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fx:macro Summary diff 2022_09_24

Created 2 years agoDiff never expires

55 removals

116 lines

67 additions

126 lines

"***** MACRO *****

>>BULL<<

▶︎ Emerging markets are performing (Brazil, India)

▶︎ From the volatility side there's nothing to be concerned about

▶︎ HY spreads are a fair bit below their highs

▶︎ COT equity positioning is still bullish

▶︎ AAII Bull-Bear spread is near an extreme low again

▶︎ G10 CESI is improving

▶︎ Fear & Greed is in extreme fear territory

▶︎ GDPNow for Q3 is still positive, inflation is coming down... this is goldilocks for stocks

>>BEAR<<

▶︎ Equities heading lower, credit spreads widening, etc. seems to be the only logical trade

▶︎ The message from the Fed is clear: prepare for more and longer pain

▶︎ Sector performance is a bit chaotic, but seems to be more bearish than bullish

▶︎ Sector performance is bearish

▶︎ Breadth no longer a bullish supporting factor

▶︎ Five out of eight G8 2s10s yield curves have inverted so far

▶︎ Four out of eight G8 2s10s yield curves have inverted so far

▶︎ 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

▶︎ Volatility is showing signs of stress but it's been relatively moderate so far

>>SUMMARY<<

Unchanged from last week: don't see a clear way forward: low volatility, bullish positioning, bullish gamma are points for the bulls, macro is a major point for the bears. Equities aren't going to drop like a stone, most reasonable thing to expect would be a wide range of chop.

I did not expect equities to end up at the lows that quickly. The underlying factors and market internals are certainly worse than two weeks ago but there are no signs of a disorderly market crash. I still think a wide range of chop is the most likely thing to happen, but it's a very low-conviction call: last time there was a clear catalyst at the low for some upside (FOMC and Powell's presser), not so this time.

***** USD *****

>>BULL<<

▶︎ A barrage of Fed speakers before blackout, all of them hawkish

▶︎ Hawkish Powell, hawkish dots, the dollar liked it

▶︎ PMI-wise it looks a bit like Dollar Smile with the US outperforming

▶︎ Rising real yields and falling breakevens are the best environment for dollar strength

▶︎ Economy is slowing but it doesn't look too dramatic for now: goldilocks PMIs, strong NFPs

▶︎ US not participating in FX intervention to prop up the yen

▶︎ Real yields rising, breakevens falling -> most bullish scenario for USD

▶︎ CESI is rising, PMIs surprising to the upside, labour market remains strong... for now it's a soft landing

▶︎ Bearish sentiment

▶︎ Slowing global growth

▶︎ Very bearish sentiment

>>BEAR<<

▶︎ Pushback from BOJ and PBOC could take some steam out of the dollar

▶︎ Growth is clearly weakening

▶︎ Huge drop in Inflation Surprise indicators, 5y5y not rising further, forward-looking inflation indicators lower as well

▶︎ FX interventions in JPY 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

▶︎ Positioning in the PAIN index and COT is becoming stretched

>>SUMMARY<<

It's hard to imagine the USD bull run coming to a hard stop: Dollar Smile, hawkish Fed rhetoric, rising STIR and real yields in combination with lower breakevens, and the overall macro backdrop.

True two 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 *****

>>BULL<<

▶︎ EUR is up one week after Russia capped gas flows for good... it's obvious that a lot of negativity is priced in by now

▶︎ Econ data still surprising to the upside with CESI rising

▶︎ Dealer positioning at a 2-year high

▶︎ Risk reversals are bullish

▶︎ BTP-Bund and other spreads arre a lot calmer than expected, 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

>>BEAR<<

▶︎ The ECB decision appeared hawkish but they opted to increase liquidity by suspending the two-tier system for reserves, so dovish under the surface

▶︎ PMIs are increasingly desolate

▶︎ European stock markets are the worst performers

▶︎ 1-week moves in COT positioning point to further downside

▶︎ Increasing fragmentation with peripheral spreads widening

▶︎ Italian elections on Sunday, significant risk of a right-wing and Euro-sceptic future PM

▶︎ Italian elections on September 25th coming closer, significant risk of a right-wing and Euro-sceptic future PM

▶︎ Negative German trade balance in decades... this does not bode well for the EUR and for the global economy; it's been a few weeks but it remains important

>>SUMMARY<<

It's still a short but the fact that Russia cutting gas flows to Europe entirely just one week ago is being completely looked through by now makes me believe that the bearish energy story for the EUR has come to an end. Lots of other problems remain, though.

It's weak vs. USD, CAD and CHF and sideways to up vs. the other G8s. Trading it accordingly.

***** GBP *****

>>BULL<<

▶︎ New PM could be bullish for the currency: more fiscal spending, higher yields, tighter monetary policy; investments into energy (fracking) will be perceived as bullish, some backpedaling on Brexit escalations, etc.

▶︎ The ""mini""-budget should be positive in theory: tax cuts, more debt, more inflation down the road, higher rates

▶︎ CESI is rising, economy is performing better than expected

▶︎ Calls for an inter-meeting emergency rate hike... remains an unlikely possibility, but it's a wildcard

▶︎ Risk reversals are pricing it higher

▶︎ Yields are strong... market not following, though, for obvious reasons

>>BEAR<<

▶︎ The Inflation Surprise Index is staggering: in ordinary circumstances it would be bullish, but it just contributes to the mess the UK is in

▶︎ The market's verdict on the ""mini""-budget could not have been more clear

▶︎ PMIs are weak across all markets, but GBP seems to be the worst

▶︎ There's no consensus among MPC members with a 1/5/3 vote split for 25/50/75 bps

▶︎ Cost-of-living squeeze in full effect... could be mitigated by fiscal policy, though

▶︎ Government and the BOE effectively working against each other with gilt sales and a spending/tax cut deluge

▶︎ Inflation surprise index at highs

▶︎ CESI seems to be rolling over

▶︎ Sentiment is insanely bullish GBP

▶︎ Risk reversals are going bonkers on recent GBP moves

▶︎ Bearish seasonality

▶︎ Huge geopolitical and energy risks to inflation and growth, risks re: Northern Ireland Protocol

>>SUMMARY<<

Medium and long-term bearish bias remain, but there could be some short-term upside for a few weeks given the change in government, also some positive econ data next week.

The moves in GBP have been parabolic, so I expect some technical short-term upside, but the fundamental direction is clearly lower.

***** AUD *****

>>BULL<<

▶︎ Strong PMIs with upside surprises (little reaction from AUD, though)

▶︎ Risk reversals are diverging to the upside

▶︎ Relative PMI outperformer

▶︎ Sentiment is bearish especially vs. NZD, but: sentiment in AUDUSD is extremely bullish

▶︎ Sentiment is bearish especially vs. NZD

>>BEAR<<

▶︎ The rate hike this week was dovish: softer commitment to fight inflation, monetary policy already seems to be normalized

▶︎ The RBA is getting more cautious

▶︎ Dovish speech by Lowe

▶︎ Econ data and inflation are surprising to the downside

▶︎ PMIs in Asia deteriorating further, China is a drag on AUD

▶︎ Seasonality is bearish

>>SUMMARY<<

Still playing it from the long side. The more-dovish-than-hawkish tone from the RBA and Lowe was surprising.

It's still a long vs. the fundamentally weak currencies.

***** NZD *****

>>BULL<<

▶︎ CESI is bottoming, economic data seems to be improving

▶︎ Inflation surprises picking up

▶︎ Risk reversals are diverging to the upside

>>BEAR<<

▶︎ Intrinsically weak: this week's PMI has been the best among the G8 but NZD was down

▶︎ Bullish sentiment on NZD vs. bearish sentiment on AUD

▶︎ Very weak data and weak CESI

▶︎ Divergence between increasing Aussie trade balance and stagnant/falling Kiwi trade balance

▶︎ Divergence between increasing Aussie trade balance and stagnant/falling Kiwi TB

>>SUMMARY<<

I still don't see why it should outperform AUD, so I remain bearish (in relation to AUD).

Some fundamentals are improving as apparent by this week's PMIs but that doesn't seem to be enough. I don't see why the underperformance vs. AUD should change now.

***** CAD *****

>>BULL<<

▶︎ Proximity to the strong US dollar

▶︎ Strong US dollar dragging it along (to the point that CAD is up for the week even though crude has been hit hard)

▶︎ Housing market remains strong

▶︎ Sentiment is very bearish

>>BEAR<<

▶︎ The BOC didn't provide any hawkish impulse this week

▶︎ CSII lower

▶︎ Fundamentals still relatively strong on an absolute level, but it's weakening with CESI moving down for months now and PMIs deteriorating

▶︎ Weakening economy, CESI at lows

▶︎ Volatility and weakness in crude oil are a drag

▶︎ Yields have softened, inverted 2s10s

>>SUMMARY<<

Unchanged: despite the volatility in energy, it has been a quiet outperformer for months now.

It's outperforming because it's close to the US, so I expect that to continue. Its own fundamentals have weakened considerably.

***** CHF *****

>>BULL<<

▶︎ A bit of a hawkish impulse from Jordan and Maechler this week

▶︎ The SNB was obscure as ever in its guidance, but the overall tone was hawkish

▶︎ Between-meeting action on rates by the SNB is a wildcard

▶︎ Very bearish sentiment, especially in EURCHF

▶︎ Most bearish sentiment among the G8

>>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

▶︎ Inflation not surprising to the upside anymore

▶︎ Yields are underperforming

>>SUMMARY<<

We'll see how the SNB meeting on 22-Sep plays out. Could see some more buying action into that after this week's comments.

Back to bullish: hawkish central bank with uncertainty on the upside (interventions, between-meeting hikes) and bearish sentiment. It's a crowded trade, though.

***** JPY *****

>>BULL<<

▶︎ Rhethoric from BPJ and FinMin is getting a bit more aggressive

▶︎ FX interventions are now definitely on the table but they are a one-man-show without international support

▶︎ Some expectations that YCC might be tweaked at next meeting

▶︎ And they are going to create a lot of uncertainty

▶︎ Risk reversals see a lot of upside for the yen

>>BEAR<<

▶︎ Yield differentials widening vs. everyone else and US yields seem unstoppable for now

▶︎ The BOJ was dovish as ever, effectively working against its MoF

▶︎ Yield differentials are widening vs. everyone else, and US yields seem unstoppable for now

>>SUMMARY<<

The only thing that's bullish now is the ominous threat threat of an intervention. Even if it comes it doesn't have to turn the tide, but it could create a lot of volatility."

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."

Saved diffs

Original text

Open file

"***** MACRO *****
     >>BULL<<
▶︎ Emerging markets are performing (Brazil, India)
▶︎ From the volatility side there's nothing to be concerned about
▶︎ COT equity positioning is still bullish
▶︎ AAII Bull-Bear spread is near an extreme low again
▶︎ G10 CESI is improving
▶︎ GDPNow for Q3 is still positive, inflation is coming down... this is goldilocks for stocks
     >>BEAR<<
▶︎ Equities heading lower, credit spreads widening, etc. seems to be the only logical trade
▶︎ Sector performance is a bit chaotic, but seems to be more bearish than bullish
▶︎ Breadth no longer a bullish supporting factor
▶︎ Four out of eight G8 2s10s yield curves have inverted so far
     >>SUMMARY<<
Unchanged from last week: don't see a clear way forward: low volatility, bullish positioning, bullish gamma are points for the bulls, macro is a major point for the bears. Equities aren't going to drop like a stone, most reasonable thing to expect would be a wide range of chop.

***** USD *****
     >>BULL<<
▶︎ A barrage of Fed speakers before blackout, all of them hawkish
▶︎ PMI-wise it looks a bit like Dollar Smile with the US outperforming
▶︎ Economy is slowing but it doesn't look too dramatic for now: goldilocks PMIs, strong NFPs
▶︎ Real yields rising, breakevens falling -> most bullish scenario for USD
▶︎ Bearish sentiment
     >>BEAR<<
▶︎ Pushback from BOJ and PBOC could take some steam out of the dollar
▶︎ Huge drop in Inflation Surprise indicators, 5y5y not rising further, forward-looking inflation indicators lower as well 
▶︎ Positioning in the PAIN index and COT is becoming stretched
     >>SUMMARY<<
It's hard to imagine the USD bull run coming to a hard stop: Dollar Smile, hawkish Fed rhetoric, rising STIR and real yields in combination with lower breakevens, and the overall macro backdrop.

***** EUR *****
     >>BULL<<
▶︎ EUR is up one week after Russia capped gas flows for good... it's obvious that a lot of negativity is priced in by now
▶︎ Econ data still surprising to the upside with CESI rising
▶︎ Dealer positioning at a 2-year high
▶︎ Risk reversals are bullish
     >>BEAR<<
▶︎ The ECB decision appeared hawkish but they opted to increase liquidity by suspending the two-tier system for reserves, so dovish under the surface
▶︎ European stock markets are the worst performers
▶︎ Increasing fragmentation with peripheral spreads widening
▶︎ Italian elections on September 25th coming closer, significant risk of a right-wing and Euro-sceptic future PM
▶︎ Negative German trade balance in decades... this does not bode well for the EUR and for the global economy; it's been a few weeks but it remains important
     >>SUMMARY<<
It's still a short but the fact that Russia cutting gas flows to Europe entirely just one week ago is being completely looked through by now makes me believe that the bearish energy story for the EUR has come to an end. Lots of other problems remain, though.

***** GBP *****
     >>BULL<<
▶︎ New PM could be bullish for the currency: more fiscal spending, higher yields, tighter monetary policy; investments into energy (fracking) will be perceived as bullish, some backpedaling on Brexit escalations, etc.
▶︎ CESI is rising, economy is performing better than expected
▶︎ Risk reversals are pricing it higher
▶︎ Yields are strong... market not following, though, for obvious reasons
     >>BEAR<<
▶︎ The Inflation Surprise Index is staggering: in ordinary circumstances it would be bullish, but it just contributes to the mess the UK is in
▶︎ PMIs are weak across all markets, but GBP seems to be the worst
▶︎ Cost-of-living squeeze in full effect... could be mitigated by fiscal policy, though
▶︎ Bearish seasonality
▶︎ Huge geopolitical and energy risks to inflation and growth, risks re: Northern Ireland Protocol
     >>SUMMARY<<
Medium and long-term bearish bias remain, but there could be some short-term upside for a few weeks given the change in government, also some positive econ data next week.

***** AUD *****
     >>BULL<<
▶︎ Risk reversals are diverging to the upside
▶︎ Relative PMI outperformer
▶︎ Sentiment is bearish especially vs. NZD
     >>BEAR<<
▶︎ The rate hike this week was dovish: softer commitment to fight inflation, monetary policy already seems to be normalized
▶︎ Dovish speech by Lowe
▶︎ Econ data and inflation are surprising to the downside
▶︎ PMIs in Asia deteriorating further, China is a drag on AUD
▶︎ Seasonality is bearish
     >>SUMMARY<<
Still playing it from the long side. The more-dovish-than-hawkish tone from the RBA and Lowe was surprising.

***** NZD *****
     >>BULL<<
▶︎ Risk reversals are diverging to the upside
     >>BEAR<<
▶︎ Bullish sentiment on NZD vs. bearish sentiment on AUD
▶︎ Very weak data and weak CESI
▶︎ Divergence between increasing Aussie trade balance and stagnant/falling Kiwi TB
     >>SUMMARY<<
I still don't see why it should outperform AUD, so I remain bearish (in relation to AUD).

***** CAD *****
     >>BULL<<
▶︎ Proximity to the strong US dollar
▶︎ Housing market remains strong
▶︎ Sentiment is very bearish
     >>BEAR<<
▶︎ The BOC didn't provide any hawkish impulse this week
▶︎ CSII lower
▶︎ Fundamentals still relatively strong on an absolute level, but it's weakening with CESI moving down for months now and PMIs deteriorating
▶︎ Yields have softened, inverted 2s10s
     >>SUMMARY<<
Unchanged: despite the volatility in energy, it has been a quiet outperformer for months now. 

***** CHF *****
     >>BULL<<
▶︎ A bit of a hawkish impulse from Jordan and Maechler this week
▶︎ Between-meeting action on rates by the SNB is a wildcard
▶︎ Very bearish sentiment, especially in EURCHF
     >>BEAR<<
▶︎ Inflation not surprising to the upside anymore
▶︎ Yields are underperforming
     >>SUMMARY<<
We'll see how the SNB meeting on 22-Sep plays out. Could see some more buying action into that after this week's comments.

***** JPY *****
     >>BULL<<
▶︎ Rhethoric from BPJ and FinMin is getting a bit more aggressive
▶︎ Some expectations that YCC might be tweaked at next meeting
     >>BEAR<<
▶︎ Yield differentials widening vs. everyone else and US yields seem unstoppable for now
     >>SUMMARY<<
The only thing that's bullish now is the ominous threat threat of an intervention. Even if it comes it doesn't have to turn the tide, but it could create a lot of volatility."

Changed text

Open file

"***** MACRO *****
     >>BULL<<
▶︎ Emerging markets are performing (Brazil, India)
▶︎ HY spreads are a fair bit below their highs
▶︎ COT equity positioning is still bullish
▶︎ AAII Bull-Bear spread is near an extreme low again
▶︎ Fear & Greed is in extreme fear territory
     >>BEAR<<
▶︎ The message from the Fed is clear: prepare for more and longer pain
▶︎ Sector performance is bearish
▶︎ Five out of eight G8 2s10s yield curves have inverted so far
▶︎ 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
▶︎ Volatility is showing signs of stress but it's been relatively moderate so far
     >>SUMMARY<<
I did not expect equities to end up at the lows that quickly. The underlying factors and market internals are certainly worse than two weeks ago but there are no signs of a disorderly market crash. I still think a wide range of chop is the most likely thing to happen, but it's a very low-conviction call: last time there was a clear catalyst at the low for some upside (FOMC and Powell's presser), not so this time.

***** USD *****
     >>BULL<<
▶︎ Hawkish Powell, hawkish dots, the dollar liked it
▶︎ Rising real yields and falling breakevens are the best environment for dollar strength
▶︎ US not participating in FX intervention to prop up the yen
▶︎ CESI is rising, PMIs surprising to the upside, labour market remains strong... for now it's a soft landing
▶︎ Slowing global growth
▶︎ Very bearish sentiment
     >>BEAR<<
▶︎ Growth is clearly weakening
▶︎ FX interventions in JPY 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 
▶︎ Positioning in the PAIN index and COT is becoming stretched
     >>SUMMARY<<
True two 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 *****
     >>BULL<<
▶︎ Econ data still surprising to the upside with CESI rising
▶︎ Risk reversals are bullish
▶︎ BTP-Bund and other spreads arre a lot calmer than expected, 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
     >>BEAR<<
▶︎ PMIs are increasingly desolate
▶︎ 1-week moves in COT positioning point to further downside
▶︎ Italian elections on Sunday, significant risk of a right-wing and Euro-sceptic future PM
▶︎ Negative German trade balance in decades... this does not bode well for the EUR and for the global economy; it's been a few weeks but it remains important
     >>SUMMARY<<
It's weak vs. USD, CAD and CHF and sideways to up vs. the other G8s. Trading it accordingly.

***** GBP *****
     >>BULL<<
▶︎ The ""mini""-budget should be positive in theory: tax cuts, more debt, more inflation down the road, higher rates
▶︎ Calls for an inter-meeting emergency rate hike... remains an unlikely possibility, but it's a wildcard
▶︎ Yields are strong... market not following, though, for obvious reasons
     >>BEAR<<
▶︎ The market's verdict on the ""mini""-budget could not have been more clear
▶︎ There's no consensus among MPC members with a 1/5/3 vote split for 25/50/75 bps
▶︎ Government and the BOE effectively working against each other with gilt sales and a spending/tax cut deluge
▶︎ Inflation surprise index at highs
▶︎ CESI seems to be rolling over
▶︎ Sentiment is insanely bullish GBP
▶︎ Risk reversals are going bonkers on recent GBP moves
▶︎ Bearish seasonality
▶︎ Huge geopolitical and energy risks to inflation and growth, risks re: Northern Ireland Protocol
     >>SUMMARY<<
The moves in GBP have been parabolic, so I expect some technical short-term upside, but the fundamental direction is clearly lower. 

***** AUD *****
     >>BULL<<
▶︎ Strong PMIs with upside surprises (little reaction from AUD, though)
▶︎ Risk reversals are diverging to the upside
▶︎ Sentiment is bearish especially vs. NZD, but: sentiment in AUDUSD is extremely bullish
     >>BEAR<<
▶︎ The RBA is getting more cautious
▶︎ Econ data and inflation are surprising to the downside
▶︎ PMIs in Asia deteriorating further, China is a drag on AUD
▶︎ Seasonality is bearish
     >>SUMMARY<<
It's still a long vs. the fundamentally weak currencies.

***** NZD *****
     >>BULL<<
▶︎ CESI is bottoming, economic data seems to be improving
▶︎ Inflation surprises picking up
▶︎ Risk reversals are diverging to the upside

     >>BEAR<<
▶︎ Intrinsically weak: this week's PMI has been the best among the G8 but NZD was down
▶︎ Bullish sentiment on NZD vs. bearish sentiment on AUD
▶︎ Divergence between increasing Aussie trade balance and stagnant/falling Kiwi trade balance
     >>SUMMARY<<
Some fundamentals are improving as apparent by this week's PMIs but that doesn't seem to be enough. I don't see why the underperformance vs. AUD should change now.

***** CAD *****
     >>BULL<<
▶︎ Strong US dollar dragging it along (to the point that CAD is up for the week even though crude has been hit hard)
▶︎ Housing market remains strong
▶︎ Sentiment is very bearish
     >>BEAR<<
▶︎ CSII lower
▶︎ Weakening economy, CESI at lows
▶︎ Volatility and weakness in crude oil are a drag
▶︎ Yields have softened, inverted 2s10s
     >>SUMMARY<<
It's outperforming because it's close to the US, so I expect that to continue. Its own fundamentals have weakened considerably.

***** CHF *****
     >>BULL<<
▶︎ The SNB was obscure as ever in its guidance, but the overall tone was hawkish
▶︎ Between-meeting action on rates by the SNB is a wildcard
▶︎ Most bearish sentiment among the G8
     >>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
▶︎ Inflation not surprising to the upside anymore
▶︎ Yields are underperforming
     >>SUMMARY<<
Back to bullish: hawkish central bank with uncertainty on the upside (interventions, between-meeting hikes) and bearish sentiment. It's a crowded trade, though.

***** JPY *****
     >>BULL<<
▶︎ FX interventions are now definitely on the table but they are a one-man-show without international support
▶︎ And they are going to create a lot of uncertainty
▶︎ Risk reversals see a lot of upside for the yen
     >>BEAR<<
▶︎ The BOJ was dovish as ever, effectively working against its MoF
▶︎ Yield differentials are widening vs. everyone else, and US yields seem unstoppable for now
     >>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."