fx:macro Summary Changes 2023_03_18

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48 removals
112 lines
53 additions
118 lines
"11.03.23
"18.03.23
***** MACRO *****
***** MACRO *****
>>BULL<<
>>BULL<<
▶︎ Asian PMIs have improved considerably (Hong Kong, Taiwan), other Emerging Markets too (Brazil, Mexico)
▶︎ Asian PMIs have improved considerably (Hong Kong, Taiwan), other Emerging Markets too (Brazil, Mexico)
▶︎ Chinese PMIs are going strong, the reopening trade is pausing but it should still be a tailwind
▶︎ Chinese PMIs are going strong, the reopening trade is pausing but it should still be a tailwind
▶︎ Fear & Greed is already at Extreme Fear
▶︎ Fear & Greed is already at Extreme Fear
▶︎ Credit spreads are still contained, the Corporate Bond Market Distress Index is calm, FX volatility is relatively low
▶︎ FX volatility is still pretty low
▶︎ First signs of possible exhaustion to the downside in stocks: the long wick on Friday's VIX candle and a day with >90% down volume on Thursday
▶︎ More signs of possible exhaustion to the downside in stocks: quite a few intraday VIX reversals and VVIX is nearing extreme levels
>>BEAR<<
>>BEAR<<
▶︎ Fears of contagion from the SVB banking crisis
▶︎ There's a full-blown banking and liquidity crisis going on...
▶︎ Inflation breakevens, RINF, 5y5y forward inflation and crude oil are all lower... everything is still in their ranges but it could be the start of the market pricing in a hard landing
▶︎ ETF flows show a flight to quality
▶︎ Inflation breakevens, RINF, 5y5y forward inflation are all lower
▶︎ Energy and industrial commodities are weakening
▶︎ Re-steepening of the yield curve after a curve inversion
▶︎ Credit spreads have widened, and IG spreads have moved for the first time in a while
▶︎ COT data is still bullish Treasuries
▶︎ Treasuries trading the way they are supposed to, i.e. flying in case of risk off, isn't a good sign for the market overall
▶︎ Treasuries trading the way they are supposed to, i.e. flying in case of risk off, isn't a good sign for the market overall
▶︎ Currencies have displayed classic risk-off performance this week for the first time in a while
▶︎ Volatiliy metrics are worrisome: MOVE knocked on 200, VVIX hasn't come down, the speed of skew steepening shows some panic, but: it's still looking mostly contained
▶︎ Equity volatility has woken up, MOVE is >140 but both VIX and VVIX are well below their intraday highs from Friday
▶︎ 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<<
>>SUMMARY<<
Last week I wrote that it feels like everything changes every few days, and in this regard the past week didn't disappoint. What stands out to me right now is that assets are trading more ""normally"" on risk off: stocks lower, vol and vol of vol making a decent pop, treasuries and JPY both higher. That's different from the last months. There are already a few signs of the market overdoing it, though. In terms of the bigger picture, the SVB collapse is one more crack showing up: we've had LDI funds on the brink of collapse six months ago, a subprime auto lender going under recently and now this.
Virtually every market is currently driven by sentiment and not by fundamentals. While I thought the SVB crisis would be over pretty quickly, it has spread to other regional banks and even one G-SIB, Credit Suisse. I have no edge in predicting how this will go, so I'll tread very carefully. Even if backstops are in place and liquidity is provided, the cracks in the system are still there, and things can break fast.


***** USD *****
***** USD *****
>>BULL<<
>>BULL<<
▶︎ Powell put 50 bps back on the table even though he tried to walk it back a bit on his second day of testimony
▶︎ GDPNow continues to tick higher week by week
▶︎ GDPNow for Q1 is >2%
▶︎ CESI is rising too
▶︎ CESI is rising too
▶︎ PAIN shows flows back into USD from a basically flat position
▶︎ Strong flows into USD continue according to PAIN
▶︎ Improving PMI on the heatmap
▶︎ Improving PMI on the heatmap
>>BEAR<<
>>BEAR<<
▶︎ We're in the trough of the dollar smile with global PMIs improving and the US not outperforming on the one side and the current banking crisis not (yet?) serious enough to trigger panic flows
▶︎ We're in the trough of the dollar smile with global PMIs improving and the US not outperforming on the one side and the current banking crisis not (yet?) serious enough to trigger panic flows
▶︎ The repricing of the future Fed hiking path lower has been pretty dramatic
▶︎ Lower real yields and lower breakevens aren't bullish USD
▶︎ Declining consumer inflation expectations

>>SUMMARY<<
>>SUMMARY<<
I'm seriously clueless about the dollar right now. The fundamentals are pretty good and 50 bps at the next FOMC meeting are in play again. But in a week where we had everything from hawkish Powell to a banking-crisis type risk-off situation on Friday, it's still mostly flat. Then there's CPI upcoming on Tuesday and more jobs data on Thursday; both could push us in either direction, and we've seen the volatility of the future Fed Funds pricing this week. Even a blunt ""long into FOMC because not everyone is positioned for a possible 50 bps hike"" isn't feeling convincing because of the move in the PAIN index. The calendar for next week suggests a weak first half and a strong second half, so that's going to be my base case. Changing to ""no bias"".
I'm still not sure what to think here. On the one hand, PAIN shows pretty heavy flows into USD. On the other hand, the future hiking path has first been priced higher and then massively lower in just two weeks. But: DXY is basically flat over the last four weeks. We'll see what the FOMC statement, the dot plot and Powell have to say on Wednesday.


***** EUR *****
***** EUR *****
>>BULL<<
>>BULL<<
▶︎ The ECB still sounds hawkish but the Minutes showed some disagreement on their communication strategy
▶︎ ECB hawks are still going for more hikes
▶︎ Holzmann put four further 50 bps hike on the table
▶︎ Core CPI is sticky
▶︎ Core CPI is sticky
▶︎ Stock markets are still outperforming
>>BEAR<<
>>BEAR<<
▶︎ CESI has rolled over
▶︎ The ECB statement has been taken as dovish by the market
▶︎ CESI is going lower
▶︎ German PMI on the heatmap is weaker, Eurozone isn't improving
▶︎ German PMI on the heatmap is weaker, Eurozone isn't improving
▶︎ Sentiment in EURCHF is very bullish, price action isn't constructive
▶︎ Sentiment in EURCHF is very bullish, price action isn't constructive
▶︎ COT positioning is at a bearish extreme
>>SUMMARY<<
>>SUMMARY<<
It's still doing pretty well even though the economic situation is weakening. We'll get the ECB rate decision this week, and even though an outlier like Holzmann put four more 50 bps hikes out there the reality will probably more data-dependency and less guidance. Hard to see the market will like that.
The market didn't like the ECB statement, and I read it as pretty much neutral given that most of what it said was to be expected. The selloff on Wednesday came on the back of the Credit Suisse drama, though. Next week will have mixed data and PMIs are expected to come in higher on Friday. If the CS drama resolves and more ECB hawks are coming out, I'll expect EUR to go higher. Updated COT data still shows positioning at extremes, so I won't change the bias.


***** GBP *****
***** GBP *****
>>BULL<<
>>BULL<<
▶︎ Another surprisingly strong GDP print this week
▶︎ The FTSE is outperforming
▶︎ CESI is higher
▶︎ CESI is higher
▶︎ PMIs have been surprising to the upside, especially in contrast to Germany and the Eurozone
▶︎ PMIs have been surprising to the upside, especially in contrast to Germany and the Eurozone
>>BEAR<<
>>BEAR<<
▶︎ Bailey was more dovish than hawkish last week, and the first MPC member has already started talking about rate cuts (Tenreyro)
▶︎ The FTSE's outperformance seems to have come to an end
▶︎ CPI surprise to the downside
▶︎ CPI surprise to the downside
▶︎ Bearish seasonality
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
The GDP surprise is the latest piece in the puzzle that looks brighter than expected. For me, the negative points above carry more weight because CPI and the BoE (both dovish) beat GDP and how the economy is doing (both hawkish), so I'll leave the short bias. GBP pairs are mostly trading sideways, so there will be longs and shorts depending on what's going on with the other currencies anyway.
The BOE will issue its rate statement on Thursday, and I expect it to a) show more division among MPC members, and b) be taken as dovish by the market. Before the BOE we'll likely see a weaker CPI print on Wednesday. As I wrote last week: GBP pairs are mostly trading sideways in ranges, so it makes sense to trade it both ways.


***** AUD *****
***** AUD *****
>>BULL<<
>>BULL<<
▶︎ Commentary in the PMIs sounding pretty upbeat on the economy
▶︎ Another hot labour market print
▶︎ Surprisingly strong this week despite the overall market turmoil but that could be a one-off
>>BEAR<<
>>BEAR<<
▶︎ Dovish hike by the RBA, market pricing for another hike is just 30%
▶︎ Dovish hike by the RBA
▶︎ Further hikes have been priced out completely now
▶︎ CPI and GDP both surprised to the downside
▶︎ CPI and GDP both surprised to the downside
▶︎ Inherent weakness, it's just not trading well
▶︎ CESI is near lows
▶︎ CESI is near lows, the CESI spread between AUD and NZD points to a lower AUD
▶︎ Bullish sentiment and bearish seasonality
▶︎ Bullish sentiment and bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
My reasoning for the long bias last week was the idea that we'd see risk on and a weaker dollar. Now we have a dovish hike by the RBA to digest and the economic fundamentals are still weak. We could see a bit of bullish action if markets calm down but there aren't many good reasons why it should go up. Changing the bias to bearish.
The outperformance surprised me, and it's still a bit weird to see AUD, NZD and JPY as the three strongest currencies during any week. I don't have any good reasons why it should trade higher during a banking and liquidity crisis unless that resolves quickly.


***** NZD *****
***** NZD *****
>>BULL<<
>>BULL<<
▶︎ Same as AUD: surprisingly strong this week
▶︎ 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
▶︎ 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
▶︎ CPI surprise to the upside
>>BEAR<<
>>BEAR<<
▶︎ Incoming economic data is getting weaker, the labour market is finally softening
▶︎ Incoming economic data is getting weaker: this week it was a -0.6% GDP print vs. -0.2 expected
▶︎ Positioning and sentiment are bearish
▶︎ CESI is trending lower, and the CESI spread AUD-NZD is reversing higher
▶︎ CESI is trending lower
▶︎ Bearish seasonality
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
I don't have much new information compared to last week except that it outperformed AUD by a decent margin, but they are still trading in tandem against the other currencies. Changing the bias to short here too but I still like it in favour of the Aussie.
As I wrote for AUD above: it's weird to see it outperforming along JPY during a week like this one, and I don't see why it should trade higher.


***** CAD *****
***** CAD *****
>>BULL<<
>>BULL<<
▶︎ COT positioning is bullish
>>BEAR<<
>>BEAR<<
▶︎ The first central bank to end their hiking cycle and hold rates at current levels, no hawkish tilt in their statement this week
▶︎ The first central bank to end their hiking cycle and hold rates at current levels, no hawkish tilt in their statement last week
▶︎ Crude oil has broken out of its range and correlation to CAD is >0.65 again
▶︎ Sentiment is bullish
▶︎ Sentiment is bullish
▶︎ Bearish seasonality
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
There's just nothing I find positive about it: the market traded it lower after the BOC statement and through the rest of the week. I don't understand what else it is playing: correlation to USD is weakening but still high at >0.60, it's uncorrelated to crude oil, the ES and VIX. Not going against the central bank so I'm changing the bias to bearish.
Still not much I like about it.


***** CHF *****
***** CHF *****
>>BULL<<
>>BULL<<
▶︎ CPI beat this week, CHF reacted
▶︎ Hawkish commentary again this week from SNB's Jordan
▶︎ Hawkish commentary from SNB's Jordan
▶︎ CESI is now bullish
▶︎ CESI is now bullish
▶︎ It's the currency with by far the worst sentiment, USDCHF and EURCHF are the two FX pairs with the most bulls
▶︎ It's the currency with by far the worst sentiment, USDCHF and EURCHF are the two FX pairs with the most bulls
▶︎ The most bullish risk reversal
>>BEAR<<
>>BEAR<<
▶︎ The Credit Suisse drama has clearly had a negative impact
▶︎ PMI has weakened
▶︎ PMI has weakened
>>SUMMARY<<
>>SUMMARY<<
The economy has picked up, CPI surprised to the upside, sentiment is outlandishly bearish, it's the only currency with a risk reversal I still like, and Jordan was hawkish. Changing the bias to long. The moves in CHF often feel erratic and not sustained for long but the fundamentals are clearly long here.
It's been hammered lower by the Credit Suisse drama over the last few days, and we'll get the SNB this week, which is even more unpredictable in light of CS.


***** JPY *****
***** JPY *****
>>BULL<<
>>BULL<<
▶︎ Risk reversal sees USDJPY lower
▶︎ It's still the prime safe-haven currency
▶︎ The shunto wage negotiations have lead to the highest wage increases in 30 years (just below 4%)
>>BEAR<<
>>BEAR<<
▶︎ Nothing hawkish again from the BOJ
▶︎ 10y yields have backed off the 0.50% ceiling
▶︎ First disinflationary CPI print in a while last week
▶︎ First disinflationary CPI print in a while the week before last week
▶︎ Still the most dovish central bank out there
▶︎ Still the most dovish central bank out there
▶︎ Seasonality is bearish and sentiment is bullish
▶︎ Seasonality is bearish and sentiment is bullish
>>SUMMARY<<
>>SUMMARY<<
Still nothing hawkish from the BOJ but their rate statement projects inflation to come down in the short term and then increase again the second half of FY 2023, so in autumn this year. It reads as if they pushed back normalization of their policy in time but it's still very much a thing. I like that it traded well as a risk-off asset this past week."
Safe-haven flows come and go but the wage negotiation outcome has clearly been something the BOJ has wanted to see. Nobody is talking about policy normalization right now, though, but it should be supportive. I'm changing the bias to long here."