fx:macro Summary Changes

137 lines
-42 Removals
133 lines
+38 Additions
"***** MACRO *****
"***** MACRO *****
>>BULL<<
>>BULL<<
▶︎ Emerging markets are performing (Brazil, India)
▶︎ Emerging markets are performing (Brazil, India)
▶︎ AAII Bull-Bear spread is at an extreme low again, sentiment on Twitter is gloom-and-doom
▶︎ AAII Bull-Bear spread is at an extreme low again, sentiment on Twitter is gloom-and-doom
▶︎ TD Ameritrade IMX is near lows
▶︎ Fear & Greed is in extreme fear territory
▶︎ Fear & Greed is in extreme fear territory
▶︎ Seasonality is bullish
>>BEAR<<
>>BEAR<<
▶︎ Price action in ES looks pretty bad
▶︎ Fed speakers reaffirmed this week: stock market is not in focus and the mandate is domestic
▶︎ The message from the Fed is clear: prepare for more and longer pain, and so far none of them is openly concerned about equities, credit spreads, foreign markets and so on
▶︎ People are talking about and/or hoping for a Fed pivot but there's just none
▶︎ Credit spreads are at/near/above recent highs
▶︎ Credit spreads are at/near/above recent highs
▶︎ Sector performance is a bearish mess
▶︎ Breadth remains weak despite uber-bullish price action on Thursday
▶︎ Sector performance is bearish
▶︎ Positioning in equities is well off supportive extremes
▶︎ FX Carry flows remain negative, currency strength confirms that
▶︎ FX Carry flows remain negative, currency strength confirms that
▶︎ Five out of eight G8 2s10s yield curves have inverted so far
▶︎ Five out of eight G8 2s10s yield curves have inverted so far
▶︎ The global economy continues to weaken (e.g. PMIs)
▶︎ The global economy continues to weaken (e.g. PMIs)
▶︎ Stock markets in Asia are particularly weak, there's no sign of Chinese growth picking up
▶︎ Stock markets in Asia are particularly weak, there's no sign of Chinese growth picking up
▶︎ Commodities and energy paint a dire picture of global demand
▶︎ Commodities and energy paint a dire picture of global demand
>>SUMMARY<<
>>SUMMARY<<
It remains a tough market: if we see a bounce from the low, it's going to be based entirely on sentiment, something like a few 90% up days and a lot of hope. There's no help from breadth, market internals, positioning, the Fed, better fundamentals, a calming bond market, volatility or anything that could make it sustainable. Plus: the cracks in the system remain.
Things haven't really changed since last week: Thursday saw some pretty bullish post-CPI price action but no follow-through on Friday. So far, breadth hasn't improved, volatiliy (in any asset class) hasn't come down, sector performance hasn't been remotely bullish, credit spreads haven't narrowed, Fedspeak hasn't softened, USD hasn't weakened. Unless these things change, a move lower-to-sideways in stocks seems logical. Aside from that: a large tail risk remains.
***** USD *****
***** USD *****
>>BULL<<
>>BULL<<
▶︎ Another week with unanimously hawkish Fedspeak
▶︎ Another week with near-unanimously hawkish Fedspeak
▶︎ CPI just won't come down sustainably
▶︎ The market is clearly believing the Fed (FedWatch, STIRS)
▶︎ The market is clearly believing the Fed (FedWatch, STIRS)
▶︎ Rising real yields and falling breakevens are the best environment for dollar strength
▶︎ US not participating in FX intervention to prop up the yen
▶︎ US not participating in FX intervention to prop up the yen
▶︎ CESI is rising and outperforming globally, PMIs surprising to the upside, labour market remains strong... for now it's a soft landing
▶︎ CESI is rising and outperforming globally, PMIs surprising to the upside, labour market remains strong... for now it's a soft landing
▶︎ Slowing global growth (PMIs getting worse globally)
▶︎ Slowing global growth (PMIs getting worse globally)
▶︎ Very bearish sentiment
▶︎ Very bearish sentiment
▶︎ Bullish seasonality
▶︎ Bullish seasonality
>>BEAR<<
>>BEAR<<
▶︎ Fed speakers and FOMC Minutes are showing small signs of caution, emphasizing two-sided risks on hikes, etc.
▶︎ Breakevens are up yet real yields are lagging... if they don't catch up it's going to be a drag on USD
▶︎ Growth is clearly weakening
▶︎ Growth is clearly weakening
▶︎ FX interventions in JPY and possibly CNY could push back on USD strength a bit, at least temporarily
▶︎ FX interventions in JPY and possibly CNY could push back on USD strength a bit, at least temporarily
▶︎ Huge drop in Inflation Surprise indicators, 5y5y not rising further, breakevens falling, forward-looking inflation indicators lower as well
▶︎ It feels like everybody is already long... but then: dollar is the new TINA
▶︎ It feels like everybody is already long... but then: dollar is the new TINA
>>SUMMARY<<
>>SUMMARY<<
True four weeks ago, true today: It's hard to imagine the USD bull run coming to a hard stop with the Dollar Smile, hawkish Fed rhetoric, rising STIR and real yields in combination with lower breakevens, and the overall macro backdrop.
True five weeks ago, true today: It's hard to imagine the USD bull run coming to a hard stop with the Dollar Smile, hawkish Fed rhetoric, rising STIR and real yields in combination with lower breakevens, and the overall macro backdrop.
***** EUR *****
***** EUR *****
>>BULL<<
>>BULL<<
▶︎ ECB speakers relatively unanimous and hawkish, discussion about when to start QT has begun
▶︎ Rather hawkish ECB Minutes with lots of worries about inflation and an explicit mention that growth concerns should not prevent rate hikes
▶︎ Rather hawkish ECB Minutes with lots of worries about inflation and an explicit mention that growth concerns should not prevent rate hikes
▶︎ Hardly any dovish commentary from ECB talking heads
▶︎ Econ data still surprising to the upside with CESI rising
▶︎ BTP-Bund is at highs but the fragmentation story isn't being played right now...
▶︎ BTP-Bund is at highs but the fragmentation story isn't being played right now...
▶︎ Despite the Ukraine war and the energy situation: the EUR is still not the weakest horse in the stable
▶︎ Despite the Ukraine war and the energy situation: the EUR is still not the weakest horse in the stable
▶︎ We've had it all: gas flows cut, Nordstream blown up, annexation of Ukraine territory by Russia... and EUR is still up
>>BEAR<<
>>BEAR<<
▶︎ PMIs are increasingly desolate
▶︎ PMIs are increasingly desolate
▶︎ Negative German trade balance in decades... this does not bode well for the EUR and for the global economy; it's been a few months but it remains important
▶︎ Negative German trade balance in decades, Eurozone trade balance deteriorating as well... this does not bode well for the EUR and for the global economy; it's been a few months but it remains important
>>SUMMARY<<
>>SUMMARY<<
Unchanged from last week: It's weak vs. USD and CHF and sideways to up vs. the other G8s. Trading it accordingly.
Could see some more upside on increasingly hawkish ECB comments. Despite everything that's going on geopolitically, it's only weak vs. USD and CHF.
***** GBP *****
***** GBP *****
>>BULL<<
>>BULL<<
▶︎ It's hard to imagine the government performing worse than it already did
▶︎ Drop in Inflation Surprise Index (CSII) is a small but positive sign
▶︎ Drop in Inflation Surprise Index (CSII) is a small but positive sign
▶︎ The ""mini""-budget should be positive in theory: tax cuts, more debt, more inflation down the road, higher rates
▶︎ An inter-meeting rate hike remains an unlikely possibility, but it's a wildcard
▶︎ Calls for an inter-meeting emergency rate hike... remains an unlikely possibility, but it's a wildcard
▶︎ Everybody is already short (PAIN)
▶︎ Everybody is already short (PAIN)
▶︎ Risk reversals have stabilized to a degree
>>BEAR<<
>>BEAR<<
▶︎ Yield curve is steepening for all the wrong reasons
▶︎ Where do I even start...
▶︎ Yield curve continues to steepen for all the wrong reasons
▶︎ UK CDS trading at highs, the government's attempt to restore credibility isn't being seen as serious
▶︎ UK CDS trading at highs, the government's attempt to restore credibility isn't being seen as serious
▶︎ Government and the BOE effectively working against each other... unclear what will happen when the temporary backstop in gilts ends and the stock is being sold
▶︎ The mood seems to be that the Truss government hasn't improved the situation
▶︎ There's no consensus among MPC members with a 1/5/3 vote split for 25/50/75 bps
▶︎ The BOE have a lot of credibility to lose in case they have to restart gilt buying after Bailey's statement this week
▶︎ Very murky situation with the LDI pension funds and the dysfunction in the gilt market... completely unclear to me if/how this will spill over into other markets now that BOE gilt buying has stopped
▶︎ PMIs have weakened
▶︎ PMIs have weakened
▶︎ Sentiment is bullish GBP
▶︎ Risk reversals are pointing further south
▶︎ Bearish seasonality
▶︎ Bearish seasonality
▶︎ Flows out of GBP
▶︎ Flows out of GBP
>>SUMMARY<<
>>SUMMARY<<
Unchanged from last week: I don't see much upside. Positioning is crowded but the fundamentals are just way too bad to consider more than a very short-term long.
Unchanged from last week: I don't see much upside. Positioning is crowded but the fundamentals are just way too bad to consider more than a very short-term long.
***** AUD *****
***** AUD *****
>>BULL<<
>>BULL<<
▶︎ One of the few PMI outperformers
▶︎ One of the few PMI outperformers
▶︎ Bullish 25-delta risk reversal
>>BEAR<<
>>BEAR<<
▶︎ Inherent weakness: more pronounced since the RBA meeting
▶︎ The RBA has turned dovish with a below-expectations hike (but continues to expect further rate hikes ahead)
▶︎ The RBA has turned dovish with a below-expectations hike (but continues to expect further rate hikes ahead)
▶︎ Inherent weakness
▶︎ Econ data and inflation are surprising to the downside
▶︎ Econ data and inflation are surprising to the downside
▶︎ PMIs in Asia deteriorating further, China is a drag on AUD
▶︎ PMIs in Asia deteriorating further, China is a drag on AUD
▶︎ Carry trade flows are negative
▶︎ Flows out of AUD, carry trade flows are negative
▶︎ Seasonality is bearish
▶︎ Seasonality is bearish
>>SUMMARY<<
>>SUMMARY<<
Switching to bearish: can't ignore the dovish turn by the RBA and fits the overall macro backdrop better than ""neutral"".
The second-most dovish central bank after the BOJ, and it's weak vs. the other G8s, doesn't have much going for it at the moment.
***** NZD *****
***** NZD *****
>>BULL<<
>>BULL<<
▶︎ RBNZ hiked as expected but discussed going for a 75 bps instead of the realized 50
▶︎ NZD outperformance vs. AUD has been sustained since the hawkish hike by the RBNZ and the RBA's dovish one
▶︎ The RBNZ looks more hawkish now compared to the RBA
▶︎ COT positioning near a bullish extreme
▶︎ CESI is bottoming, economic data improving considerably
▶︎ CESI is bottoming, economic data improving considerably
▶︎ Inflation surprises picking up
▶︎ Inflation surprises picking up
>>BEAR<<
>>BEAR<<
▶︎ Intrinsically weak
▶︎ Bullish sentiment
▶︎ Bullish sentiment
▶︎ Divergence between increasing Aussie trade balance and stagnant/falling Kiwi trade balance
▶︎ Divergence between increasing Aussie trade balance and stagnant/falling Kiwi trade balance
>>SUMMARY<<
>>SUMMARY<<
The divergence between in-line/hawkish RBNZ and dovish RBA plus improving fundamentals makes the longer-term AUDNZD long less clear. Watching how it plays out over the coming weeks.
It seems the market is adjusting to the divergence between the RBNZ and the RBA, so it remains a bear call overall but not vs. the AUD anymore.
***** CAD *****
***** CAD *****
>>BULL<<
>>BULL<<
▶︎ Strong US dollar has been dragging it along
▶︎ Hawkish commentary from Macklem (again this week)
▶︎ Hawkish commentary from Macklem
▶︎ Small improvement in PMIs
▶︎ Small improvement in PMIs
▶︎ Strong shift in retail sentiment with >10% increase in shorts
▶︎ COT positioning is near a bullish extreme
▶︎ Possible bullish price action in CL could support CAD (OPEC cuts, SPR releases ending)
▶︎ Possible bullish price action in CL could support CAD (OPEC cuts, SPR releases ending)
▶︎ Housing market remains strong
▶︎ Housing market remains strong
▶︎ Sentiment is very bearish
>>BEAR<<
>>BEAR<<
▶︎ CSII lower
▶︎ CSII lower
▶︎ Weakening economy, CESI making new lows
▶︎ Weakening economy, CESI making new lows
▶︎ Yields have softened, inverted 2s10s
▶︎ Yields have softened, inverted 2s10s
>>SUMMARY<<
>>SUMMARY<<
It has been outperforming because it's close to the US, so I expect that to continue. Its own fundamentals have weakened considerably.
Could see a bit of strength after Macklem's comments that mentioned performance vs. USD specifically.
***** CHF *****
***** CHF *****
>>BULL<<
>>BULL<<
▶︎ CSII remains high
▶︎ CSII remains high
▶︎ Hawkish commentary from Jordan and Maechler
▶︎ Between-meeting action on rates by the SNB is a wildcard
▶︎ Bearish sentiment
▶︎ Bearish sentiment
>>BEAR<<
>>BEAR<<
▶︎ Kneejerk reaction lower in CHF after a 75 bps hike when 100 bps were priced in... it's easy to see a lot of similar disappointments on the horizon
▶︎ CESI has taken quite a nosedive
▶︎ CESI has taken quite a nosedive
▶︎ Inflation not surprising to the upside anymore
▶︎ Inflation not surprising to the upside anymore
▶︎ Yields are underperforming
▶︎ Yields are underperforming
>>SUMMARY<<
>>SUMMARY<<
Hard to see it underperforming: hawkish central bank with uncertainty on the upside (interventions, between-meeting hikes) and bearish sentiment. It's a crowded trade, though.
Hard to see it underperforming: hawkish central bank with uncertainty on the upside and bearish sentiment. It's a crowded trade, though.
***** JPY *****
***** JPY *****
>>BULL<<
>>BULL<<
▶︎ FX interventions are now definitely on the table but they are a one-man-show without international support
▶︎ Everyone is waiting for the next intervention, lot of verbal jawboning this week by officials
▶︎ FX interventions remain a one-man-show without international support
▶︎ And they are going to create a lot of uncertainty
▶︎ And they are going to create a lot of uncertainty
▶︎ Risk reversals see a lot of upside for the yen
>>BEAR<<
>>BEAR<<
▶︎ Hardly any verbal pushback from the BOJ or FinMin although we're almost back at the intervention level in USDJPY
▶︎ Yield differentials are widening vs. everyone else, and US yields seem unstoppable for now
▶︎ Yield differentials are widening vs. everyone else, and US yields seem unstoppable for now
▶︎ Sentiment for JPY is bullish
▶︎ Sentiment for JPY is bullish
>>SUMMARY<<
>>SUMMARY<<
The interventions aren't going to turn the tide immediately especially since it's not a coordinated effort, the BOJ is effectively working against it and US yields are still rising. It remains a short but only from good levels and not close to recent lows."
The interventions aren't going to turn the tide immediately especially since it's not a coordinated effort, the BOJ is effectively working against it and US yields are still rising. It remains a short but only from good levels and not close to recent lows."
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