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fx:macro Summary Changes 2022_11_05

Created about a year agoDiff never expires

34 removals

123 lines

48 additions

136 lines

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

>>BULL<<

▶︎ ETF flows into equities, high yield credit

▶︎ Rumours of China reopening... seems unfounded for now but the market is trading on it

▶︎ Volatility has calmed down significantly with VVIX making new lows, flat skew, low TDEX etc.

▶︎ Volatility indexes are bullish, no indication of stress whatsoever

▶︎ TD Ameritrade IMX is near lows

▶︎ Seasonality is very bullish for equities

▶︎ Breadth is a tad more bullish than bearish right now but it's still a close call

>>BEAR<<

▶︎ CNN Fear & Greed already at ""Greed""

▶︎ AAII Bull-Bear already back at neutral, CNN Fear & Greed already at ""Greed""

▶︎ Credit spreads are still at/near/above recent highs

▶︎ Breadth remains disappointingly weak

▶︎ Sector performance is still mixed-to-bearish

▶︎ Sector performance is mixed-to-bearish

▶︎ Positioning in equities is well off supportive extremes

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

▶︎ The global economy continues to weaken (e.g. PMIs)

▶︎ Equities seeing outflows globally

▶︎ Equities seeing outflows globally, the only sector with inflows is Utilities

▶︎ Stock markets in Asia are particularly weak, there's no sign of Chinese growth picking up

▶︎ Weakness in copper and metals

>>SUMMARY<<

Things look a lot more bullish than two weeks ago: the dovish last words before the Fed blackout, the market talking about a Fed pivot, two dovish CBs (beside the BOJ), volatility has calmed down, we see flows into risk assets. The fundamentals are still as bad as it gets but this market wants to rally. Breadth is still bad, the wrong sectors are performing, credit spreads are still wide. The next test will be the market's reaction to Powell on Thursday. Long bias until then.

It's still bad fundamentally. The market's reaction on Wednesday between the FOMC statement and the press conference was telling: expectations (hope for a pivot) and reality (higher terminal rate) are pretty far apart. But it's hard to completely discount that volatility incl. MOVE being very calm waters, breadth being not too bad, and seasonality being bullish for the rest of the year. On the other hand, credit spreads remain wide, the wrong sectors are driving the stock market, and the PMI heatmap is a sea of red. I'm conflicted, making a short-term call here would feel like complete guesswork.

***** USD *****

>>BULL<<

▶︎ Very hawkish FOMC press conference despite the dovish statement

▶︎ GDP growth in Q4 picking up (GDPNow)

▶︎ Breakevens, 5y5y and RINF all off lows

▶︎ Flows into USD continue

▶︎ CESI is rising and outperforming globally, labour market remains strong... for now it's a soft landing

▶︎ CESI is rising, labour market remains strong... for now it's a soft landing

▶︎ Slowing global growth (PMIs getting worse globally, Fidelity Business Cycles)

>>BEAR<<

▶︎ We've entered the Fed blackout period on very dovish footing

▶︎ Fed talk is now about slowing hikes, 25 bps in December have already been mentioned; this isn't priced in yet

▶︎ USD has lost quite some momentum

▶︎ The options market is pricing USD lower vs. most other G8s (25-delta risk reversals)

▶︎ Three CBs intervening (or rumoured to intervene) on behalf of their currencies: Japan, China, India

▶︎ Housing is seeing one bad print after the other

▶︎ Breakevens are up yet real yields are lagging... if they don't catch up it's going to be a drag on USD

▶︎ Real yields haven't moved higher for a while

▶︎ It feels like everybody is already long... but then: dollar is the new TINA

>>SUMMARY<<

The dollar is still a fundamental long, but the market is in Fed-Pivot mode, which should bolster risk assets and hamper the dollar for a while.

The bearish arguments are starting to pile up a bit: 25 bps in December is already being talked about but it isn't priced in at all, the message of slower hikes (albeit to a higher terminal) isn't what the market wants to hear, the options market has a pretty bearish opinion on USD, and the interventions (stealth and/or rumoured) against it. With the longer-term picture in mind it's still a strategic long but the reasons for a tactical short are there.

***** EUR *****

>>BULL<<

▶︎ Inherent strength

▶︎ CESI still going higher

▶︎ European stock markets outperforming

▶︎ Shorts haven't been pared down yet (see PAIN)

▶︎ While PMIs have all been bad, the DE and EU Services PMIs surprised/were in line

>>BEAR<<

▶︎ European PMIs have weakened further

▶︎ Cracks in the relatively hawkish front of ECB GC members are showing up

▶︎ No discussion on QT at the ECB meeting this week and probably not at the next one

▶︎ No discussion on QT at the ECB meeting last week and probably not at the next one

▶︎ COT positioning is bearish

>>SUMMARY<<

It's been performing pretty well so far but upcoming data for EUR is all relatively bad this week.

If the thesis of a weaker USD in the short term is correct, EUR should benefit. It has been relatively strong over the last weeks already, and I expect it to ""look"" even stronger vs. the dovish backdrop in the sterling. The energy situation seems to be contained for now thanks to warmer weather, there hasn't been much market impact from the war in Ukraine over the last weeks. It's not a heartfelt call but I'm changing the bias to long.

***** GBP *****

>>BULL<<

▶︎ It's been performing way better than expected... though for now I believe that's still mostly fallout from the Truss mess and not for fundamental reasons

▶︎ Gilt sales have started without much fanfare

▶︎ CDS have come down

▶︎ Drop in Inflation Surprise Index (CSII) is a small but positive sign

>>BEAR<<

▶︎ Dovish hike with two dissenters, one of which wanted to go for only 25 bps

▶︎ Dovish guidance: further hikes ""may be"" required

▶︎ Lots of warnings about overtightening and market expectations being out of line

▶︎ The MPR was as depressing as the last one

▶︎ A lot of bunnies still aren't out of the hat (budget, gilt sales)

▶︎ PMIs have weakened

▶︎ Bearish seasonality

▶︎ Flows out of GBP

>>SUMMARY<<

The fact that it has outperformed everything over the last few weeks has been pretty surprising to me. But then, the move down was extreme and volatile, so this will likely take some time to settle down. Fundamentally still a short.

I think the (surprising) outperformance of the last few weeks has come to an end with the dovish message from the Old Lady.

***** AUD *****

>>BULL<<

▶︎ Hot CPI print this week right before upcoming RBA meeting

▶︎ One of the few PMI outperformers

▶︎ Bullish 25-delta risk reversal

>>BEAR<<

▶︎ Dovish central bank

▶︎ Dovish central bank: they didn't hike 50 bps after the hot CPI so it's doubtful they will go for 50 bps again despite keeping the rhetoric

▶︎ Aussie hasn't profited much from the China reopening rumours

▶︎ CESI is near lows

▶︎ Rumours of a China pivot on zero Covid... but nothing substantial so far

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

▶︎ Seasonality is bearish

>>SUMMARY<<

RBA on Tuesday, we'll see how data-dependent they are after this week's CPI. For now: dovish central bank, weak growth in Asia/China and lacklustre performance during the recent risk-on period. If the RBA doesn't put in a major hawkish surprise it remains a short.

Doesn't have much going for it at the moment with the dovish RBA, hardly any strength despite the rumoured Xi-pivot and the much better-looking NZD next to it.

***** NZD *****

>>BULL<<

▶︎ Clear outperformance of NZD vs. AUD since the RBA turned dovish

▶︎ Inherent strength

▶︎ Outperformance in yields

▶︎ CESI has picked up notably

▶︎ Inflation surprises picking up

▶︎ Inflation surprising to the upside again (CSII)

▶︎ Risk reversal seeing some upside

▶︎ COT positioning is bullish

>>BEAR<<

▶︎ Bullish sentiment

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

>>SUMMARY<<

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.

Change to neutral bias: I don't expect a stellar performance because of the macro backdrop but it has started to look more attractive.

***** CAD *****

>>BULL<<

▶︎ CESI has picked up from lows, hot labour market print on Fri

▶︎ It's showing some resilience despite the dovish BOC

▶︎ Small improvement in PMIs

▶︎ COT positioning is near a bullish extreme

▶︎ Housing market remains strong

▶︎ Bearish sentiment

>>BEAR<<

▶︎ Dovish and smaller-than-expected hike from the BOC

▶︎ CSII lower

▶︎ Weakening economy, CESI making new lows

▶︎ Yields have softened, inverted 2s10s

>>SUMMARY<<

It looks dovish after the BOC but the drivers are mainly crude oil and the SPX, so it could see some upside as risk assets rally, especially since AUD is constrained by weakness in Asia

It looks dovish after the BOC but the drivers are mainly crude oil and the SPX, so it could see some upside if risk assets rally, especially since AUD is constrained by weakness in Asia.

***** CHF *****

>>BULL<<

▶︎ CSII remains high

▶︎ PMI still holding up (one of the few that's still green on the map)

▶︎ PAIN shows shorts haven't been covered yet

▶︎ Bearish sentiment

▶︎ Hawkish comment from Jordan

>>BEAR<<

▶︎ CSII has tanked

▶︎ CESI has taken quite a nosedive and no sign of picking up

▶︎ Inherent weakness

▶︎ Inflation not surprising to the upside anymore

▶︎ Yields are underperforming

>>SUMMARY<<

The weak performance has surprised me. It's clearly not driven by the SNB, and if risk assets rally CHF will face more headwinds. Change to neutral.

I'm still a bit surprised by how weak it is.

***** JPY *****

>>BULL<<

▶︎ Inflation surprises have picked up, the tone of the talk from policymakers has also shifted subtly (Kuroda's comments this week and last)

▶︎ The FX interventions haven't been very successful but now it's not just the BOJ but the Indian and Chinese as well

▶︎ Treasury yields have backed off

>>BEAR<<

▶︎ Another expectedly dovish BOJ meeting, the small sentence about inflation expectations won't change anything

▶︎ The divergence between the BOJ and every other central bank isn't getting any smaller

>>SUMMARY<<

It's only going to strengthen if the dollar comes down. The three-sided currency interventions might change the course a bit but they won't turn the tide. A short from good levels."

Even if everyone is starting to slow their rate hikes now, the yield differentials will keep widening. The FX interventions probably won't have a lasting effect. Not sure if I'm reading too much into the comments about tweaks to monetary policy and wages growth but it seems like it's a very subtle shift in messaging."

Saved diffs

Original text

Open file

"***** MACRO *****
     >>BULL<<
▶︎ ETF flows into equities, high yield credit
▶︎ Volatility has calmed down significantly with VVIX making new lows, flat skew, low TDEX etc.
▶︎ TD Ameritrade IMX is near lows
▶︎ Seasonality is very bullish for equities
     >>BEAR<<
▶︎ CNN Fear & Greed already at ""Greed""
▶︎ Credit spreads are still at/near/above recent highs
▶︎ Breadth remains disappointingly weak
▶︎ Sector performance is mixed-to-bearish
▶︎ Positioning in equities is well off supportive extremes
▶︎ Five out of eight G8 2s10s yield curves have inverted so far
▶︎ The global economy continues to weaken (e.g. PMIs)
▶︎ Equities seeing outflows globally
▶︎ Stock markets in Asia are particularly weak, there's no sign of Chinese growth picking up
▶︎ Weakness in copper and metals
     >>SUMMARY<<
Things look a lot more bullish than two weeks ago: the dovish last words before the Fed blackout, the market talking about a Fed pivot, two dovish CBs (beside the BOJ), volatility has calmed down, we see flows into risk assets. The fundamentals are still as bad as it gets but this market wants to rally. Breadth is still bad, the wrong sectors are performing, credit spreads are still wide. The next test will be the market's reaction to Powell on Thursday. Long bias until then.

***** USD *****
     >>BULL<<
▶︎ GDP growth in Q4 picking up (GDPNow)
▶︎ Breakevens, 5y5y and RINF all off lows
▶︎ Flows into USD continue
▶︎ CESI is rising and outperforming globally, labour market remains strong... for now it's a soft landing
▶︎ Slowing global growth (PMIs getting worse globally, Fidelity Business Cycles)
     >>BEAR<<
▶︎ We've entered the Fed blackout period on very dovish footing
▶︎ Three CBs intervening (or rumoured to intervene) on behalf of their currencies: Japan, China, India
▶︎ Housing is seeing one bad print after the other
▶︎ Breakevens are up yet real yields are lagging... if they don't catch up it's going to be a drag on USD
▶︎ It feels like everybody is already long... but then: dollar is the new TINA
     >>SUMMARY<<
The dollar is still a fundamental long, but the market is in Fed-Pivot mode, which should bolster risk assets and hamper the dollar for a while.

***** EUR *****
     >>BULL<<
▶︎ Inherent strength
▶︎ CESI still going higher
▶︎ European stock markets outperforming
▶︎ Shorts haven't been pared down yet (see PAIN)
▶︎ While PMIs have all been bad, the DE and EU Services PMIs surprised/were in line
     >>BEAR<<
▶︎ Cracks in the relatively hawkish front of ECB GC members are showing up
▶︎ No discussion on QT at the ECB meeting this week and probably not at the next one
     >>SUMMARY<<
It's been performing pretty well so far but upcoming data for EUR is all relatively bad this week.

***** GBP *****
     >>BULL<<
▶︎ It's been performing way better than expected... though for now I believe that's still mostly fallout from the Truss mess and not for fundamental reasons
▶︎ CDS have come down
▶︎ Drop in Inflation Surprise Index (CSII) is a small but positive sign
     >>BEAR<<
▶︎ A lot of bunnies still aren't out of the hat (budget, gilt sales)
▶︎ PMIs have weakened
▶︎ Bearish seasonality
▶︎ Flows out of GBP
     >>SUMMARY<<
The fact that it has outperformed everything over the last few weeks has been pretty surprising to me. But then, the move down was extreme and volatile, so this will likely take some time to settle down. Fundamentally still a short.

***** AUD *****
     >>BULL<<
▶︎ Hot CPI print this week right before upcoming RBA meeting
▶︎ One of the few PMI outperformers
▶︎ Bullish 25-delta risk reversal

     >>BEAR<<
▶︎ Dovish central bank
▶︎ CESI is near lows
▶︎ PMIs in Asia deteriorating further, China is a drag on AUD
▶︎ Seasonality is bearish
     >>SUMMARY<<
RBA on Tuesday, we'll see how data-dependent they are after this week's CPI. For now: dovish central bank, weak growth in Asia/China and lacklustre performance during the recent risk-on period. If the RBA doesn't put in a major hawkish surprise it remains a short.

***** NZD *****
     >>BULL<<
▶︎ Clear outperformance of NZD vs. AUD since the RBA turned dovish 
▶︎ CESI has picked up notably
▶︎ Inflation surprises picking up
▶︎ Risk reversal seeing some upside
     >>BEAR<<
▶︎ Divergence between increasing Aussie trade balance and stagnant/falling Kiwi trade balance
     >>SUMMARY<<
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 *****
     >>BULL<<
▶︎ It's showing some resilience despite the dovish BOC
▶︎ Small improvement in PMIs
▶︎ COT positioning is near a bullish extreme
▶︎ Housing market remains strong
     >>BEAR<<
▶︎ Dovish and smaller-than-expected hike from the BOC
▶︎ CSII lower
▶︎ Weakening economy, CESI making new lows
▶︎ Yields have softened, inverted 2s10s
     >>SUMMARY<<
It looks dovish after the BOC but the drivers are mainly crude oil and the SPX, so it could see some upside as risk assets rally, especially since AUD is constrained by weakness in Asia

***** CHF *****
     >>BULL<<
▶︎ CSII remains high
▶︎ PAIN shows shorts haven't been covered yet
     >>BEAR<<
▶︎ CESI has taken quite a nosedive and no sign of picking up
▶︎ Inherent weakness
▶︎ Inflation not surprising to the upside anymore
▶︎ Yields are underperforming

     >>SUMMARY<<
The weak performance has surprised me. It's clearly not driven by the SNB, and if risk assets rally CHF will face more headwinds. Change to neutral.

***** JPY *****
     >>BULL<<
▶︎ The FX interventions haven't been very successful but now it's not just the BOJ but the Indian and Chinese as well
▶︎ Treasury yields have backed off
     >>BEAR<<
▶︎ Another expectedly dovish BOJ meeting, the small sentence about inflation expectations won't change anything
▶︎ The divergence between the BOJ and every other central bank isn't getting any smaller
     >>SUMMARY<<
It's only going to strengthen if the dollar comes down. The three-sided currency interventions might change the course a bit but they won't turn the tide. A short from good levels."

Changed text

Open file

"***** MACRO *****
     >>BULL<<
▶︎ Rumours of China reopening... seems unfounded for now but the market is trading on it
▶︎ Volatility indexes are bullish, no indication of stress whatsoever
▶︎ TD Ameritrade IMX is near lows
▶︎ Seasonality is very bullish for equities
▶︎ Breadth is a tad more bullish than bearish right now but it's still a close call
     >>BEAR<<
▶︎ AAII Bull-Bear already back at neutral, CNN Fear & Greed already at ""Greed""
▶︎ Credit spreads are still at/near/above recent highs
▶︎ Sector performance is still mixed-to-bearish
▶︎ Five out of eight G8 2s10s yield curves have inverted so far
▶︎ The global economy continues to weaken (e.g. PMIs)
▶︎ Equities seeing outflows globally, the only sector with inflows is Utilities
     >>SUMMARY<<
It's still bad fundamentally. The market's reaction on Wednesday between the FOMC statement and the press conference was telling: expectations (hope for a pivot) and reality (higher terminal rate) are pretty far apart. But it's hard to completely discount that volatility incl. MOVE being very calm waters, breadth being not too bad, and seasonality being bullish for the rest of the year. On the other hand, credit spreads remain wide, the wrong sectors are driving the stock market, and the PMI heatmap is a sea of red. I'm conflicted, making a short-term call here would feel like complete guesswork.

***** USD *****
     >>BULL<<
▶︎ Very hawkish FOMC press conference despite the dovish statement
▶︎ GDP growth in Q4 picking up (GDPNow)
▶︎ Flows into USD continue
▶︎ CESI is rising, labour market remains strong... for now it's a soft landing
▶︎ Slowing global growth (PMIs getting worse globally, Fidelity Business Cycles)
     >>BEAR<<
▶︎ Fed talk is now about slowing hikes, 25 bps in December have already been mentioned; this isn't priced in yet
▶︎ USD has lost quite some momentum
▶︎ The options market is pricing USD lower vs. most other G8s (25-delta risk reversals)
▶︎ Three CBs intervening (or rumoured to intervene) on behalf of their currencies: Japan, China, India
▶︎ Housing is seeing one bad print after the other
▶︎ Real yields haven't moved higher for a while
▶︎ It feels like everybody is already long... but then: dollar is the new TINA
     >>SUMMARY<<
The bearish arguments are starting to pile up a bit: 25 bps in December is already being talked about but it isn't priced in at all, the message of slower hikes (albeit to a higher terminal) isn't what the market wants to hear, the options market has a pretty bearish opinion on USD, and the interventions (stealth and/or rumoured) against it. With the longer-term picture in mind it's still a strategic long but the reasons for a tactical short are there. 

***** EUR *****
     >>BULL<<
▶︎ Inherent strength
▶︎ CESI still going higher
▶︎ Shorts haven't been pared down yet (see PAIN)
▶︎ While PMIs have all been bad, the DE and EU Services PMIs surprised/were in line
     >>BEAR<<
▶︎ European PMIs have weakened further
▶︎ Cracks in the relatively hawkish front of ECB GC members are showing up
▶︎ No discussion on QT at the ECB meeting last week and probably not at the next one
▶︎ COT positioning is bearish
     >>SUMMARY<<
If the thesis of a weaker USD in the short term is correct, EUR should benefit. It has been relatively strong over the last weeks already, and I expect it to ""look"" even stronger vs. the dovish backdrop in the sterling. The energy situation seems to be contained for now thanks to warmer weather, there hasn't been much market impact from the war in Ukraine over the last weeks. It's not a heartfelt call but I'm changing the bias to long.

***** GBP *****
     >>BULL<<
▶︎ Gilt sales have started without much fanfare
▶︎ Drop in Inflation Surprise Index (CSII) is a small but positive sign
     >>BEAR<<
▶︎ Dovish hike with two dissenters, one of which wanted to go for only 25 bps
▶︎ Dovish guidance: further hikes ""may be"" required
▶︎ Lots of warnings about overtightening and market expectations being out of line
▶︎ The MPR was as depressing as the last one
▶︎ A lot of bunnies still aren't out of the hat (budget, gilt sales)
▶︎ PMIs have weakened
▶︎ Bearish seasonality
▶︎ Flows out of GBP
     >>SUMMARY<<
I think the (surprising) outperformance of the last few weeks has come to an end with the dovish message from the Old Lady.

***** AUD *****
     >>BULL<<
▶︎ Hot CPI print this week right before upcoming RBA meeting
▶︎ One of the few PMI outperformers
▶︎ Bullish 25-delta risk reversal

     >>BEAR<<
▶︎ Dovish central bank: they didn't hike 50 bps after the hot CPI so it's doubtful they will go for 50 bps again despite keeping the rhetoric
▶︎ Aussie hasn't profited much from the China reopening rumours
▶︎ CESI is near lows
▶︎ Rumours of a China pivot on zero Covid... but nothing substantial so far
▶︎ PMIs in Asia deteriorating further, China is a drag on AUD
▶︎ Seasonality is bearish
     >>SUMMARY<<
Doesn't have much going for it at the moment with the dovish RBA, hardly any strength despite the rumoured Xi-pivot and the much better-looking NZD next to it.

***** NZD *****
     >>BULL<<
▶︎ Inherent strength
▶︎ Outperformance in yields
▶︎ CESI has picked up notably
▶︎ Inflation surprising to the upside again (CSII)
▶︎ Risk reversal seeing some upside
▶︎ COT positioning is bullish
     >>BEAR<<
▶︎ Bullish sentiment
▶︎ Divergence between increasing Aussie trade balance and stagnant/falling Kiwi trade balance
     >>SUMMARY<<
Change to neutral bias: I don't expect a stellar performance because of the macro backdrop but it has started to look more attractive.

***** CAD *****
     >>BULL<<
▶︎ CESI has picked up from lows, hot labour market print on Fri
▶︎ It's showing some resilience despite the dovish BOC
▶︎ Small improvement in PMIs
▶︎ COT positioning is near a bullish extreme
▶︎ Housing market remains strong
▶︎ Bearish sentiment
     >>BEAR<<
▶︎ Dovish and smaller-than-expected hike from the BOC
▶︎ CSII lower
▶︎ Yields have softened, inverted 2s10s
     >>SUMMARY<<
It looks dovish after the BOC but the drivers are mainly crude oil and the SPX, so it could see some upside if risk assets rally, especially since AUD is constrained by weakness in Asia.

***** CHF *****
     >>BULL<<
▶︎ PMI still holding up (one of the few that's still green on the map)
▶︎ PAIN shows shorts haven't been covered yet
▶︎ Bearish sentiment
▶︎ Hawkish comment from Jordan
     >>BEAR<<
▶︎ CSII has tanked
▶︎ CESI has taken quite a nosedive and no sign of picking up
▶︎ Inherent weakness
▶︎ Inflation not surprising to the upside anymore
▶︎ Yields are underperforming

     >>SUMMARY<<
I'm still a bit surprised by how weak it is.

***** JPY *****
     >>BULL<<
▶︎ Inflation surprises have picked up, the tone of the talk from policymakers has also shifted subtly (Kuroda's comments this week and last)
▶︎ The FX interventions haven't been very successful but now it's not just the BOJ but the Indian and Chinese as well
▶︎ Treasury yields have backed off
     >>BEAR<<
▶︎ Another expectedly dovish BOJ meeting, the small sentence about inflation expectations won't change anything
▶︎ The divergence between the BOJ and every other central bank isn't getting any smaller
     >>SUMMARY<<
Even if everyone is starting to slow their rate hikes now, the yield differentials will keep widening. The FX interventions probably won't have a lasting effect. Not sure if I'm reading too much into the comments about tweaks to monetary policy and wages growth but it seems like it's a very subtle shift in messaging."