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fx:macro Summary Changes 2023_05_20

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"13.05.23

"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, and offensives/defensives are lower

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

▶︎ Treasury futures COT positioning is mostly bullish

▶︎ Industrial metals aren't performing

▶︎ Industrial metals and CL aren't performing

▶︎ CL has closed the OPEC gap on the chart: the cut was bearish

>>SUMMARY<<

Chinese data over the last few weeks was bad, US and German data has been weaker too. The S&P is mostly going sideways and market breadth is looking worse than it did a week ago. I still don't see enough reasons to go long any risk assets at this point.

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 for Q2 has started strong

▶︎ GDPNow is approaching 3%

>>BEAR<<

▶︎ Lower CPI and PPI, lower consumer inflation expectations

▶︎ 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<<

Higher initial claims and worse consumer sentiment this week both led to bullish reactions in USD. Not sure why the dollar should go much higher from here except for the positioning issue in EUR and GBP.

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<<

More weak data this week from EUR, next week doesn't look like it's going to be much better. The familiar ECB hawks are still sounding hawkish but that's nothing new and last week's sources after the ECB statement didn't give much hope in that regard. So we have deteriorating economic data, a falling CESI and the positioning issue that makes EUR a short.

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<<

▶︎ Hawkish Monetary Policy Report with higher CPI and inflation projections, and a higher Bank Rate

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

▶︎ CESI is still still going strong

▶︎ CSII has been going up

▶︎ Yields are outperforming, 2s10s are bear flattening

▶︎ Yields are still outperforming

>>BEAR<<

▶︎ It was a hawkish hike by the BoE this week but GBP is down

▶︎ Weak labour market report this week with GBP reacting bearishly

▶︎ PMI has worsened

▶︎ COT positioning is bearish

▶︎ Bearish seasonality

>>SUMMARY<<

The market didn't like the BoE's decision even though the MPR was quite hawkish. The neutral bias reflects that I've been burned by GBP quite often over the last months, and right now there are too many conflicting things going on. I'll just watch how it's going to trade over the next week or so.

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

▶︎ CPI and GDP projections lowered in the SOMP

▶︎ CESI has picked up

▶︎ Bear flattening in 2s10s

▶︎ CESI has picked up markedly

▶︎ CSII is higher

▶︎ COT positioning is bullish

>>BEAR<<

▶︎ It hasn't traded well when data out of China was positive, so this still remains a bearish factor

▶︎ Worsening labour market data this week

▶︎ China isn't performing

▶︎ Weaker PMI on the Bloomberg heatmap

▶︎ Bearish seasonality

▶︎ Bullish sentiment

>>SUMMARY<<

There isn't anything materially new compared to last week: AUD hasn't benefitted much from the RBA's surprise hike, so I doubt the RBA Minutes next week will bring much support. Also, Chinese data next week is expected to be positive but AUD hasn't benefitted from that recently. What's more positive for the currency is the bear flattener and the improving CESI but as long as AUD doesn't follow through it's still a short.

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 on Friday

▶︎ Disappointing inflation expectations print last week

▶︎ Bullish sentiment

▶︎ It's inherently weak

▶︎ CPI way below expectations last week

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

▶︎ CSII has dropped too

>>SUMMARY<<

No reason to change the bias here either.

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

▶︎ 25-delta risk reversal is looking bullish

>>BEAR<<

▶︎ The BOC and Macklem sound dovish compared to almost everyone else

▶︎ Crude oil just isn't performing

▶︎ CESI is lower

▶︎ Bullish sentiment

>>SUMMARY<<

Unchanged from last week: The economy isn't doing too badly and the labour market is hot. On the negative side, the BOC isn't helping and commodity performance including crude oil is bearish (correlation CAD vs. CL is about 0.40-0.80 at the moment).

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, again this week

▶︎ 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<<

Literally no new information compared to last week, so it remains a long: It looks pretty overextended and COT positioning is now bearish. Sentiment is still very much in favour of it and SNB speakers don't miss a chance to tell everyone they'd hike more if necessary.

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<<

▶︎ Tokyo Core CPI still >3%, it's surprising and it's not coming in deflationary

▶︎ 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<<

There isn't much news here, either: we're back at the stage where the BOJ talks about what they will do IF they achieve their inflation target, which is neither hawkish nor dovish, and the market mostly cares about risk-on/risk-off at the moment anyway."

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."

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"13.05.23
***** MACRO *****
     >>BULL<<
▶︎ FX volatility is still pretty low and falling
▶︎ The VIX term structure is steep and well above cash VIX
▶︎ COT data for the ES is very bullish
▶︎ The Chinese OECD CLI has turned around
     >>BEAR<<
▶︎ 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, and offensives/defensives are lower
▶︎ Treasury futures COT positioning is mostly bullish
▶︎ Industrial metals aren't performing
▶︎ CL has closed the OPEC gap on the chart: the cut was bearish
     >>SUMMARY<<
Chinese data over the last few weeks was bad, US and German data has been weaker too. The S&P is mostly going sideways and market breadth is looking worse than it did a week ago. I still don't see enough reasons to go long any risk assets at this point.

***** USD *****
     >>BULL<<
▶︎ COT positioning is still bullish
▶︎ Positive seasonality
▶︎ GDPNow for Q2 has started strong
     >>BEAR<<
▶︎ Lower CPI and PPI, lower consumer inflation expectations
▶︎ 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<<
Higher initial claims and worse consumer sentiment this week both led to bullish reactions in USD. Not sure why the dollar should go much higher from here except for the positioning issue in EUR and GBP.

***** 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<<
More weak data this week from EUR, next week doesn't look like it's going to be much better. The familiar ECB hawks are still sounding hawkish but that's nothing new and last week's sources after the ECB statement didn't give much hope in that regard. So we have deteriorating economic data, a falling CESI and the positioning issue that makes EUR a short.

***** GBP *****
     >>BULL<<
▶︎ Hawkish Monetary Policy Report with higher CPI and inflation projections, and a higher Bank Rate
▶︎ CESI is still still going strong
▶︎ CSII has been going up
▶︎ Yields are outperforming, 2s10s are bear flattening
     >>BEAR<<
▶︎ It was a hawkish hike by the BoE this week but GBP is down
▶︎ PMI has worsened
▶︎ COT positioning is bearish
▶︎ Bearish seasonality
     >>SUMMARY<<
The market didn't like the BoE's decision even though the MPR was quite hawkish. The neutral bias reflects that I've been burned by GBP quite often over the last months, and right now there are too many conflicting things going on. I'll just watch how it's going to trade over the next week or so.

***** AUD *****
     >>BULL<<
▶︎ Surprise hike by the RBA but dovish-sounding statement
▶︎ CPI and GDP projections lowered in the SOMP
▶︎ Bear flattening in 2s10s
▶︎ CESI has picked up markedly
▶︎ CSII is higher
     >>BEAR<<
▶︎ It hasn't traded well when data out of China was positive, so this still remains a bearish factor
▶︎ Weaker PMI on the Bloomberg heatmap
▶︎ Bearish seasonality
▶︎ Bullish sentiment
     >>SUMMARY<<
There isn't anything materially new compared to last week: AUD hasn't benefitted much from the RBA's surprise hike, so I doubt the RBA Minutes next week will bring much support. Also, Chinese data next week is expected to be positive but AUD hasn't benefitted from that recently. What's more positive for the currency is the bear flattener and the improving CESI but as long as AUD doesn't follow through it's still a short.

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

>>BEAR<<
▶︎ Disappointing inflation expectations print on Friday
▶︎ Bullish sentiment
▶︎ It's inherently weak
▶︎ CPI way below expectations last week
▶︎ CESI is low, the CESI spread AUD-NZD is rising
▶︎ CSII has dropped too
     >>SUMMARY<<
No reason to change the bias here either.

***** CAD *****
     >>BULL<<
▶︎ PMI has improved on the heatmap
▶︎ COT positioning is bullish, Dealers are near multi-year long levels
▶︎ 25-delta risk reversal is looking bullish
     >>BEAR<<
▶︎ The BOC and Macklem sound dovish compared to almost everyone else
▶︎ Crude oil just isn't performing
▶︎ CESI is lower
▶︎ Bullish sentiment

>>SUMMARY<<
Unchanged from last week: The economy isn't doing too badly and the labour market is hot. On the negative side, the BOC isn't helping and commodity performance including crude oil is bearish (correlation CAD vs. CL is about 0.40-0.80 at the moment).

***** CHF *****
     >>BULL<<
▶︎ The SNB is still sounding hawkish, again this week
▶︎ 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<<
Literally no new information compared to last week, so it remains a long: It looks pretty overextended and COT positioning is now bearish. Sentiment is still very much in favour of it and SNB speakers don't miss a chance to tell everyone they'd hike more if necessary.

***** JPY *****
     >>BULL<<
▶︎ Tokyo Core CPI still >3%, it's surprising and it's not coming in deflationary
▶︎ 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<<
There isn't much news here, either: we're back at the stage where the BOJ talks about what they will do IF they achieve their inflation target, which is neither hawkish nor dovish, and the market mostly cares about risk-on/risk-off at the moment anyway."

Texte modifié

Ouvrir un fichier

"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."