fx:macro Summary Changes 2023_07_29

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62 removals
142 lines
60 additions
140 lines
"22.07.23
"22.07.23
***** MACRO *****
***** MACRO *****
>>BULL<<
>>BULL<<
▶︎ Positive growth and falling inflation in the US: goldilocks for stocks
▶︎ Positive growth and falling inflation in the US: goldilocks for stocks
▶︎ Equity volatility is still low, FX vol has picked up a bit but so far nothing to worry
▶︎ Equity volatility is still low, FX vol has picked up a bit but so far nothing to worry
▶︎ Credit spreads aren't widening
▶︎ Credit spreads are contracting
▶︎ Sector rotation and breadth confirm current action in stocks
▶︎ Sector rotation and breadth confirm current action in stocks
▶︎ The Chinese OECD CLI has turned around and is outperforming
▶︎ The Chinese OECD CLI has turned around and is outperforming
▶︎ TD Ameritrade IMX is moving up and is far from extreme
▶︎ TD Ameritrade IMX is moving up and is far from extreme
>>BEAR<<
>>BEAR<<
▶︎ Sentiment is too bullish: AAII Bull-Bear and CNN's Fear & Greed Index both in extreme territories
▶︎ Sentiment is too bullish: AAII Bull-Bear and CNN's Fear & Greed Index both in extreme territories
▶︎ The Bloomberg PMI heatmap isn't looking good, World PMI has worsened and Asian PMIs aren't improving
▶︎ The Bloomberg PMI heatmap isn't looking good, World PMI has worsened and Asian PMIs aren't improving
▶︎ Industrial metals and CL aren't performing
▶︎ Industrial metals aren't performing, CL has seen a bit of constructive action recently
▶︎ Recession probability according to the Cleveland Fed model now at 80%
▶︎ Recession probability according to the Cleveland Fed model is still >75%
▶︎ All of the G8 2s10s except for JPY are inverted now
▶︎ All of the G8 2s10s except for JPY are inverted now
>>SUMMARY<<
>>SUMMARY<<
The last update was two weeks ago, and I wrote that the situation had been stable for a couple of weeks. And we're still at the same point: the underlying factors haven't changed much, at least not for the worse.
Writing this summary feels a bit like Groundhog Day: we're pretty much in the same place we've been in for weeks now. The US economy is doing well, everyone else isn't. Crude and crude-heavy commodity indexes have had a few goods weeks but nothing has broken out of its range so far, and Dr. Copper isn't moving.


Everything is still trading in its own little bubble with its own business cycle. Stocks are overextended, sentiment has run pretty far, and breadth oscillators have reached overbought levels. A pullback would make a lot of sense here.
Sentiment is still extended to the upside with AAII and CNN F&G way too bullish, and breadth has hit overbought territory, so a pullback in stocks would make sense. Nothing is signalling major problems, though: volatility is low, credit spreads are compressing and the right sectors are performing.

Data from China continues to be weak(ish), stimulus measures are seen as half-hearted and commodities are still not doing much.


***** USD *****
***** USD *****
>>BULL<<
>>BULL<<
▶︎ GDPNow is still solidly positive and the NY Fed WEI has started to improve
▶︎ GDPNow for Q3 has kicked off at 3.5%, Advance GDP for Q2 was way better than expected
▶︎ Data coming in stronger than expected, CESI made a new high this week
▶︎ PMI on the heatmap has improved a bit
▶︎ OECD CLI is slowly picking up
▶︎ OECD CLI is slowly picking up
▶︎ Bullish seasonality
>>BEAR<<
>>BEAR<<
▶︎ Lower real yields and higher breakevens are bearish USD
▶︎ Lower real yields and higher breakevens are bearish USD, and 10y yields are near the top of their range again
▶︎ CESI is about to roll over lower
▶︎ CSII is lower, CPI is coming down, 1yr ahead consumer inflation expectations are down
▶︎ CSII is lower, CPI is coming down, 1yr ahead consumer inflation expectations are down
▶︎ Weaker PMI on the heatmap
▶︎ Bearish seasonality
▶︎ 25-delta risk reversal for USDCNY is lower
▶︎ 25-delta risk reversal for USDCNY is lower
▶︎ 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
▶︎ Bullish sentiment
▶︎ Bullish sentiment
▶︎ COT positioning in DX and indirectly via other FX futures is bullish
>>SUMMARY<<
>>SUMMARY<<
There are clearly a lot more negatives than positives. The most important one, in my opinion, is that we've seen real yields lower and breakeven inflation rates higher, which is a bad cocktail for USD longs.
As I wrote above, the US economy continues to surprise: this week's GDP beat, and GDPNow starting Q3 at 3.5%. The FOMC was mostly a non-event with virtually no change to their statement or what we've heard before.


We'll get new information from the Fed this week. With everything we've heard from Fed speakers recently, I don't expect a major hawkish surprise and I think that's what would be needed for a long USD bias here.
There are still good arguments for both a stronger and a weaker dollar right now. The dollar smile should be clearly in effect with the US outperforming the rest of the world on growth, positioning is pretty one-sided, yield differentials are screaming higher, seasonality is in the dollar's favour, and the ECB has been perceived as dovish. On the other hand, real yield proxies are lower, and we're approaching the top of the 10y yield range.

One (important) argument for a long is the dollar smile. Right now, the US is clearly outperforming pretty much everyone, so the dollar smile is still supportive.


Nevertheless, I'm changing the bias to neutral but I'll be looking for short-term shorts as long as real yields are moving the way they do.
Next week looks like we could see a bullish first half and a bearish second half data-wise for the dollar.


***** EUR *****
***** EUR *****
>>BULL<<
>>BULL<<
▶︎ CESI is still down but it has picked up a tiny bit, same for the CESI spread EUR-USD
▶︎ CESI is still down but it has picked up a tiny bit, same for the CESI spread EUR-USD (which is also still near lows)
>>BEAR<<
>>BEAR<<
▶︎ The German PMI on the heatmap is weaker, the Eurozone one remains deeply red
▶︎ The EUR hasn't taken this week's ECB statement well, and the few speakers we've had since then have been less than enthusiastic about more action
▶︎ COT positioning back at bearish extreme plus bearish 1-week change in positioning
▶︎ Both German and Eurozone PMIs are weaker
▶︎ COT positioning back at bearish extreme
▶︎ Sentiment is bearish, except for EURCHF where it's the opposite
▶︎ Sentiment is bearish, except for EURCHF where it's the opposite
▶︎ OECD CLI for Germany has turned lower again
▶︎ OECD CLI for Germany has turned lower again
▶︎ Seasonality is bearish
>>SUMMARY<<
>>SUMMARY<<
There isn't too much positve to say about the Euro at the moment, and this week, even uber-hawk Knot and Nagel have refrained from arguing for a September rate hike.
I believe the market saw Lagarde as too dovish this week but the slight tweak in the ECB statement implying that rates are now at sufficiently restrictive levels can't be discussed away.


I think it's likely that we won't get any clear guidance for September this week given the sources reports we've had since the last meeting. And I doubt the market will take that as a positive.
Data is coming in softer and the commentary in both the German and the Eurozone PMIs was (once again) pretty depressing. I think the bearish bias still makes sense.


***** GBP *****
***** GBP *****
>>BULL<<
>>BULL<<
▶︎ Bearish sentiment
▶︎ Bearish sentiment
▶︎ OECD CLI has slowed but is still trending higher
▶︎ OECD CLI has slowed but is still trending higher
▶︎ Bullish seasonality
>>BEAR<<
>>BEAR<<
▶︎ Yields have not taken this week's CPI miss well
▶︎ 2s10s are bull steepening on lower 2s
▶︎ COT positioning is bearish
▶︎ COT positioning is bearish
▶︎ Data is coming in weaker and GBP is reacting accordingly
▶︎ CESI is past its peak and moving lower
▶︎ CESI is past its peak and moving lower
▶︎ The (Manufacturing) PMI on the heatmap has worsened
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
GBP has not taken this week's CPI data well, and gilt yields haven't fully recovered. That reaction is different from what we've seen over the last months, which usually was something like a quick selloff on dovish/bearish data followed by a higher high.
GBP is still holding up relatively well given that incoming data continues to weaken and that CPI two weeks ago has missed expectations. Also, positioning via COT is still extreme on the long side. Overall, GBP lower makes a lot of sense. Price action just isn't confirming it yet.

We'll see what we get from the BoE this week: the meeting is priced for 25 bps at a 75% chance. I don't expect any major surprises: Tenreyro is out and Greene probably won't start off by rocking the boat. Also, what we've heard from the BoE since the last meeting hasn't been hawkish.


Two weeks ago, I wrote that I didn't see a catalyst why this would stop now. This week's CPI data may have been that catalyst. GBP pairs don't look in too bad shape but I think the time where it's a long is probably over. Changing the bias to neutral and looking for short-term shorts until I feel convinced it's headed lower (which it could very well do just given that positioning is at multi-year extremes).
It feels like GBP is going to be down on the BoE decision because they won't out-hawk market expectations.


***** AUD *****
***** AUD *****
>>BULL<<
>>BULL<<
▶︎ Expectations for another hike are increasing again
▶︎ Bullish seasonality
▶︎ CESI has picked up
▶︎ OECD CLI looks like it is bottoming
▶︎ OECD CLI looks like it is bottoming
▶︎ Manufacturing PMI on the heatmap has improved
>>BEAR<<
>>BEAR<<
▶︎ Weak Chinese data is still weighing on AUD
▶︎ Aussie yields have underperformed, bull steepening into the RBA next week
▶︎ Deteriorating PMI on the Bloomberg map
▶︎ OIS-implied rate expectations have also dropped to around 10% for another hike
▶︎ AUD has traded badly on weak Chinese data, and this week more of that is expected
▶︎ Bullish sentiment
▶︎ Bullish sentiment
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
I don't see anything I particularly like about AUD right now. The labour market report this week was hot but AUD didn't follow through. We'll get a weaker-expected CPI in the coming week while expectations for another rate hike have increased again.
I don't see a hike from the RBA on Tuesday: The market isn't pricing it, CPI last week has come in softer and the only comment we've had since their last decision from Lowe was dovish.


My best guess is that AUD will go lower again this week. Changing the bias to bearish.
Also, we expect more weak data from China this week, and AUD has traded awfully on that over the last weeks. Maintaining the bearish bias.


***** NZD *****
***** NZD *****
>>BULL<<
>>BULL<<
▶︎ 2s10s have bear flattened recently
▶︎ 2s10s have bear flattened recently
▶︎ CESI has picked up further
▶︎ CESI has picked up further
▶︎ Bullish seasonality
>>BEAR<<
>>BEAR<<
▶︎ RBNZ last week with a relatively dovish statement that didn't mention further rate hikes
▶︎ Officially in a recession now with two quarters of negative GDP growth
▶︎ It's inherently weak
▶︎ It's inherently weak
▶︎ Sentiment is bullish
▶︎ Sentiment is bullish
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
We've had a hawkish CPI surprise (higher than expected albeit lower than previously) but absolutely no follow-through from NZD. Also no support from the RBNZ who removed guidance for possible further hikes last week. Changing the bias to bearish.
Unchanged from last week: We've had a hawkish CPI surprise (higher than expected albeit lower than previously) but absolutely no follow-through from NZD. Also no support from the RBNZ who removed guidance for possible further hikes last week.


***** CAD *****
***** CAD *****
>>BULL<<
>>BULL<<
▶︎ Positive seasonality
>>BEAR<<
>>BEAR<<
▶︎ Dovish BOC statement last week, looks like they've ended their hiking cycle too, ""prepared to hike further"" only via press conference
▶︎ The BOC have ended their hiking cycle, no hint of further action in the statement
▶︎ 2s10s bull steepening after, i.e. the market isn't taking the CPI surprise too seriously
▶︎ Data over the last few weeks has mostly disappointed and weakened
▶︎ Data over the last few weeks has mostly disappointed and weakened
▶︎ Crude oil just isn't performing but correlation to CL is currently negative
▶︎ CL has staged a bit of a stealth rally but correlation to CL is currently negative
▶︎ Has the worst CLI among the G7
▶︎ Has the worst CLI among the G7
▶︎ Bullish sentiment
▶︎ Bullish sentiment and bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
Another CPI surprise this week, and CAD ended the week higher but I think that was mostly driven by USD strength as Canadian yields haven't followed through.
There's nothing I particularly like about CAD right now. It has a high correlation to USD and a negative one to CL.


We'll get the BOC Minutes on Wednesday. They usually aren't very detailed, and I'm not sure they will be market-moving. I think they might come in a bit more hawkish compared to the statement last week because Macklem said they are prepared to hike further and they certainly discussed this.
But: compared to other currencies, ""nothing to like"" isn't the worst thing out there. I don't see why it shouldn't perform better than AUD or NZD, for example.


I'm changing the bias to bearish.
I'm changing the bias to neutral.


***** CHF *****
***** CHF *****
>>BULL<<
>>BULL<<
▶︎ The SNB is still trying to sound hawkish, I just wonder why
▶︎ The SNB is still trying to sound hawkish, I just wonder why
▶︎ Bearish sentiment via EURCHF and USDCHF
▶︎ Bearish sentiment via EURCHF and USDCHF
▶︎ CESI is off lows
▶︎ CESI is going up
▶︎ Inherent strength
▶︎ Inherent strength
>>BEAR<<
>>BEAR<<
▶︎ Bearish seasonality
▶︎ Huge divergence between COT Large Trader net positions and price
▶︎ Huge divergence between COT Large Trader net positions and price
▶︎ IV is slowly creeping higher
>>SUMMARY<<
>>SUMMARY<<
There's no fundamental reason why CHF has outperformed recently, so my guess is on the SNB buying it. I also don't understand why they're still as hawkish as they are given that CPI m/m is at 0.1% and has missed expectations. And what really stands out is that COT positioning is showing Large Traders positioning diverge from spot price. I'm changing the bias to bearish.
Unchanged from last week: There's no fundamental reason why CHF has outperformed recently, so my guess is on the SNB buying it. I also don't understand why they're still as hawkish as they are given that CPI m/m is at 0.1% and has missed expectations. And what really stands out is that COT positioning is showing Large Traders positioning diverge from spot price.


***** JPY *****
***** JPY *****
>>BULL<<
>>BULL<<
▶︎ Potentially higher 10y yields should be good for JPY
▶︎ The BOJ have upgraded their near-term inflation forecasts (but only those; the FY 2024 projection has been lowered)
>>BEAR<<
>>BEAR<<
▶︎ Market hopes for a YCC or policy tweak this week has been met with dovish comments and sources reports
▶︎ COT still says a JPY short is still not a very crowded trade
▶︎ Jawboning re: FX intervention is still very weak
▶︎ Sentiment is bullish
▶︎ COT still says it's still not a very crowded trade
▶︎ CSII has dropped
▶︎ The disinflationary momentum has slowed, CSII has dropped too
▶︎ Still the most dovish central bank out there
▶︎ Still the most dovish central bank out there
▶︎ Inherent weakness
▶︎ Inherent weakness
>>SUMMARY<<
>>SUMMARY<<
The market has priced in hopes for a July policy tweak without any good reasons, and that has seen some dovish pushback, especially on Friday.
What a rollercoaster for JPY last week. Everybody seems to be confused as to what the new YCC tweak means in the grand scheme of things, and the fact that 10y yields only traded a tad above the (old) 0.5% cap is puzzling.


Nothing makes me want to be long JPY right now. I'm leaving the bias at neutral because of its risk-on/risk-off properties."
JPY is still the cheapest funding currency, and the market's reaction so far doesn't feel like it's seeing the BOJ's decision as a gamechanger for now."