fx:macro Summary Changes 2023_02_11

Created Diff never expires
36 removals
126 lines
35 additions
123 lines
"04.02.23
"11.02.23
***** MACRO *****
***** MACRO *****
>>BULL<<
>>BULL<<
▶︎ The China trade is still in effect fundamentally
▶︎ The China trade is still in effect fundamentally
▶︎ COT positioning in NQ futures is bullish
▶︎ COT positioning in NQ futures is bullish
▶︎ Credit spreads seem contained, the Corporate Bond Market Distress Index is lower, MOVE is below 100
▶︎ Credit spreads seem contained, the Corporate Bond Market Distress Index is lower
▶︎ No signs of stress from equity volatility and options
▶︎ Market breadth is looking pretty decent
▶︎ Constructive price action in key sectors: bullish Comm/Tech vs. bearish Utilities
>>BEAR<<
>>BEAR<<
▶︎ Sentiment is stretched with CNN Fear & Greed >75 and AAII Bull-Bear near 1-year highs
▶︎ ETF flows are bearish
▶︎ Short-term: correlation between ES-VVIX and VIX-VVIX is high which is a warning sign for a top in equities
▶︎ Sentiment is very bullish with AAII at its highest in >1 year
▶︎ Energy futures continue to be very weak
▶︎ Sector rotation seems more defensive than offensive now, and sector breadth is lagging
▶︎ Global and Asian PMIs are weakening further (notable exception: India)
▶︎ Worrysome jump in VVIX could drag VIX higher; the term structure is still in contango, and relatively steep in the front
▶︎ US treasuries have started to perform: it still looks like a trade on a Fed pivot with treasuries rising when everything else is but it could quickly become a play on softer growth
▶︎ Global and Asian PMIs are mostly softer
▶︎ Six out of eight G8 2s10s have so far inverted
▶︎ Six out of eight G8 2s10s have so far inverted
▶︎ Fear & Greed is at Greed
>>SUMMARY<<
>>SUMMARY<<
Positive factors continue to outweigh the negative ones. The whole intermarket picture and the fundamentals don't make much sense to me, though, so I still won't commit to a bias. We'll see what happens under the hood when the China trade is taking a bit more of a breather, which would be more than due now, especially with sentiment being where it is. One thing that's noteworthy: bears on Twitter have started to argue with a) low-quality data and b) with narratives that aren't supported by data.
Last week I've had six bullet points on the left side and seven on the right, today it's only three points for the bulls and all of them are not really new. But sentiment is exuberant (at least compared to where we come from) and a few other things you can read above that aren't exactly good news. Also, my FX strength chart shows compressing lines, which means that trends are reversing and the regime might be shifting.


***** USD *****
***** USD *****
>>BULL<<
>>BULL<<
▶︎ The Services PMI and NFP this week were unequivocally bullish, the Fed Funds curve reacted accordingly
▶︎ The tone from Fed speakers is consistent and it's more hawkish than dovish
▶︎ CESI jumped higher
▶︎ GDPNow is at 2.2% for Q1 and rising
▶︎ The economy is resilient, it's still growing and the labour market is showing no sign of softening
▶︎ CESI jumped higher, USD still getting a boost from NFP
▶︎ Inflation breakevens failed to break out lower
▶︎ USD selling finally shows up in COT data and the PAIN index but there's still some way to go until we reach a stretched short
▶︎ USD selling finally shows up in COT data and the PAIN index but there's still some way to go until we reach a stretched short
▶︎ Seasonality is positive
▶︎ Seasonality is positive
▶︎ Sentiment is bearish on the dollar
▶︎ 25-delta risk reversals are bullish USD
▶︎ 25-delta risk reversals are bullish USD
>>BEAR<<
>>BEAR<<
▶︎ The FOMC statement wasn't outright dovish but the shift in language and tone is definitely there, Powell's comments didn't help
▶︎ Inflation and inflation breakevens are trending lower while real yields are going nowhere
▶︎ CSII continues to go down
▶︎ CSII continues to go down
▶︎ The China reopening should be bearish USD
▶︎ The China reopening should be bearish USD
▶︎ Treasuries have bullish COT positioning which could weigh on yields
▶︎ Treasuries have bullish COT positioning which could weigh on yields
>>SUMMARY<<
>>SUMMARY<<
Price action in USD makes sort of sense to me but I'm unsure how sustainable the new-found strength is. Next week is light on data, so I expect a technical market that's still riding on last week's themes (i.e. the ISM and NFP on Friday). That means that it's reasonable to trade USD from the long side. The list of bullish vs. bearish arguments is more balanced now but it's too early to change the bias.
FOMC and Non-Farm Payrolls seem to have been an inflection point for the dollar and treasury yields. When I look at the calendar, I see a lot of positive data coming in for the dollar next week. I've been trading the dollar from the long side last week, and I'll be looking for longs in the coming week, too. I'm changing the bias to long although I'm still quite unsure how sustainable the new-found strength is. And it also fits with the idea of a) China trade pausing plus b) more headwinds for equities as written above.


***** EUR *****
***** EUR *****
>>BULL<<
>>BULL<<
▶︎ The ECB statement reflects that the ECB is the most hawkish central bank at the moment, they're the only one giving hard guidance
▶︎ The ECB statement reflects that the ECB is the most hawkish central bank at the moment, they're the only one giving hard guidance
▶︎ BTP-Bund is making lower highs and lower lows
▶︎ BTP-Bund is making lower highs and lower lows
▶︎ The mild winter has completely soothed fears of an energy shortage
▶︎ The mild winter has completely soothed fears of an energy shortage
▶︎ CESI is going strong
▶︎ CESI is going strong
▶︎ PMIs have been surprising to the upside and have been less bad than feared
▶︎ Stock markets are outperforming
▶︎ Stock markets are outperforming
▶︎ Bearish sentiment
▶︎ Bearish sentiment
>>BEAR<<
>>BEAR<<
▶︎ Even hawkish comments from influential and usually neutral Schnabel haven't helped this week... that's inherent weakness
▶︎ Positioning is at bearish extremes
▶︎ Positioning is at bearish extremes
▶︎ It's not profiting as much from the weak dollar as expected
▶︎ The sentiment in EURCHF struck me this week... it's been there before but not as extreme
▶︎ Not sure what it would take for the Ukraine war to spook the market again: Belarus attacking, another mobilization... not sure but it's still a relevant risk
▶︎ Not sure what it would take for the Ukraine war to spook the market again: Belarus attacking, another mobilization... not sure but it's still a relevant risk
▶︎ Bearish seasonality
▶︎ Bearish seasonality


>>SUMMARY<<
>>SUMMARY<<
Long Euro, long Euro, long Euro. The market seemed disappointed by the ECB statement but then it doesn't believe them anyway given where 2s are trading. Not sure what to think about that but everything in front of me says long Euro. The only thing that's a headache is positioning.
It's a pretty bad combination: very bullish fundamentals going into this week but completely missed expectations, which means that positioning is taking its toll. I thought about changing the bias to neutral but short seems more appropriate even though I don't expect EURUSD to fall like a stone.


***** GBP *****
***** GBP *****
>>BULL<<
>>BULL<<
▶︎ GDP came in better than expected once again
▶︎ CPI suprising to the upside
▶︎ CPI suprising to the upside
>>BEAR<<
>>BEAR<<
▶︎ Dovish Monetary Policy Summary this week with 2 members voting for no change
▶︎ The first MPC member started talking about rate cuts (Tenreyro)
▶︎ Projections in the MPR were upgraded but they're still pretty bad
▶︎ 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
▶︎ CESI divergence with the Eurozone
▶︎ CESI is weakening further
▶︎ PMIs were quite pessimistic and negative (especially compared to the Eurozone)
▶︎ Even if its 2s and 10s look decent, they aren't driving it at the moment (negative correlation)
>>SUMMARY<<
>>SUMMARY<<
Feeling the burns already as I'm writing this: I'm changing the bias to short. We've had the gilt crisis that couldn't tank it sustainably, the dismal economic outlook, the MPC vote split between no change and 75 bps, the strikes... maybe the Bank of England was able to do the job this week.
Nothing has changed fundamentally from last week, the only thing is that the first MPC member has mentioned she would vote for a rate cut at some unspecified meeting. Will only be looking for shorts.


***** AUD *****
***** AUD *****
>>BULL<<
>>BULL<<
▶︎ It's showing inherent strength
▶︎ Hawkish hike from the RBA (no sustained reaction from AUD, though)
▶︎ Last CPI releases surprised to the upside
▶︎ Last CPI releases surprised to the upside
▶︎ OECD CLI has it outperforming
▶︎ OECD CLI has it outperforming
>>BEAR<<
>>BEAR<<
▶︎ Weaker PMIs for Australia and most of Asia
▶︎ Weaker PMIs for Australia and most of Asia although China's PMIs have improved
▶︎ CESI took a dive
▶︎ CESI took a dive
>>SUMMARY<<
>>SUMMARY<<
We've had good data out of China this week, but: AUD was soft before the FOMC, didn't benefit much when the USD sold off and tanked on dollar strength on Friday. It looks like the China trade is pausing. What could keep it alive is the RBA this week considering the inflation profile I showed below. Changing the bias to neutral.
Last week I wrote that what could keep AUD alive was the RBA. They were more hawkish than expected and compared to that, AUD was weaker than it should have been. Neutral seems the right bias for now.


***** NZD *****
***** NZD *****
>>BULL<<
>>BULL<<
▶︎ CPI surprise to the upside
▶︎ CPI surprise to the upside
>>BEAR<<
>>BEAR<<
▶︎ 2y and 10y yields are comparatively weak
▶︎ 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 has rolled over
>>SUMMARY<<
>>SUMMARY<<
Doesn't have much going for it at the moment: we haven't heard anything from the RBNZ, the softer labour market data this week definitely made an impression, and if the China trade is pausing (as suggested by AUD) then the NZD should underperform.
Unchanged from last week: Doesn't have much going for it at the moment: we haven't heard anything from the RBNZ, the softer labour market data this week definitely made an impression, and if the China trade is pausing (as suggested by AUD) then the NZD should underperform.


***** CAD *****
***** CAD *****
>>BULL<<
>>BULL<<
▶︎ Another blowout jobs market report on Friday with a strong reaction from CAD
▶︎ CESI is now higher
▶︎ PMI has been improving
▶︎ PMI has been improving
▶︎ Positioning is bullish
▶︎ Positioning is bullish
>>BEAR<<
>>BEAR<<
▶︎ The BOC has announced the end of their hiking cycle
▶︎ The BOC has announced the end of their hiking cycle
▶︎ BOC Minutes were dovish
>>SUMMARY<<
>>SUMMARY<<
Correlation between CAD and USD is about 0.60 over 30 days, its correlation to CL is negative. It's neither fish nor flesh. The economy is definitely not doing as badly as feared. Hard what to make of it, so leaving it at neutral.
We don't get fresh data from Canada next week, so I expect the momentum from the jobs report to continue somewhat, especially since the rather dovish BOC Minutes (and rate statement) have largely been looked through. Also, I've changed the USD bias to bullish, so it makes sense to change the one for CAD as well


***** CHF *****
***** CHF *****
>>BULL<<
>>BULL<<
▶︎ Sentiment is bearish CHF, i.e. a bullish factor
▶︎ Sentiment is bearish CHF, i.e. a bullish factor
>>BEAR<<
>>BEAR<<
▶︎ Yields are underperforming
▶︎ Its performance is still mediocre-to-bad
▶︎ Its performance is still mediocre-to-bad
▶︎ PMI has weakened
▶︎ PMI has weakened
▶︎ CESI is glued to its floor
▶︎ CESI is glued to its floor
▶︎ Last inflation print was deflationary and surprised to the downside, CSII is falling
▶︎ Last inflation print was deflationary and surprised to the downside, CSII is falling
▶︎ Seasonality is bearish
▶︎ Seasonality is bearish
>>SUMMARY<<
>>SUMMARY<<
There's hardly anything positive about it at the moment. It does have a bit of a safe-haven component but it's a question of time until JPY steals that show entirely. No reason to expect as much hawkishness from the SNB as from the ECB so yield differentials will probably widen and weigh on it.
I'll leave things unchanged from last week. I don't think I have a good grasp on it at the moment.


***** JPY *****
***** JPY *****
>>BULL<<
>>BULL<<
▶︎ It seems clear that the BOJ is slowly steering towards some form of exit from their strict easing
▶︎ It seems clear that the BOJ is slowly steering towards some form of exit from their strict easing
▶︎ The nomination process for the succession of Kuroda will take off shortly
▶︎ Positioning still has a pretty long way to go until it ""normalizes""
▶︎ Positioning still has a pretty long way to go until it ""normalizes""
▶︎ Inflation has been surprising to the upside (not showing up in the CSII, though)
▶︎ Inflation has been surprising to the upside (not showing up in the CSII, though)
▶︎ Japanese yields are outperforming
▶︎ 10y yield is glued to the upper band
▶︎ OECD CLI outperformer
▶︎ OECD CLI outperformer
>>BEAR<<
>>BEAR<<
▶︎ Still more jawboning from Kuroda, so another change in policy before his term ends looks unlikely
▶︎ Still more jawboning from Kuroda, so another change in policy before his term ends looks unlikely
▶︎ Still the most dovish central bank out there
▶︎ Still the most dovish central bank out there
▶︎ 25-delta risk reversals are seeing it weaker
▶︎ 25-delta risk reversals are seeing it weaker
▶︎ Seasonality is bearish and sentiment is bullish
▶︎ Seasonality is bearish and sentiment is bullish
>>SUMMARY<<
>>SUMMARY<<
The market has lost interest in the hawkish BOJ theme but it's still there. We should get more clarity on who will succeed Kuroda soon. Happy to go long if it weakens further."
The volatility that's caused by the BOJ leadership change make it anyone's guess as to which direction we will ultimately end up with. The fundamental factors are still worth a long bias in my view but they will be completely overruled by whose name shows up in the headlines as a possible successor to Kuroda and who's going to be nominated next week."