fx:macro Summary Changes 2023_03_25

Created Diff never expires
47 removals
118 lines
47 additions
116 lines
"18.03.23
"25.03.23
***** MACRO *****
***** MACRO *****
>>BULL<<
>>BULL<<
▶︎ Asian PMIs have improved considerably (Hong Kong, Taiwan), other Emerging Markets too (Brazil, Mexico)
▶︎ Heavy flows into SPY
▶︎ Chinese PMIs are going strong, the reopening trade is pausing but it should still be a tailwind
▶︎ Fear & Greed is already at Extreme Fear
▶︎ FX volatility is still pretty low
▶︎ FX volatility is still pretty low
▶︎ More signs of possible exhaustion to the downside in stocks: quite a few intraday VIX reversals and VVIX is nearing extreme levels
▶︎ Commercial positioning in VIX is bearish and short-term positioning changes in SPX are bullish
▶︎ Asian PMIs have improved considerably (Hong Kong, Taiwan), other Emerging Markets too (Brazil, Mexico)
>>BEAR<<
>>BEAR<<
▶︎ There's a full-blown banking and liquidity crisis going on...
▶︎ There's a full-blown banking and liquidity crisis going on...
▶︎ ETF flows show a flight to quality
▶︎ Risk-off currencies are outperforming
▶︎ Inflation breakevens, RINF, 5y5y forward inflation are all lower
▶︎ Huge flows into money market funds
▶︎ Energy and industrial commodities are weakening
▶︎ Tech is carrying the rally sector-wise, the implosion of Energy happens well after the top of the business cycle and it's not bullish
▶︎ Re-steepening of the yield curve after a curve inversion
▶︎ Re-steepening of the yield curve after a curve inversion
▶︎ Credit spreads have widened, and IG spreads have moved for the first time in a while
▶︎ Credit spreads have widened, and IG spreads have moved for the first time in a while
▶︎ COT data is still bullish Treasuries
▶︎ Inflation breakevens, RINF, 5y5y forward inflation are all lower
▶︎ Treasuries trading the way they are supposed to, i.e. flying in case of risk off, isn't a good sign for the market overall
▶︎ Volatiliy metrics have improved with VVIX dropping below 100 but MOVE still won't come down
▶︎ Volatiliy metrics are worrisome: MOVE knocked on 200, VVIX hasn't come down, the speed of skew steepening shows some panic, but: it's still looking mostly contained
>>SUMMARY<<
>>SUMMARY<<
Virtually every market is currently driven by sentiment and not by fundamentals. While I thought the SVB crisis would be over pretty quickly, it has spread to other regional banks and even one G-SIB, Credit Suisse. I have no edge in predicting how this will go, so I'll tread very carefully. Even if backstops are in place and liquidity is provided, the cracks in the system are still there, and things can break fast.
Credit Suisse has been eaten, now the vultures are circling above Deutsche. As I wrote last week, I have no edge in predicting how it will go, and we're still trading mostly off sentiment. What I see is that stocks are still holding up fairly well despite the chaos... I mean, VIX is not even at 25. Tech is the main driver but other sectors are up as well. What's clearly not good is the implosion of Energy. I don't like the market despite the positives that are there.


***** USD *****
***** USD *****
>>BULL<<
>>BULL<<
▶︎ GDPNow continues to tick higher week by week
▶︎ GDPNow remains >3% for Q1
▶︎ CESI is rising too
▶︎ CESI continues to go higher
▶︎ Strong flows into USD continue according to PAIN
▶︎ COT positioning is still bullish
▶︎ Improving PMI on the heatmap
▶︎ Improving PMI on the heatmap
>>BEAR<<
>>BEAR<<
▶︎ Dovish shift in the language of the FOMC statement despite the the FFR path being projected a bit higher and inflation projections higher too
▶︎ 2y and 10y yields are moving lower in tandem, bull steepening
▶︎ We're in the trough of the dollar smile with global PMIs improving and the US not outperforming on the one side and the current banking crisis not (yet?) serious enough to trigger panic flows
▶︎ We're in the trough of the dollar smile with global PMIs improving and the US not outperforming on the one side and the current banking crisis not (yet?) serious enough to trigger panic flows
▶︎ The repricing of the future Fed hiking path lower has been pretty dramatic
▶︎ The repricing of the future Fed hiking path lower has been pretty dramatic
▶︎ Lower real yields and lower breakevens aren't bullish USD
▶︎ Lower real yields and lower breakevens aren't bullish USD
▶︎ Declining consumer inflation expectations
▶︎ Declining consumer inflation expectations

>>SUMMARY<<
>>SUMMARY<<
I'm still not sure what to think here. On the one hand, PAIN shows pretty heavy flows into USD. On the other hand, the future hiking path has first been priced higher and then massively lower in just two weeks. But: DXY is basically flat over the last four weeks. We'll see what the FOMC statement, the dot plot and Powell have to say on Wednesday.
The Fed didn't help this week, and the combination of lower real yields and lower inflation breakevens plus a bull steepening in 2s10s all make me change the bias to short. The path of least resistance for the USD should be lower, and I'll be looking for short trades unless we get a serious liquidity crunch and the world scrambles for dollars.


***** EUR *****
***** EUR *****
>>BULL<<
>>BULL<<
▶︎ ECB hawks are still going for more hikes
▶︎ ECB hawks clearly outnumber the doves at the microphones
▶︎ Core CPI is sticky
▶︎ Core CPI is sticky
>>BEAR<<
>>BEAR<<
▶︎ The ECB statement has been taken as dovish by the market
▶︎ The ECB statement last week has been taken as dovish by the market
▶︎ CESI is going lower
▶︎ CESI is going lower
▶︎ German PMI on the heatmap is weaker, Eurozone isn't improving
▶︎ German PMI on the heatmap is weaker, Eurozone isn't improving
▶︎ Sentiment in EURCHF is very bullish, price action isn't constructive
▶︎ COT positioning is at a bearish extreme
▶︎ COT positioning is at a bearish extreme
▶︎ European stock markets aren't outperforming anymore
>>SUMMARY<<
>>SUMMARY<<
The market didn't like the ECB statement, and I read it as pretty much neutral given that most of what it said was to be expected. The selloff on Wednesday came on the back of the Credit Suisse drama, though. Next week will have mixed data and PMIs are expected to come in higher on Friday. If the CS drama resolves and more ECB hawks are coming out, I'll expect EUR to go higher. Updated COT data still shows positioning at extremes, so I won't change the bias.
The short Dollar bias should make the Euro a long but I don't like the extreme in positioning. Also, last week, the market saw Deutsche as the next possible victim of the banking crisis. If this escalates, it very likely won't be good for the Euro. And we expect German and Eurozone CPIs to come in softer next week (no Core, though).


***** GBP *****
***** GBP *****
>>BULL<<
>>BULL<<
▶︎ CESI is higher
▶︎ CESI is higher
▶︎ PMIs have been surprising to the upside, especially in contrast to Germany and the Eurozone
▶︎ Hot CPI print this week
>>BEAR<<
>>BEAR<<
▶︎ The MPC statement could have been worse: Mann didn't vote for 50 bps but at least they left guidance unchanged
▶︎ PMIs have worsened
▶︎ The FTSE's outperformance seems to have come to an end
▶︎ The FTSE's outperformance seems to have come to an end
▶︎ CPI surprise to the downside
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
The BOE will issue its rate statement on Thursday, and I expect it to a) show more division among MPC members, and b) be taken as dovish by the market. Before the BOE we'll likely see a weaker CPI print on Wednesday. As I wrote last week: GBP pairs are mostly trading sideways in ranges, so it makes sense to trade it both ways.
The market liked the hot CPI print this week before the BoE rate statement, and it was kind of undecided on the Bank of England itself. The PMIs both disappointed, yet GBP still traded higher vs. EUR with better PMIs. The hopes for a softer-than-projected landing are still keeping it afloat, it's definitely not driven by what the BoE does.


***** AUD *****
***** AUD *****
>>BULL<<
>>BULL<<
▶︎ Another hot labour market print
▶︎ Risk reversals are bullish
▶︎ Surprisingly strong this week despite the overall market turmoil but that could be a one-off
>>BEAR<<
>>BEAR<<
▶︎ Dovish hike by the RBA
▶︎ Dovish RBA Minutes after their dovish hike
▶︎ Further hikes have been priced out completely now
▶︎ Further hikes have been priced out completely now, pricing for a rate cut reached >30% at one point
▶︎ Probably the worst PMIs of the week
▶︎ CPI and GDP both surprised to the downside
▶︎ CPI and GDP both surprised to the downside
▶︎ CESI is near lows
▶︎ CESI is near lows
▶︎ Bullish sentiment and bearish seasonality
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
The outperformance surprised me, and it's still a bit weird to see AUD, NZD and JPY as the three strongest currencies during any week. I don't have any good reasons why it should trade higher during a banking and liquidity crisis unless that resolves quickly.
Not much to like about it at the moment: weak fundamentals, dovish central bank, overall market sentiment.


***** NZD *****
***** NZD *****
>>BULL<<
>>BULL<<
▶︎ Same as AUD: surprisingly strong this week
▶︎ 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
▶︎ Risk reversals are bullish
>>BEAR<<
>>BEAR<<
▶︎ Incoming economic data is getting weaker: this week it was a -0.6% GDP print vs. -0.2 expected
▶︎ Incoming economic data is getting weaker: last week it was a -0.6% GDP print vs. -0.2 expected
▶︎ CESI is trending lower, and the CESI spread AUD-NZD is reversing higher
▶︎ CESI is trending lower, and the CESI spread AUD-NZD is reversing higher
▶︎ Bearish seasonality
▶︎ Bullish sentiment
>>SUMMARY<<
>>SUMMARY<<
As I wrote for AUD above: it's weird to see it outperforming along JPY during a week like this one, and I don't see why it should trade higher.
The RBNZ will meet on April 4th, so far there's nothing that would make me change the short bias.


***** CAD *****
***** CAD *****
>>BULL<<
>>BULL<<
▶︎ COT positioning is bullish
▶︎ COT positioning is bullish, Dealers are at multi-year long levels
▶︎ 25-delta risk reversal is bullish
>>BEAR<<
>>BEAR<<
▶︎ The first central bank to end their hiking cycle and hold rates at current levels, no hawkish tilt in their statement last week
▶︎ The first central bank to end their hiking cycle and hold rates at current levels, no hawkish tilt in their statement last week
▶︎ Crude oil has broken out of its range and correlation to CAD is >0.65 again
▶︎ Crude oil has broken out of its range and correlation to CAD is >0.65 again
▶︎ Sentiment is bullish
▶︎ Sentiment is bullish (and extremely bearish in USDCAD)
▶︎ Bearish seasonality
>>SUMMARY<<
>>SUMMARY<<
Still not much I like about it.
There's no good reason to go long CAD from a fundamental point of view at this point. Shorting it is tough because of the extreme in COT positioning.


***** CHF *****
***** CHF *****
>>BULL<<
>>BULL<<
▶︎ Hawkish commentary again this week from SNB's Jordan
▶︎ The most hawkish one of the recent central bank statements this week, they upgraded their inflation projection and they hiked by 50 bps despite the debacle with Credit Suisse
▶︎ Yields are outperforming
▶︎ CESI is now bullish
▶︎ CESI is now bullish
▶︎ It's the currency with by far the worst sentiment, USDCHF and EURCHF are the two FX pairs with the most bulls
▶︎ It's the currency with by far the worst sentiment; USDCHF and EURCHF are two FX pairs with the most bulls
>>BEAR<<
>>BEAR<<
▶︎ The Credit Suisse drama has clearly had a negative impact
▶︎ The Credit Suisse drama has clearly had a negative impact
▶︎ PMI has weakened
▶︎ PMI has weakened
>>SUMMARY<<
>>SUMMARY<<
It's been hammered lower by the Credit Suisse drama over the last few days, and we'll get the SNB this week, which is even more unpredictable in light of CS.
Safe haven and the hawkish SNB are the two major factors; the SNB said that they've sold foreign currencies, and I see no reason why they should stop doing that if CHF gets weaker.


***** JPY *****
***** JPY *****
>>BULL<<
>>BULL<<
▶︎ It's still the prime safe-haven currency
▶︎ It's still the prime safe-haven currency
▶︎ The shunto wage negotiations have lead to the highest wage increases in 30 years (just below 4%)
▶︎ The shunto wage negotiations have led to the highest wage increases in 30 years (just below 4%)
>>BEAR<<
>>BEAR<<
▶︎ 10y yields have backed off the 0.50% ceiling
▶︎ 10y yields have backed off the 0.50% ceiling
▶︎ First disinflationary CPI print in a while the week before last week
▶︎ Tokyo Core CPI expected to come in lower next week
▶︎ Still the most dovish central bank out there
▶︎ Still the most dovish central bank out there
▶︎ Seasonality is bearish and sentiment is bullish
>>SUMMARY<<
>>SUMMARY<<
Safe-haven flows come and go but the wage negotiation outcome has clearly been something the BOJ has wanted to see. Nobody is talking about policy normalization right now, though, but it should be supportive. I'm changing the bias to long here."
Unchanged from last week: Safe-haven flows come and go but the wage negotiation outcome has clearly been something the BOJ has wanted to see. Nobody is talking about policy normalization right now, though, but it should be supportive."