fx:macro Summary Changes 2023_03_04

121 lines
-54 Removals
118 lines
+52 Additions
"25.02.23
"04.03.23
***** MACRO *****
***** MACRO *****
>>BULL<<
>>BULL<<
▶︎ 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
▶︎ Sector ETFs are trading well: offensive sectors look bullish, defensive sectors don't
▶︎ Bullish AAII sentiment has pretty much evaporated compared to last week, Fear & Greed is back at neutral
▶︎ Credit spreads are still contained, the Corporate Bond Market Distress Index is calm, bond volatility isn't very high
▶︎ Credit spreads are still contained, the Corporate Bond Market Distress Index is calm, bond volatility isn't very high
▶︎ China reopening trade is pausing but it should still be a tailwind
▶︎ Equity volatility indexes look decidedly better than last week: declining vol, steeper curve, flatter skew, also: declining currency volatilities; the only negative point is a divergence between VIX and MOVE again
>>BEAR<<
>>BEAR<<
▶︎ ETF flows are very bearish: into short-term treasuries and out of HY and IG credit, out of SPY
▶︎ ETF flows continue to be very bearish: into short-term treasuries, out of duration, out of equities
▶︎ I don't like how volatiliy indexes look right now: VIX/VIX3M is too flat for the current VIX level, rising ATM vol and flatter skew have been bad for stocks in the past
▶︎ Copper has made a lower high and a lower low, at the least it's not bullish anymore
▶︎ Copper has made a lower high and a lower low, at the least it's not bullish anymore
▶︎ Sentiment is very bullish with AAII bull-bear near a >1 year high
▶︎ Sector rotation seems more defensive than offensive now, and sector breadth is lagging
▶︎ Asian PMIs are still mixed-to-weak
▶︎ Six out of eight G8 2s10s have so far inverted
▶︎ Six out of eight G8 2s10s have so far inverted
▶︎ The Cleveland Fed Yield-Curve-Predicted GDP Growth model gets more and more negative
▶︎ The Cleveland Fed Yield-Curve-Predicted GDP Growth model gets more and more negative
>>SUMMARY<<
>>SUMMARY<<
The bearish points on the right are piling up, and the way volatility indexes behave is the most concerning thing to me on that list.
It feels like everything changes every few days. I like the market a lot more than last week: PMIs are improving globally and in key countries, sentiment has normalized, the price action in equity sectors looks bullish (even though the performance numbers are all over the place), volatility is doing well, breadth is okay. ETF flows are very bearish, though, and commodities don't seem to get out of their ranges.
***** USD *****
***** USD *****
>>BULL<<
>>BULL<<
▶︎ The FOMC Minutes read more hawkish than dovish but without any major news
▶︎ Positive month-end flow expected
▶︎ Again this week: the terminal rate has been repriced higher, rate cuts have been pushed further out
▶︎ Again this week: the terminal rate has been repriced higher, rate cuts have been pushed further out
▶︎ GDPNow for Q1 is going up every week
▶︎ GDPNow for Q1 is >2%
▶︎ CESI is rising too
▶︎ CESI is rising too
▶︎ Improving PMI on the heatmap
▶︎ Improving PMI on the heatmap
▶︎ Inflation suprising to the upside and breakevens creeping higher
▶︎ Inflation suprising to the upside and breakevens creeping higher
▶︎ Seasonality is positive
▶︎ Bearish sentiment
>>BEAR<<
>>BEAR<<
▶︎ The two known hawks Mester and Bullard did not sound hawkish at all this week even though they could have, and Bullard's terminal rate is where the market is currently pricing it
▶︎ Waller is still hawkish but he's pretty much the only one right now, Bostic and Kashkari see rates at levels currently priced in
▶︎ 25-delta risk reversal sees USD weaker
▶︎ 25-delta risk reversals see the USD weaker
▶︎ We're in the trough of the dollar smile with global PMIs improving and the US not outperforming
>>SUMMARY<<
>>SUMMARY<<
I will be looking for long trades in the dollar next week again, mainly because month-end flows are expected to be positive. But I wonder how high the dollar can go: the market has already fully priced in the terminal rate uber-hawk Bullard has aimed at, and both Mester and Bullard aren't arguing to go too much further.
Same for currencies: it feels like everything changes way too often. We've made a new high in the implied terminal rate this week but the USD was the FX underperformer. It's highly correlated to its 2y and 10y yields and it's tough to imagine them going much higher, also the negative correlation to ES... with how many positives I see for stocks it's hard to see much further upside in the dollar. The options market has been pricing the dollar lower for a few weeks now, and charts like the DXY, USDCNH, USDJPY all look toppy. Changing the bias to short.
***** EUR *****
***** EUR *****
>>BULL<<
>>BULL<<
▶︎ The ECB still sounds hawkish but the Minutes showed some disagreement on their communication strategy
▶︎ Core CPI is sticky
▶︎ Stock markets are still outperforming
▶︎ Stock markets are still outperforming
▶︎ 25-delta risk reversal looks bullish
▶︎ 25-delta risk reversal looks bullish
>>BEAR<<
>>BEAR<<
▶︎ The economic calendar is looking pretty red for next week
▶︎ Positioning is at bearish extremes
▶︎ CESI has rolled over
▶︎ CESI has rolled over
▶︎ German PMI on the heatmap is weaker
▶︎ 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
▶︎ Bearish seasonality
▶︎ Positioning is at bearish extremes (probably but COT data is very stale by now)
>>SUMMARY<<
>>SUMMARY<<
Every bit of good and/or hawkish news has seemingly been digested, and I wonder how long European stock markets will hold near their highs.
I'm not sure what I'm thinking about the Euro at the moment. German yields are performing but EUR isn't following suit, we will probably see divergences with other pausing central banks soon but even the Fed isn't expected to pause before July, and disagreements among the GC members have already started to show up in the ECB minutes. I'm changing the bias to neutral.
***** GBP *****
***** GBP *****
>>BULL<<
>>BULL<<
▶︎ The FTSE is outperforming
▶︎ Possible turnaround in the Economic Surprise Index
▶︎ Possible turnaround in the Economic Surprise Index
▶︎ 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<<
▶︎ Baily was more dovish than hawkish this week, and the first MPC member has already started talking about rate cuts (Tenreyro)
▶︎ CPI surprise to the downside
▶︎ CPI surprise to the downside
▶︎ The first MPC member started talking about rate cuts (Tenreyro)
▶︎ Projections in the MPR were upgraded but they're still pretty bad
▶︎ The entire country seems to be in disarray with everyone on strike and people being squeezed; the strikes haven't been front-page lately but they're still going on
▶︎ The entire country seems to be in disarray with everyone on strike and people being squeezed; the strikes haven't been front-page lately but they're still going on
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
This week's PMI report emphasized the resilience of the UK economy a few times. Reading it felt like we've seen every possible horror scenario by now but reality is turning out to be a lot less bad than that. My overall bias remains short but I'll try to be more flexible with short-term trades (also because its correlations to pretty much everything are low and/or mixed).
As I wrote last week: it feels like we've already seen every horror scenario for the sterling but it's still going and things will be a lot less bad than feared. It's still a short but I do see that (for me) it is tough to trade with way too many whipsaws.
***** AUD *****
***** AUD *****
>>BULL<<
>>BULL<<
▶︎ Commentary in the PMIs sounding pretty upbeat on the economy
▶︎ Commentary in the PMIs sounding pretty upbeat on the economy
▶︎ Last CPI releases surprised to the upside
▶︎ 25-delta risk reversal is bullish
▶︎ 25-delta risk reversal is bullish
>>BEAR<<
>>BEAR<<
▶︎ Inherent weakness: AUD hasn't traded well since the hawkish RBA meeting three weeks ago and neither after this week's hawkish Minutes
▶︎ CPI and GDP both surprised to the downside, taking pressure off the RBA
▶︎ Inherent weakness, it's just not trading well
▶︎ CESI is near lows, the CESI spread between AUD and NZD points to a lower AUD
▶︎ CESI is near lows, the CESI spread between AUD and NZD points to a lower AUD
▶︎ Bullish sentiment
▶︎ Bullish sentiment and bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
Fundamentally it remains neutral. We get few data points next week but expectations are for a lower CPI and a higher GDP. Coupled with positive month-end flows into USD I'll be looking for shorts in AUD in the coming week.
We'll get the RBA rate decision on Tuesday morning, pricing is 78% for 25 bps, 22% for no change. AUD and NZD are the risk-on currencies again with high correlations to ES (positive) and VIX (negative), so if I expect risk on with stocks higher and the dollar lower, I have to change the bias to bullish here even though I don't like the fundamentals, the sentiment, the seasonality or that it's just weak.
***** NZD *****
***** NZD *****
>>BULL<<
>>BULL<<
▶︎ 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
▶︎ 25-delta risk reversal is bullish
▶︎ 25-delta risk reversal is bullish
>>BEAR<<
>>BEAR<<
▶︎ It showed inherent weakness in the wake of this week's RBNZ decision and hawkish comments from Orr and Silk
▶︎ Incoming economic data is getting weaker, the labour market is finally softening
▶︎ Incoming economic data is getting weaker, the labour market is finally softening
▶︎ Positioning and sentiment are bearish
▶︎ Positioning and sentiment are bearish
▶︎ CESI has rolled over
▶︎ CESI is trending lower
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
The RBNZ decision was hawkish but the NZD is barely up this week. I'm changing the bias from short to neutral because of the RBNZ and because I can see NZD appreciating vs. the AUD.
The fundamentals aren't great here either but it has the RBNZ going for it, and I like that the spread between the CESIs of AUD and NZD are pointing towards NZD strength. Have to change the bias to bullish here too, and I have a bit less of a headache than I do with the Aussie.
***** CAD *****
***** CAD *****
>>BULL<<
>>BULL<<
▶︎ PMI has been improving
▶︎ Positioning is bullish (probably but COT data is outdated by now)
▶︎ Positioning is bullish
▶︎ Risk reversal is bullish
>>BEAR<<
>>BEAR<<
▶︎ Mixed-to-disappointing inflation numbers this week
▶︎ The BOC has announced the end of their hiking cycle
▶︎ The BOC has announced the end of their hiking cycle
▶︎ BOC Minutes were dovish
▶︎ Sentiment is bullish
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
The economy isn't performing badly but the central bank isn't helping anymore. It's not interesting from a fundamental point of view but its high correlation to USD makes it a long.
The BOC will very probably be the first G8 central bank to pause this week. I'm still thinking positioning might be a supporting factor but the high correlation to USD (0.79 over 30 days, 0.94 over 100 days) means that a bullish bias doesn't make sense, so I'm changing it to neutral.
***** CHF *****
***** CHF *****
>>BULL<<
>>BULL<<
▶︎ CESI has picked up a bit
▶︎ CESI has picked up a bit
▶︎ Sentiment is bearish
>>BEAR<<
>>BEAR<<
▶︎ Yields are underperforming
▶︎ Yields are underperforming
▶︎ PMI has weakened
▶︎ PMI has weakened
▶︎ CSII is falling
▶︎ CSII is falling
▶︎ Seasonality is bearish
>>SUMMARY<<
>>SUMMARY<<
Like last week, I'll leave things unchanged because I don't have a very good grasp on it but there's nothing I particularly like at the moment.
Still nothing I particularly like about it at this point.
***** JPY *****
***** JPY *****
>>BULL<<
>>BULL<<
▶︎ Inflation has been surprising to the upside (not showing up in the CSII, though)
▶︎ 10y yield is glued to the upper band
▶︎ 10y yield is glued to the upper band
▶︎ CESI is looking bullish
▶︎ CESI is looking bullish
▶︎ OECD CLI outperformer
▶︎ Risk reversal sees USDJPY lower
>>BEAR<<
>>BEAR<<
▶︎ Nothing constructive from Ueda in his speech
▶︎ Nothing hawkish from the BOJ so far
▶︎ Implied volatility is relatively low, the market isn't expecting a short-term surprise from the BOJ
▶︎ Implied volatility has gone down further, the market doesn't expect a surprise at the rate decision this week
▶︎ First disinflationary CPI print in a while on Friday
▶︎ 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<<
Everything Ueda has said this week points to a continuation of current monetary policy, and the options market seems to believe him if we look at IV. We get a Tokyo Core CPI print on Friday that's expected to be pretty disinflationary (down 1% from 4.3 to 3.3), and Ueda mentioned specifically that he expects inflation to slow substantially from the next print, so things will get interesting."
Nothing we hear from BOJ or government officials hints at any hawkish moves or surprises, the options market isn't concerned either. CPI was disinflationary as predicted by Ueda, and they've repeatedly said they will take their time to assess the market impact of their YCC tweak from December. Still, with US treasury yields topping out at some point and my bias for the dollar, I will be looking for shorts. I'm leaving the bias unchanged because I don't see the risk-off component in the markets that would justify a change to long here."
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