
▶︎ 25-delta risk reversal has some upside
>>BEAR<<
>>BEAR<<
▶︎ Everything about the RBNZ was dovish: from the statement to the minutes to the MPS to Orr's and Silk's comments
▶︎ 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
▶︎ Yields are underperforming and bull steepening of the 2s10s spread
▶︎ Most of the economic data over the last four weeks was bad
▶︎ 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 but the CESI spread AUD-NZD has flattened
▶︎ CESI is low
▶︎ CSII has dropped too
▶︎ CSII has dropped too
>>SUMMARY<<
>>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.
It clearly remains a short.


***** CAD *****
***** CAD *****
>>BULL<<
>>BULL<<
▶︎ PMI has improved on the heatmap
▶︎ 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
▶︎ Bear flattening of the 2s10s
▶︎ Yields are outperforming, bear flattening of the 2s10s
▶︎ CESI has picked up
▶︎ COT positioning is bullish, Dealers are near multi-year long levels
▶︎ COT positioning is bullish, Dealers are near multi-year long levels
▶︎ Bearish sentiment
>>BEAR<<
>>BEAR<<
▶︎ Crude oil just isn't performing
▶︎ Crude oil just isn't performing but correlation to CL is currently zero
▶︎ Bearish seasonality
▶︎ Bearish seasonality
▶︎ Has the worst CLI among the G7
>>SUMMARY<<
>>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.
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.


***** 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<<
▶︎ COT positioning is bearish and doesn't confirm CHF strength
▶︎ Yields are underperforming
▶︎ CESI and CSII are both dropping
▶︎ CESI and CSII are both dropping
▶︎ Weaker PMI on the heatmap
▶︎ Weaker PMI on the heatmap
>>SUMMARY<<
>>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.
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.


***** 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
▶︎ 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
▶︎ 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<<
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."
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."