Market Weekly

Digging in, the US and China are on the brink – McKenna Macro Markets Weekly

on May 18, 2019

Hi folks, welcome to my weekly newsletter. 

This is post is sponsored by SMARTMarkets 

Don’t forget the Daily Newsletter and Video are behind a paywall now. But if you’s like a trial subscription let me know – it’s not for everyone. But if you want a guide thorough the daily and weekly tumult of markets, someone who’s done it for decades and successfully then I’m sure you’ll benefit. 

Here’s a bit of feedback from a subscriber recently:

“We deal with 20 Banks globally and I get more from your note and video than all of them”

Key Takeaway

Last week’s title of my weekly was “It might be time for markets to take this trade war seriously” and for a day it looked like that might be right. But the mid week recovery which saw the losses in evidence Monday erased and some ephemeral sense of hope feed through markets seemed to me to smack of a real complacency.

Bloomberg’s John Authers put it best Friday with his headline “Irrational Equanimity Has Taken Over the Markets“. And I couldn’t agree more with his strap line, “Any number of metrics show investors are too relaxed about the potential for the trade wars to escalate”. And escalate they have as China said there is no point the US sending envoys at the moment, as it cancelled Pork shipments from the US even though the Chinese people desperately need the meat given problems at home, and as President Trump clears the decks by making nice, or at least less horrible, with allies in Mexico, Canada, Europe, Japan, and Turkey so – me and plenty of others are betting – he can focus on China.

Why else would he escalate with this week’s telecommunications bans aimed at Huawei and ZTE and buy time on these other issues like automobiles if he wasn’t going to have a laser focus on China.

Things are escalating and markets are showing irrational equanimity. Next week could be huge. 

The Week That Was…

Now for the week ahead, let’s dive in.

Key Themes driving markets

Too calm by half…complacency or equanimity

I mentioned the John Authers’ article above because I think it perfectly sums up what a lot long term traders and investors are probably thinking – or at least wondering right now. That is, how is it after the very thing that markets and economists had feared – the escalation of tariffs between the US and China – that the initial weakness Monday morphed into the following three day’s rally.

There are some, who say that markets overreacted last Monday and the wipe off of valuation was excessive in relation to the actual cost of the tariffs. It’s clearly an idea that resonated with many in the market as Monday’s losses were wiped away with rallies in the S&P 500 and global benchmarks over the following three days trade.

But to me that Panglossian take makes little sense given the escalation in the trade war the market feared is finally upon us. The escalation that has the real chance to disrupt relations between the world’s biggest economies for more than just a few months and many seem still to think.

It’s as if we’ve moved from the Powell Put, to the Trump Put, to the G20 Put – as I heard someone refer to it on Bloomberg Surveillance Friday. That is the market has moved its expectation that it will be saved from the Fed, to President Trump’s desire to do a deal, to now a hope that the sidelines meeting between President’s Xi and Trump at the G20 will miraculously deescalate tensions.

Source: Twitter

It’s been Hope, hope, and now more hope. Complacency or equanimity, it doesn’t matter the outcome is the same. I agree with Peter Atwater who John Authers quoted in his article when he says, “Investor complacency is staggering. Forget Beyond Meat; we are now beyond words. This risk, however, is existential. If one of the risks identified above becomes real, it will be game over. When it comes to investors’ binary decision-making, it will be all or nothing. This is a market without a net. Back through Monday’s low a cascade could easily take hold. In the meantime, party on”.

Party on indeed, she’ll be right. Until it’s not. 

Huawei and the lifting of North American tariffs signal Washington’s intent

I’ll get to the stocks and other market outlooks below. But before that I want to simply highlight that the US imposition of 25% tariffs on the existing list, the threat to the further $300 billion, the Chinese imposition of 25% tariffs on $60 billion, and then the US President Trump signed an order allowing U.S. to ban telecom gear from foreign adversaries. It was a measure aimed at China’s Huawei and ZTE and even though Reuters says the US Administration U.S. may scale back Huawei trade restrictions to help existing customers, it’s a clear escalation.

And it’s ignited a growing nationalistic fervour in China .

Source: Twitter

in many ways though it is China cancelling US and Canadian pork orders which goes to the nub of my view this is a genuine escalation and swiftly becoming an intractable one. 

Source: Twitter

By any sense of the imagination it’s self harm on the Chinese side give there are estimates the Chinese pork herd has collapsed in such a spectacular fashion recently under the weight of the swine flu. But, if the New York Times story on How Xi’s Last-Minute Switch on U.S.-China Trade Deal Upended It has any semblance of truth then as I suggest in one of my daily notes last week President Trump too may have miscalculated China’s resolve.

Recall I recently wrote I thought the Chinese were backing away so as to not be seen as kow-towing? This from the NYT (my bolding):

“Several sources said the changes were discussed with other Communist Party leaders, which brought into focus worries that the proposed deal could make Mr. Xi and the party look as if they were bowing to pressure.

Soon after, the Chinese negotiators sent their American counterparts a version of the draft agreement in a Microsoft Word document, speckled with cuts and changes”.

So where does that leave us and the G20 put?.

I think the last two paragraphs of that New York Times article above sum things up nicely:

“Mr. Trump said Monday that he would meet Mr. Xi during a Group of 20 leaders meeting in Osaka, Japan, next month. But such a meeting would probably at best pave the way for more talks.

“It is very hard to think China will cave in or surrender to these pressures,” said Wang Yong, the director of the Center for International Political Economy at Peking University. “Public opinion definitely matters.”

Just like Brexit – almost intractable. Thucydides folks, his trap!

Stocks still had a down week after all

Using the S&P 500 as the global benchmark it’s fair to say markets dodged a bullet with the bounce back from last week’s lows which was coincident with my 30 week moving average. That suggests the upside is holding for now. It’s also consistent with the Jimmy R still pointing higher.

That’s important because a bullish biased JimmyR on the weekly S&P’s and other stocks and markets means the strategic or structural bias is still up but that tactical moves can be driven by the daily and weekly MACD systems – and on that count I’m short the S&P 500 on both time frames of the MACD system and have generated sell orders on the weekly Nasdaq 100 and Russell 2000.

S&P 500 (futures) Weekly – TradingVIew

Here though too you can see a different, harder, Chinese approach. Certainly I’d bet if the trade battle extends China will add fiscal stimulus and infrastructure spending to the economy. But they have used state mouthpieces to suggest they are ready and willing to weather the storm the battle would cause economically.

On this front it is worth noting the narrative always seems to come from the Western side of the discussion which suggests China is “emboldened” by its economic recovery…blah, blah and has only stood up and pushed back against teh USA and President Trump because of this economic recovery…blah, blah. But I don’t buy it. China is pushing back because it feels it needs to to be the nation and the People President Xi and his CCP envision.

Shanghai Composite Index Daily – TradingView

And nowhere is that more starkly obvious than in the reality they’ve continued to let the Shanghai composite and other markets slide. It may not continue and the difference between the CNH and CNY rates at the moment are reflective of the market taking the Yuan weaker. But watch Chinese authorities and their approach to Chinese markets as an indicator of this trade war and where it’s headed. 

Forex markets are backing a long battle and the USD is catching a bid.

The Yuan moves last week, along with that of the Aussie and Kiwi, not to mention the pulse lower in copper are all indicative of a move by forex and commodity traders to take a more nuanced view of the outlook for and impact of the escalating trade battle between the US and China than the one stocks traders seemed to take.

USDCNH (futures) Daily – TradingView

Not for forex traders is the notion of the G20 put. Rather forex markets seem to be pricing the intractability of this battle and a general impact of Chinese and global growth prospects. The most obvious recognition of this was both the vertical rise of the USDCNH rate and the impact this had on other EM forex markets. Equally though the big miss on China data last week also saw the CESI score for China and EM collapse, utterly. 

That’s an almost 50 point turnaround in China and 40 point turnaround in the EM CESI scores on the back of weak data flow in the past week. That’s a big miss and reinforces the notion that China and its economy is under pressure.

The corollary of that thought, the one that flows instantly to top of mind for many traders and investors, is that China may let the Yuan weaken as a strategic initiative. It’s analogous to the bond market traders and investors fears China could weaponise it’s bond holdings by liquidating some or all of its $1 trillion horde.   

So far while traders push the offshore Yuan rate (USDCNH) higher authorities are dragging their feet on the official (USDCNY) fixes over the past week. So a break and hold above the psycholgically important 7.00 isn’t guaranteed. But if we do see I’ve got 7.3 pencilled in as the next target. Remember the McKenna mantra though – respect levels unless or until they break.

But gee whiz this one looks like it is going to break – my system has been long USDCNH since April. 

Turning to the USD Index and the Euro now. 

USD Index (DXY) Weekly – TradingView

It’s clear we are approaching very important levels. The DXY is back at 98 and the Euro at 1.1150ish. That’s a reflection of the reality that the uptrend in DXY and downtrend in Euro remain firmly intact. The big levels now in the frame are 98.90/99.00 and 1.1050 respectively.

EURUSD Weekly – TradingView

That’s the levels I’d expect the probability of a reaction in the other direction to grow. But the trend is you friend and in that regard DXY 103/104 and Euro 1.04/05 seem only a matter of time.

EURUSD Daily (inverted, clack) v  USD Index (DXY, orange) – TradingView

These moves when they come will impact all forex and many other asset markets. 

Bonds still heading lower

It’s the weekend so I don’t want to prattle on too much. But this chart of the US 10’s is worth noting. A break of 2.34% would usher in a very big rally into the 2.10% region. The level has to break first though and last time we saw a bounce back into the high 2.5% region. But watch the price action in teh 10’s closely – it’s important for other markets like USDJPY, gold, and risk assets. 

US 10 year treasury yield Weekly – TradingView

And just quickly,  the CFTC data

A big cut in the level of Yen shorts and a smaller reduction in Euro shorts were the primary driver of the fall in net USD longs over the past week. Pound shorts were cut as well which gives plenty of space for fresh GBPUSD selling now the cross-party talks seem to have broken down in the UK. Also noteworthy is the AUD position is getting shorter and close to recent cycle lows.   

The market is still long of oil, and gold longs would have been hosed at the end of the week as the USDCNH/Y move likely caught some on the hop. Interestingly you can see that volatility shorts have closed a material portion of their positions too. That means there is less ammunition for a capitulation. 

The week ahead

Monday kicks off the week with NZ services PMI and Japanese Q1 GDP. In Germany we get PPI while the EU current account along with the bundesbank Monthly report and in teh US we get teh little watched but still inflauential Chicago Fed national Activity Index. There are also speeches from the Fed’s harker, Williams, and Clarida while the Boe’s Broadbent is also speaking. 

Tuesday is South Korean PPI, a speech by Fed chair Powell at 9am my time, teh minutes to the last RBA meeting as well as a speech from RBA governor Lowe at Lunchtime – while he reposition the RBA’s outlook, or give reasons why it is holding fire? Should be interesting. We also have a number of speeches from ECB, and Bundesbank members as well as Rosengren and Evans from the Fed. US existing home sales are out as well. API crude is out at the end of trade. 

Wednesday sees the release of retail sales in NZ, Reuters Tankan, exports, imports, and machinery data in Japan. In Australia its the Westpac leading indicator of growth and the first of the partial GDP indicators with the release of construction work done. We get speeches from BoJ’s Harada along with the Fed’s Bullard and Bostic, and ECB president Draghi and chief economist Peter Praet. UK inflation data is out, along with Canadian retail sales, US mortgages applications and the EIA crude and other data.   

Thursday is flash PMI day around much of the globes with the first estimate of Markit’s PMI data for the month of May. Final German Q1 GDP is out as well as the Ifo business data. The minutes from the last ECB meeting are out as are jobless claims, new home sales, and Kansas City Fed manufacturing index. There is also a speech fest around the middle of teh day NYC time when we hear from the Bundesbank’s Wuermeling, as well as the Fed’s Kaplan, Barkin, Bostic, and Daly.

Friday kicks off with Kiwi trade, Japanese inflation, before a couple of Bundesbank speeches, along with retail sales in the UK. In teh US we get durable goods to round out the week. 

Enjoy.

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution is ONLY allowed with permission. Please speak to Greg McKenna to obtain same.
Copyright © 2018 gregmckenna.com.au, All rights reserved.

[/vc_column_text][/vc_column][/vc_row]

read more
Greg MckennaDigging in, the US and China are on the brink – McKenna Macro Markets Weekly

It might be time for markets to take the trade war seriously – McKenna Macro Markets Weekly

on May 12, 2019

Hi folks, welcome to my weekly newsletter. 

This is post is sponsored by SMARTMarkets 

Don’t forget the Daily Newsletter and Video are behind a paywall now. But if you’s like a trial subscription let me know – it’s not for everyone. But if you want a guide thorough the daily and weekly tumult of markets, someone who’s done it for decades and successfully then I’m sure you’ll benefit. 

Here’s a bit of feedback from a subscriber recently:

“We deal with 20 Banks globally and I get more from your note and video than all of them”

Key Takeaway

Things could have been worse last week. Were it not for President Trump’s clear and effective manipulation of Twitter and markets sentiment the lack of a deal Friday and the imposition of the tariff increase to 25% should have seen stocks and risk asset crater while safe haven plays like bonds and gold went bid.

But hope springs eternal and traders clearly think – or are betting – that a deal is coming eventually. How they can think that after the past week is hard to fathom. Perhaps it’s the temperate response from China.

Either way, even with the huge negative of trade escalation, stocks held at support while hold and rates weren’t bid as much as they could have been.

Interesting.

The Week That Was…

Now for the week ahead, let’s dive in.

Key Themes driving markets

From Tweeter in Chief to Master Manipulator

Donald Trump might be President of the United States but he is also the biggest market and geopolitical troll on Twitter. I have little doubt that he knows exactly what he is doing when he goads his opponents, puts out combative tweets on trade only to then follow that up with soothing and constructive tweets.

“Trump put” I saw one of the news wires headline and article over the weekend. But can the market really have a Trump Put when the President has just jacked up tariffs to 25% and has now apparently given China 4 weeks to sort this out or all imports from China will be hit?

Can there be a Trump Put when it seems President Xi holds some of the cards too?

Certainly China is playing a long game here. To hit back hard, rather than show the conciliatory tone the Chinese keep banging on about strikes me as though they are looking beyond Trump. To hit hard would be to galvanise both sides of politics against them – or at least harden up the Dems.

But President Trump seems to have covered that contingency neatly. He’s now trolling both the Democrats and the Chinese in the one series of Tweets.

Source: Twitter

So what’s next?

The price action in stocks Friday tells me the market wants to believe a deal will get done. The chart below of the S&P 500 futures shows a new low for the week, a reversal and then a close above the top of the previous day’s range.

Bullish engufing.

S&P 500 Futures Daily – Trading View

But can stocks really rally sustainably now the tariff increases to 25% are in place with more threatened. Certainly not withstanding the bounce Friday price certainly looks to have rolled over.

And, of course, part of the issue in the past week or so has been President Xi vetoing what it appears he saw as China kow-towing to US demands.

I don’t use that phrase lightly.

That said, I can’t really know the minds of either leader. But this  escalation seems to make de-escalation more difficult and thus the argument more intractable.That’s particularly the case given President Trump’s conflation of China and the Democrats together in to one 2020 issue.

A politician would say Trump is “wedging” the Democrats on China. And that means the whole of US politics  become more forcefully anti-China as the 2020 election gets closer. Unless there is a resolution that is. 

This is the book I studied for a year many, many years ago – “Thucydides: the Peloponnesian War” by Hecuba’s Story is licensed under CC BY-NC-SA 2.0

And while Trump may be playing politics for 2020 it’s clear the hawks are in the ascendancy in this Administration and that means the hegemonic battle between the world’s two biggest economies is front and centre.

Regular readers know I was banging on about the Thucydides Trap for for a very long time now. Up to this point the trade and hegemonic battles have been viewed by myself and many others as kept separate. That may no longer be the case.

And that means we are looking toward a less open, slower growth world. Markets don’t care yet. But they will.

That’s especially true if that tweet from President Trump above and of the US approach to the talks and documentatation of the agreement doesn’t change. And of course the Tweet from Hu Xijin Editor-in-chief of Chinese and English editions of the Global Time below is any indication of Beijing’s thought process – both the most recent and the one before that. 

Source: Twitter

In some ways the older Tweet is more troubling given what I’ve been saying about Thucydides for a long while…it’s where it ends up eventually. Just a matter of when. 

A reckoning or complacency?

The price action is the price action and as I was discussing with a client in Hobart on Friday evening – actually he was reiterating something I probably don’t bang on about enough – if a market doesn’t do what it should in reaction to stimuli then we get a powerful signal of reversal often.

So is that where we are after the bounce Friday?

Rhetorically I have to say no way, not on your nelly, you have to be kidding, gimme a break….And that accords with my technical view short term.

That said though, my JimmyR inidicator is still pointing up, though the price last week – using he S&P 500 futures as the benchmark – held the 15 week ema neatly on close, my daily system is short and the weekly MACD system has a sell order under last week’s low. That’s the fist sell signal on the weekly system since the second week of January. So watch out if last week’s low breaks. 

S&P 500 (futures) Weekly – Arrow is JimmyR direction

USD still can’t catch a break

The USD is another example of price action is price action and we need to pay attention to what happens when a catalyst doesn’t get a reaction. .

While the USDCNH/Y rallied with CNH ending the week at 6.8440 and while many EM currencies came under pressure against the US dollar against the majors the USD for the most part struggled.

The SGD and CAD didn’t confirm the break of the Yuan. The Euro was a slight gainer on the week, USDJPY managed to hold onto the range bottom, the Pound held on better than it should have – respecting an important level, and of course even though the Aussie dollar finished below 70 cents it too is probably holding in better than it deserves.

But forex correlations with stocks and risk are not what they were last year. Though they have been rising over the past 20 days.

So does the price action in the USD suggest we need a decent pullback before the rally can commence. Or perhaps does the lack of traction from the escalation which should have been USD positive – given the US economy is likely healthiest of the big economies and Fed less dovish than other jurisdictions – mean the the USD’s run is done. 

USD Index (DXY) Weekly – TradingVIew

My sense is that traders and investors need to see evidence the US economy is actually doing better than other economies. Sure we saw 3.2% Q1 GDP in the first estimate. But there are many sceptics and the reality is the US dataflow – as measured by the Citibank Economic Surprise Index is actually pretty crook relatively.

So the USD has an anchor dragging it back and weighing it down. Likely we need to see a continuation of the turn in the data for the USD, and perhaps for stocks too as this chart of the rate of change of both versus the US CESI score suggests. 

And bonds aren’t running either…not really

And it’s not just the USD that’s not convinced the trade war has escalated and the US is in a relatively (eventually anyway as suggested above) more healthy position. 

US 10 year Treasury yield Weekly – TradingView

There is however a 0.84 correlation between the US 10’s and USDJPY which in turn has a 0.84 correlation with moves in the S&P 500. So watch that space folks. Stocks go offered its time to be tactically long of bonds. Personally I like them structurally as well. 

And just quickly,  the CFTC data

In terms of the majors, there has not been a lot of change from a forex point of view. Little material moves in the grand scheme of things so no necessary change to positioning. WTI longs were pared a little – no surprise really. While gold longs are clearly waiting for a bigger break – in the price of gold or of stocks – before diving back in with gusto – that’s what a range will do to you :S

I’m not exactly sure what’s going on with the specs when it comes to US 10’s right now. As you can see in the chart above there is not a lot of directional bias, but as a “gun to the head trade” I’d rather be long than short. Yet specs are through the roof at the biggest net short since the big uptick around the time of the December FOMC meeting.

And of course you can see that last week’s little bit of stock market funkiness took out a few weak short volatility players, though shorts are still high historically.

The week ahead

you have to wonder if there is even a point to worrying about the data this week. realistically it’s going to be about China’s response, de-scalation or escalation. You’d probably argue from the tweets I highlighted above it could be a little messy. 

Anyway, Monday is quiet with the relatively little data out. In Australia we get home loans data for march, the Kiwis release food inflation data we get Chinese FDI and vehicle sales, while japan releases its coincident and leading indexes. In the US we get speeches from the Fed’s Rosengren and CLarida along with consumer inflation expectations.

Tuesday kicks off with export and import prices in South Korea, the BoC’s lane is giving a speech early doors Asian time, visitor arrivals are out in NZ and then we get the monstrously important NAB business survey. Want to see an RBA easing? You’ll see it here first. Japan’s eco-watchers survey is out, German inflation too along with price data for Spain. UK employment data is out, the ZEW’s for Germany and Europe and we get the NFIB survey along with import and export prices in the US. We also get speeches from the Fed’s George and of course it’s API crude day.

Wednesday is Westpac consumer sentiment day in Australia, we also get the wage price index, and its China’s triple treat day with the release of investment, industrial production, and retail sales for April. German GDP for Q1 is out, as is French inflation and EU employment. Canadian inflation, US retail sales, NY Empire manufacturing, industrial production and associated data, NAHB housing index, business inventories, and speeches from the Fed’s Quarles and the ECB’s Coeure and Praet are speaking along with  the Bundesbank’s Buch as well. EIA crude and other data is out as well. 

Japanese PPI and Australian employment are out Thursday along with Chinese house prices and a speech from the RBA’s Bullock while later in the day the Bundesbank’s Weidman will speak. In Canada manufacturing sales are out along with US building permits and housing starts are out along with the Philly Fed and jobless claims. The ECB’s Guindos is speaking and there is a Eurogroup meeting. Jens Weidman is speaking again. 

Friday is PPI day in NZ, a sleepy one in OZ, but we get EU inflation data. More speeches from ECB officials and then we get Weidman, Claridea, and Williams all speaking as well.

And of course Saturday is the Australian Federal election.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution is ONLY allowed with permission. Please speak to Greg McKenna to obtain same.
Copyright © 2018 gregmckenna.com.au, All rights reserved.

[/vc_column_text][/vc_column][/vc_row]

read more
Greg MckennaIt might be time for markets to take the trade war seriously – McKenna Macro Markets Weekly

Stocks still bid, while the USD and bonds are mixed. oil, oh oil! – McKenna Macro Markets Weekly

on May 5, 2019

Hi folks, welcome to my weekly newsletter. 

This is post is sponsored by SMARTMarkets 

Don’t forget the Daily Newsletter and Video are behind a paywall now. But if you’s like a trial subscription let me know – it’s not for everyone. But if you want a guide thorough the daily and weekly tumult of markets, someone who’s done it for decades and successfully then I’m sure you’ll benefit. 

Here’s a bit of feedback from a subscriber recently:

“We deal with 20 Banks globally and I get more from your note and video than all of them”

Key Takeaway

Oil fell out of bed – check out the chart below and then the technicals. The Fed was less dovish than expected and then jobs beat by a country mile. But bonds and the USD didn’t move higher. That’s interesting.

Of course bonds flat, a Fed still signalling patience, and decent data is a positive for stocks which caught a bid at week’s end.

The Week That Was…

Now for the week ahead, let’s dive in.

Key Themes driving markets

Non-farms reinforce the Fed’s characterisation the US economy is ‘solid’

263,000!

That’s the print from Friday’s US non-farm payrolls which supported last week’s assertion from the FOMC that “the labour market remains strong and that economic activity rose at a solid rate”.

Taken together with the 3.6% unemployment rate its a clear reinforcement of the Fed’s other assertion that  “job gains have been solid on average, in recent months and the unemployment rate has remained low”.

US non-farms (blue column) unemployment rate (black line)

It’s also a clear indication that, following on from the previous week’s solid 3.2% growth rate for Q1 that the US economy is in a much better state of health right now than many had feared. Of course that could threaten the Fed’s pause – especially because it always seemed conflated with the collapse of stocks as much as any real concern.

But lowflation will likely keep the Fed on hold for an extended period. And even though that gives the Fed a subtle easing bias as Fed vice-Chair Rich Clarida said Friday there is no sign of a recession in the US anytime soon.

Solid growth, lowflation – Goldilocks for stocks

This is a little bit of a Goldilocks period then for stocks.

Taking what Clarida said, that Loretta Mester said growth is still running north of 2.25%, but adding views by Charles Evans, James Bullard, and John Williams articulated last week about low inflation needing rates to stay lower for longer and we have a back drop which is overall supportive for stocks.

At least from a risk appetite, TINA, and a FOMO point of view.

Source: Twitter

But there are still plenty of bears out there and given the weakness in the rest of the globe right now the US economic outlook is not without risk.

But that’s always the case, there are always risks. For the moment the interest rate back drop is supportive and of course the technicals are still supportive in a strategic sense with my JimmyR indicators still pointing higher. I tend not argue with this in a portfolio sense though the daily MACD system does guide my trading stance.

For the moment stocks are still rising.

S&P 500 (futures) Weekly – Arrow is JimmyR direction

USD still can’t quite break

Part of the kind of complaint David Rosenberg highlighted above in terms of the underlying data beyond the headline was likely part of the reason behind the US dollar’s inability to take advantage of the strength in the US jobs market.

Another part of the USD’s problems is that its data flow has been quite poor in the US abstract the GDP and non-farms reports when viewed through the prism of expectations and the Citibank Economic Surprise Index. And of course even with this relative weak flow USD net logs being carried by speculative accounts is quite high.

USD Index (DXY) Weekly

So the market’s focus on some weakness in the non-farms underlying, the net longs being carried, and some short term Elliott Wave considerations saw the the USD end the week lower and the Euro a little higher.

Not materially weaker in the case of the DXY or materially higher in the case of the Euro as both remain in their respective weekly up and down trends. But both equally show some signs that last week’s reversals could extend within these overall trends.

I remain a structural USD bull.

EURUSD Weekly

Bonds

All of the above, and the continued residual concerns many hold about the outlook for US dollar growth helps explain why both the 2’s and 10’s in the US – like the US dollar – didn’t quite react the way we may have thought would be the case of spiking and holding higher after the non-farms.

Indeed there is clear uncertainty so in last week’s range and the levels that topped and tailed it.

In many ways this is the most interesting informational content from the data Friday and the Fed’s somewhat less dovish than expected stance last week – that bonds didn’t really spike and the US dollar didn’t go bid. That tells us the market still has residual concerns and a bias to disbelieve US economic strength.

For the moment though whether you are looking at the 10’s below, or the weekly chart of the two’s it’s clear that the overall weekly down trend is still downward – in terms of yield – but at risk.

US 10’s Weekly

But as you can see we are at an important point of consolidation, extension and reversal around this 2.5% level in the 10’s and around 2.20/2.30% in the 2 year Treasury. With inflation data out in the US and with the focus on inflation as the big salve for the doves at the Fed and a mitigant for bond bears the data will be crucial to the next leg for US bonds.

Oil close to a big break

If this isn’t the chart of an asset that has run all the way to resistance and failed then i don’t know what is. $60.00/60.25 in WTI terms is support and it that was to break my sense is we can say the top is in and a run to the 38.2% retracement level is on the cards in the low $57.00/20 region.

Indeed it looks that way now.

Sure the Venezuelan and Iranian issue has kept a bid in prices but the ongoing build in US inventories and the fact that the price action is sending a different signal to the one the “supply disruption” bulls are telling is itself telling.

My system is short and I look for lower prices.

WTI (CLc futures) Weekly

And just quickly,  the CFTC data

The key here is that even though they weren’t huge moves last week the market is getting shorter currencies against the USD and thus – in aggregate – longer the US dollar.

WTI longs look vulnerable to the reversal, especially if my technical take above is correct. Gold longs increasing is incredibly curious all things considered and bears watching, while the growth of Vol shorts via the VIX will naturally trouble folks that complacency is growing.  I share that view – but we need a trigger and realised vol is still lower than implied so that helps explain things here.

Bond shorts have fallen a little as well which might explain the stickyness of rates where they are when they could easily be higher on the back of non-farms. But the CESI score for the US is still easily the lowest of the major scores I track.

The week ahead

There is still plenty of data and events to flow this week as Europe and China catch up from the May day holiday to kick of the week ahead Monday with the release of their services PMI’s. We’ll naturally also then get the composite and global composite PMI’s as well.  Australia has ANZ job ads and the monthly inflation gauge. Europe also releases retail sales and we hear from the Fed’s Patrick Harker and BoC governor Poloz.

Tuesday sees the release of the AiGroup performance of construction index in Australia, Jpana is back with the Nikkei Manufacturing PMI and Australia also releases retail sales, trade, and has the RBA decision that many believe will see the cash rate lowered. In Germany its factory orders, French trade, Chinese FX reserves, JOLTS in the US along with the IBD/TIPP economic optimisim survey. Canada release the Ivey PMI. And of course the API crude data is out late in NY trade.

Wednesday kicks off with the RBNZ’s policy announcement – governor Orr was more dovish than his counterpart in Australia recently so could he cut? BoJ Minutes are out and then we get Chinese trade and the RBA press conference around midday my time. German industrial production is out as are Canadian housing starts and EIA crude and other data.

Chinese CPI and PPI will be hotly watched Thursday given what has been going on with Swine flu and pig prices. Japanes cofidence and machine orders are out and then we get US PPI, trade, and jobless claims. Canadian trade is also out while we get speeches from the Fed’s Raphael Bostic and Charles Evans.

Friday sees Kiwi business PMI and electronic card sales, Japanese trade, earnings, and the BoJ summary of opinions are out as well. Australia has home loan lending data and we get the RBA’s quarterly SoMP where they’ll justify why they either cut or didn’t cut Tuesday. Me, I think not this week. Chinese money supply and German trade is also out along with UK GDP, industrial production and trade is out. In teh US its CPI while in Canada it is jobs data day. We also get another speech from the Fed’s Bostic.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution is ONLY allowed with permission. Please speak to Greg McKenna to obtain same.
Copyright © 2018 gregmckenna.com.au, All rights reserved.

[/vc_column_text][/vc_column][/vc_row]

read more
Greg MckennaStocks still bid, while the USD and bonds are mixed. oil, oh oil! – McKenna Macro Markets Weekly

US dollar break out, US economic strength, the Fed, Oil, and EM – McKenna Macro Markets Weekly

on April 27, 2019

Hi folks, welcome to my weekly newsletter. 

This is post is sponsored by SMARTMarkets 

Don’t forget the Daily Newsletter and Video are behind a paywall now. But if you’s like a trial subscription let me know – it’s not for everyone. But if you want a guide thorough the daily and weekly tumult of markets, someone who’s done it for decades and successfully then I’m sure you’ll benefit. 

Here’s a bit of feedback from a subscriber recently:

“We deal with 20 Banks globally and I get more from your note and video than all of them”

Key Takeaway

US earnings and the 3.2% Q1 GDP print Friday are doing a great job of reinforcing the message I have been belting since last year. The US economy is in better shape than the market had priced and the hand wringing doomsayers are early – which is as bad as being wrong.

Now don’t get me wrong, I’m not always right, and not in the never wrong club. But anyone with more than a passing interest in the Australian economy over the past decade knows that a cautious and patient central bank with a strong jobs market can extend an economic expansion further than pundits expect.

And if or when needed it can cut rates too.

We saw the fruits of the Fed’s policy of patience and economic strength this week in a higher USD and still solid stock markets. That’s the story of the week.

The Week That Was…

Now for the week ahead, let’s dive in.

Key Themes driving markets

US dollar break out

It was looking like a bang Thursday, but the US dollar’s break out ended the week with a bit of a whimper given it just held onto the important 98.00 region I have been looking for and just below the 1.1165 region in the Euro.

USD Index (DXY) weekly

That’s not to say I’m not bullish the Greenback. regular readers know that I’m both a structural USD bull and have been looking to a broad break out which included the USDCAD, USDSGD, and USDCNH as confirmation of the USD move.

We had that Thursday but we didn’t have that at week’s end. Indeed USDCAD reversed back into the range at week’s end to finish at 1.3453, USDSGD closed at 1.3617, and USDCNH ended the week at 6.7394. Close but no cigar.

Not yet anyway.

Perhaps the resistance at 98.60/80 in DXY terms and 1.1060/70 in the Euro is the real levels to watch. That’s not to say I’m not bullish or long for that matter because I am. And structurally we’ll be talking about 1.03/04 at some point for the Euro and DXY 104 which will then have knock on effects for EM and other currencies – and might finally get the Aussie dollar down to a level it will assist economic growth.

For now these are the levels to watch and buying any USD reversals is favoured given the differing economic and thus policy positions

EURUSD Weekly – TradingVIew

3.2% Q1 GDP poses a problem for a dovish Fed

Okay, so you wondering what coolaid I’ve been drinking to say that the Fed is in a different spot to other central banks given it was the first to make a super aggressive pivot back toward dovishness. But the reason I say this was that the Fed’s move seemed more expedient than reflecting real concerns about the economy.

I say that with reference to the many speakers we’ve heard over the course of this year who noted the cautious stance was the correct one but who on balance who have iterated time and again that teh Fed’s take on the economy is that it is stronger than the market had priced with the deep dive last last year.

It’s as if the Fed knew it had to quieten startled market horses but equally last years big collapse in stocks and other markets was more about liquidity and holiday thinned markets than anything underlying in the real economy.

Now I know the rusted on bears will be shouting at your screens and telling me the 3.2% annualised GDP was all about inventories and thus can be taken with a grain of salt.

US GDP and Retail sales both lifting – TradingEconomics

To that all I say is simply this – you can usually always deconstruct a number to find what you are looking for. But the reality is a strong jobs market, recovery in retail sales, and Fed pause have combined to give this recovery a good chance of extending beyond expectations of the bears.

But don’t listen to me listen to the CEO’s of the big balance sheet banks – JPM, BoA, Citi – they don’t see the recession.

So it is going to be an interesting statement and press conference from the Fed this week. Jay Powell won’t want to scare the horses but with jobs where they are and BoA saying north of 250,000 is possible for April non-farms he’ll likely radiate positivity about the economy outlook. And with low inflation he’s got no need to move on rates anytime soon

Stocks still making records

Of course earnings not as bad as feared and beating expectations, solid jobs, and growth, low inflation is really a very sweet spot for a bull market in stocks. As I wrote in my daily last week I’m leery of where Chinese markets are going with signals no more stimulus is coming.

Likewise I’m leery of what the moves in oil, bonds, and gold suggest right now. What are they seeing that no-one else is. I’m not sure, but I am watching the price action in these markets.

For the moment though the rally continues in stocks – US and elsewhere. The Dow has stalled but the Nasdaq and S&P are making fresh highs while the ASX 200 and DAX are also doing well.

S&P 500 futures Weekly – TradingView

Looking at the S&P on the daily you can see it struggling a little. But on the weekly the JimmyR trend indicator is still pointing higher.  Though I note both the vertical angle of the gains – which is a warning – and the level of the stochastic indicator which too suggests overboughtness.

The question is whether the market keeps going straight up or we get a move back towards support 100, maybe 150 points below current prices. That would suggest a move back toward 2800 and for me that is a big chance in S&P terms.

It would thus impact other markets as well.

Tweeter in Chief helps Oil collapse…

One of the big worries for USD bulls will be the reality that the interventionist President Trump will wake up one morning and tweet something about wanting a lower US dollar. Certainly we know he’s done it in the past and we know that even with 3.2% annualised GDP growth in Q1 his economic advisor Larry Kudlow is still calling for the Fed to cut rates.

So I have little doubt that day will come.

Just like it came for oil prices Friday when the Tweeter in Chief said he “spoke to Saudi Arabia and others about increasing oil flow”.  That igniting a wave of selling in oil futures which, while it fit the technicals may suggest that a high for this run is in.

Source: Twitter

Indeed my system went short on the break of Thursday’s low around $64.90. And to me the price action looks like it has further downside to go with tentative targets at $60.90 (76.4% of the up move and bottom of the Bolly bands). Below that $57.40 comes into the fray.

WTI (CLc futures terms) Daily – TradingView

But there are many Elliott Wave folks out there who believe the move lower will be more substantial and structural in nature. Certainly the weekly candle for WTI and Brent looks ominous and one of the best EW proponents on Twitter – Steve Henderson @TTCSteve – suggests this in a tweet Saturday.

Source: Twitter

What’s important about this is the impact oil prices, assuming they do drift lower, will have on high yields markets and perhaps on stocks too. It is my contention that the weakness in oil last year was a big part of the market funk at the time – leading down, and then out. As you can see in the chart below – WTI is red.

WTI (red) v US 10s (black), JNK ETF (purple), and S&P 500 futures (blue)

Big trouble in EM once more?

Now lower oil will release some pressure on EM.

But the release this week of the -0.3% print for South Korea’s Q1 GDP and the decision by the Turkish central bank to lean in a less hawkish direction were just two data points in a world which is again pointing to difficulties for EM economies and forex.

South Korea is broadly seen as a bellwether for overall global growth and trade which then kicks into the EM world more broadly while Turkey’s decision, not to mention the Riksbank, RBNZ, and more entreaty’s of dovishness from the ECB all highlight the difficult state the global and EM economies are in right now.

That in and of itself puts downward pressure on EM currencies and markets. But so two does this US dollar breakout we are seeing right now.  Naturally a stronger dollar knocks EM currencies, but as you can see in the chart below of the USD Index (inverted) and an ishares EM stocks and HY bond ETF.

USD Index (DXY inverted, black) v iShares Core MSCI Emerging Markets ETF (green) and iShares Emerging Markets High Yield Bond ETF (purple)

These analogs are never perfect but if the data fades across the globe once more – EM Citibank Surprise Index fell from +5.6 last week to -4.8 this week – then the expectations of EM outperformance will be under intense pressure from the USD’s strength.

And seasonality might be at play here too as we enter May according to Goldman Sachs as this tweet and chart highlights.

Source: Twitter

So watch this space folks – things could get funky.

And just quickly,  the CFTC data

USD longs are growing again as at Tuesday and are likely even higher now after the late week move. Bond bears are growing too in defiance of the markets bid tone at the moment – that is a little incongruous actually when you think about it

market is getting short volatility again as the growing VIX short shows. Danger Wil Robinson. And the clean out of the bulls may be coming for oil markets if the dip falls as far as I think it might.

The week ahead

It is going to be a huge week with the US FOMC meeting and the raft of PMI’s the highlights. recall the positive tone on the outlook for global growth of the early part of April was all about “less bad” PMI’s. But then the data deteriorated again.

So it is a big week.

We can ease into Monday though with Japan out (’til May 7) and no data EU money data and consumer, business and industrial confidence. US personal income and consumption expenditure is a big set of releases though. Dallas Fed manufacturing is also out.

Tuesday kicks off the PMI’s with the release of China’s NBS manufacturing and services PMI’s. New Zealand has ANZ economic activity and confidence while Australia release private sector credit. In Europe we get the Gfk consumer confidence data along with import prices as well as the unemployment rate. German, Italian, French and Spanish CPI is out too.

EU Q1 GDP is also out Tuesday with the market expecting 1.1% yoy growth :S. Canadian GDP is out along with ECI in the US, Chicago PMI, and the Case Shiller and pending home sales data. API crude data is out late in New York as well.

Wednesday sees a raft of holidays with Much of Europe and China out for May 1 labour day. Australia releases the manufacturing PMI, the Kiwis have employment out and in the UK its house prices, manufacturing PMI, and money aggregates. In the US its ADP employment change as we get ready for Friday’s non-farms. IHS Markit and ISM manufacturing PMIs are out as is the Fed decision, statement and Press conference after the FOMC meeting. EIA Crude stocks are also out.

Thursday kicks off with a speech from BoC governor Poloz at 6.15 am my time. then we get building permits in NZ and new home sales in Australia. The Caixin manufacturing PMI is out in China and then we see a raft of manufacturing PMI’s across Europe.  The BoE is out with its latest decision Wednesday as well while in the US we get jobless claims, Challenger jobs data, non-farm productivity and unit labour costs. ISM New York is also out.

Friday sees the release of non-farms in the US but before that we get services and then composite PMI’s across the globe, building permits in Australia, and EU CPI and PPI.  Goods trade is also out in the US.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution is ONLY allowed with permission. Please speak to Greg McKenna to obtain same.
Copyright © 2018 gregmckenna.com.au, All rights reserved.

[/vc_column_text][/vc_column][/vc_row]

read more
Greg MckennaUS dollar break out, US economic strength, the Fed, Oil, and EM – McKenna Macro Markets Weekly

On stocks, rusted on bears, bonds, and forex – McKenna Macro Markets Weekly

on April 14, 2019

Hi folks, welcome to my weekly newsletter. 

This is post is sponsored by SMARTMarkets 

Don’t forget the Daily Newsletter and Video are behind a paywall now. But if you’s like a trial subscription let me know – it’s not for everyone. But if you want a guide thorough the daily and weekly tumult of markets, someone who’s done it for decades and successfully then I’m sure you’ll benefit. 

Here’s a bit of feedback from a subscriber recently:

“We deal with 20 Banks globally and I get more from your note and video than all of them”

Key Takeaway

JP Morgan (and Wells Fargo to a lesser extent) plus some M&A activity saw stocks end the week on a positive note and bonds get hosed as the hated risk rally continued and the S&P 500 closed above the 2,900 region for the first time since late September last year.

That US 10’s closed at 2.56% and the USD came under pressure fairly screams RISK AWN. The Greenback loses its exclusivity if folks are bidding a little harder for risk and thus upgrading expectations for emerging and other markets. And of course who needs the safe haven of fixed income Treasuries when all is good and she’ll be right mate?

Of course fundamentally the outlook doesn’t square with this risk positivity, UNLESS, unless you put some weight to the Fed and other central banks across the globes dovish pivot. TINA and FOMO folks – that’s a powerful combination.

Only a weak earnings season and poor guidance could change this. So the question for us all in the week’s ahead is whether the news is weak enough for the bears to be right.

 

The Week That Was…

Now for the week ahead, let’s dive in.

Key Themes driving markets

Still, still, kinda, cautiously, bullish Stocks?

In a bull market be bullish. That’s just another way of saying don’t fight the trend.

But so many folks out there – traders, investors, punters, pundits – are convinced that this recovery from the 2018 lows is groundless, baseless, ridiculous, and can’t last. Of course they may be right. But when they claim it at some point in the future just remember they missed a very fast, vicious, and rewarding (in terms of return) move higher in US stocks and risk assets more broadly.

Because they became rusted on (see below, next section).

Now I am one of those who say perhaps that with global growth slowing this rally is overdone on fundamentals. I am one who strongly believes corporate actions and financial engineering in a world of ZIRP or near ZIRP policy – even US rates are close to zero on a historical basis – is a primary driver of this rally, and I am one who has said in my daily note “own puts”, “bring stops up”, “or take some profits”.

But I’ve also continued the bullish bias in this weekly note because well, heck, it’s a bull market and momentum has been pointing higher and i had the 2897 region as my target. naturally Friday’s close above 2900 now begs the same question I shared with you last week that Miss Du (I’m probably spelling that wrong as I don’t have her business card anymore) at China’s SAFE in Beijing always used to say to me. That is, “what now Mr McKenna”.

Again to answer that I’d refer you to the weekly chart of the S&P 500 below.

S&P 500 Cash Index – TradingView

The arrows are my JimmyR indicator – just the 15 and 30 ema crossover – which is long. The MACD is still rising and even though the stochastic is in overbought territory that in itself can persist for some time.

We are close to the record high in the mid 2940’s and if earnings season fails to dent the bulls enthusiasm for stocks we might be talking about new records above 3000. Support in weekly trend terms is 2786 then 2750/55 which is the 30 ema and the old trendline. Clearly a long way from here but levels that would need to give way to change the outlook.

Nearer to hand the dailies have support at 2766/72, 2837, and 2795/2805.

That all means there is some substantial room for pullbacks and the uptrend to hold and remain intact – before the signal of a reversal is given. Which is why I like puts right now. Vol is getting beaten down again and theta is theta, so an insurance against the BEARS being correct and the ability to ride this momentum for whatever it has left seems a decent play.

And remember the relative move charts I always use in the dailies and weeklies. Where the S&P goes so goes the developed markets stock indexes.

On not being a rusted on BEAR, or bull for that matter

I research and write to stay abreast of the moves in macro trends both from the top down and ground up. You can build the macro picture by knowing what is going on in the minutiae of cross markets and economies.

And, as regular readers know, when the fundamental macro outlook and the technicals line up that’s when things start to combine for some solid trends on which to catch a ride. Except for stocks and oil it’s not that kind of market right now. But plenty of folks have fought that and they have paid with undeperformance.

That’s what you see on the left hand side of the chart below – relative performance of funds who think they know more than the market. On the right hand side you see those same funds are getting shorter stocks as the data deteriorates.

What happens when you think you know more than the market – I know I know 🙂

It all makes sense fundamentally, economically, and with expected downgrades to earnings in the months ahead. But if the Fed is right, if JP Morgan and BoA CEO’s are right as well that the US economy is in a good place right now then stocks might not do as expected…like the Aussie dollar for the best part of six months.

Central banks have turned, they’ve signalled they will support the stocks market because – as flawed and financially repressive and disgusting as it is – they believe it also supports the economy. For now time hasn’t proved them wrong so the market is giving them and itself, the benefit of the doubt.

We should too, and be ready and have puts, to change out bias when the markets do too.

Bonds already hit our tactical target, what’s next?

That means I might be wrong on bonds before I’m right.

Last week I wrote “structurally though the 10’s are in a weekly downtrend – we could see 2.643%, maybe a little higher before a solid reversal. So it’s likely a market to ease into not go full wack upfront”.

Quite frankly I wish I’d have remembered I wrote that during the week when the daily price action as at Wednesday suggested to me maybe it was time to reverse lower again. That’s interesting in itself because a reader called me out for the cognitive dissonance she saw in my bond and economic views in the US.

I didn’t think she was right and argued it is a question of time frames. That’s still true because I believe inflation will remain low and as the US economy slows the Fed will ease to forestall same and thus bonds can rally. But there is a lack of consistency on the daikly and weekly time frames I write about between my stocks and bonds views.

I have written that bonds will get it right while also writing that we should ride the momentum higher in stocks. Different time frames and the messaging could have been better. Currently bonds are pointing higher and my system is short – lets see when the next turn is.

US 10 year Treasury Rate – TradingView

Watch commodities for a lead especially as oil may be topping

A risk rally wouldn’t be a risk rally if commodities didn’t join the fun. Indeed oil has been a big part of this risk rally having lead risk lower at the back end of 2018/ Likewise copper has joined in by catching a bid, though it is trapped in a range, and in many ways gold is the antithesis of risk – though not perfectly.

Copper (top left), Gold (top right) WTI (bottom left) and Brent (bottom right)

Anyway as you can see above, copper is in a range, gold looks on the brink of a break, and oil might be rolling over. All those positions are not necessarily consistent. But I’m watching oil closely.

That’s because while the trend higher is still very strong we may be seeing the start of a stall in the past week’s price action. That comes after it’s becoming clearer maybe the Russians are over the Saudis leading them around by the nose when it comes to cuts and pricing. Certainly that’s the feeling the Russians gave during the week. And it has been some time that various Russian oil executives have said they’d like done with the production cuts.

Watch $63.00 in WTI terms for a lead or hold. The flip side of that is gold at $1275/80. A break there could see the shiny stuff move below $1240. It needs to break $1330 at the minimum to change that outlook.

Keep and eye on them.

Trade War, Brexit, and Foreign Exchange

The trade war will come to some sort of resolution soon. It is unlikely to be the big bang everything is fixed and we are mates now sort of deal some may have hoped for. But it is likely to be some sort of deal both sides can live with.

I say that after US Treasury Secretary said during the week that both sides had worked on their enforcement mechanisms. That’s kind of the minutiae of getting a deal done and while there is still likely some big issues to discuss this is a clear indication the two sides are getting there.

Anyway, while the focus is on the China as the bad guy – and readers know I am the polar opposite of a China apologist – it seems some sort of deal is coming. And that may be important for the USD because my long held view is if a deal does get done then the USD may suffer a little because it will effectively be the US taking its foot off the throat of the Chinese and EM economies (Germany too perhaps) and as such the improved sentiment to these economies and their currencies could see the USD reverse.

USD Index (DXY) Weekly – TradingView

That fits the USD’s inability to break higher in DXY terms or lower in Euro terms recently. A test back toward the 95.50/96.00 trendline support  in DXY terms and 1.1380/1.1430 region in EURUSD terms looks possible.

EURUSD Weekly – TradingView

But this is a very low volatility market for currencies right now. Volatility has washed out of the daily and weekly moves perhaps because much is known about the relative economic and central bank outlooks after the past six months of data and recent almost universal central bank pivots. So we are all waiting for the next shoe to drop and wake forex out of its slumber.

No more was this lack of catalytic volatility more evident than in last week’s decision by the EU to grant Britain more grace to figure itself – and Brexit – out. Grace is not something in great supply in the UK parliament. But with non-deal Brexit seemingly as close to zero probability as possible you could be forgiven for thinking Sterling might rise.

GBPUSD Daily – TradingView

Yet it has not and is trapped in a range. That said though, above 1.2960 it does look like a topside break toward 1.3270/1.3300 looks likely. Below 1.2960 and we get 200 points off.

And just quickly,  the CFTC data

Euro shorts on the rise again while EURUSD finished the week above 1.1300 (just) for the first time in a month. Not frowning, waving? We’ll see. Yen shorts are higher and the slow capitulation of the GBP bears is almost complete. Aussie shorts might find life a little interesting too is 72 cents breaks, it has to break though doesn’t it.

Bond bears seem to have it right with where the 10’s ended the week – higher in rate – according with this uptick in shorts as at last week. Buyers will be wary it seems in bonds as well as the VIX given the increased in speculative net shorts.

It’s a bit of a one way bet, a bit of a melt up in risk appetite perhaps. Only a decent catalyst looks set to change that if the moves in forex positioning and the USD versus fundamentals are any guide to other markets – which I think they might be.

The week ahead

The week ahead slows down globally as we enter the back half of the month. But US earnings season kicks off properly and will garner much interest.

Monday is close to a waste land with just Swiss PPI, NYC Empire manufacturing, the BoC Business Outlook and then speeches by BoE’s Haskell and  Fed’s Evans out.

Tuesday morning Asia sees the  Fed’s Rosengren speak around 10am my time (1am London). Chinese house prices and the minutes to the recent RBA meeting are also out. UK employment as well as the German and EU ZEW surveys are out together with EU construction spending. We have a global Dairy auction for Kiwi traders to look at as well before industrial production in the US the NAHB housing market index and the API crude inventory data.

Wednesday is a biggish day for traders with the release of Kiwi CPI, Japanese trade and industrial production, and then China’s version of a quadruple treat in the release of retail sales, industrial production, and investment for march as well as Q1 GDP. In Europe we get Italian CPI, UK RPI, PPI, and CPI as well as EU CPI and trade balance.

Canada too releases both trade and CPI while the US drops the Beige Book, EIA crude inventories, and wholesale inventories.

Thursday is the big one in Australia with the release of the jobs and unemployment data. German PPI is also out and its IHS Markit “flash” PMI days for much of the globe. US retail sales are going to be huge as well as well as the Philly Fed, Business inventories, and jobless claims. Canada releases its retail sales.

Friday is Good Friday for much of the west though teh US releases housing starts data.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution is ONLY allowed with permission. Please speak to Greg McKenna to obtain same.
Copyright © 2018 gregmckenna.com.au, All rights reserved.

[/vc_column_text][/vc_column][/vc_row]

read more
Greg MckennaOn stocks, rusted on bears, bonds, and forex – McKenna Macro Markets Weekly

This most hated risk rally continues as President Trump calls for QE – McKenna Macro Markets Weekly

on April 7, 2019

Hi folks, welcome to my weekly newsletter. 

This is post is sponsored by SMARTMarkets 

Don’t forget the Daily Newsletter and Video are behind a paywall now. But if you’s like a trial subscription let me know – it’s not for everyone. But if you want a guide thorough the daily and weekly tumult of markets, someone who’s done it for decades and successfully then I’m sure you’ll benefit. 

Here’s a bit of feedback from a subscriber recently:

“We deal with 20 Banks globally and I get more from your note and video than all of them”

Key Takeaway

The most hated stock market rally continues still. The bears are raging and fighting it, but prices keep rising. Oil prices too is on the March again after a mid week stall. Positive risk appetite, less worries about the global economy – for now – and the Saudi squeeze are tightening the market.

Bonds have had a wild time but currency markets are waiting for the next shoe to drop.

Oh and of course President Trump has gone all uber-dove calling for and end to QT and another round of QE. Madonna!!!

The week that was…

Now for the week ahead, let’s dive in.

Key Themes driving markets

President Trump keeps the pressure on the Fed?

Quantitative easing folks. That’s what President Trump said Friday the Fed should be doing. It’s just another escalation in his battle with the institution he blames for taking the cream off the top of his fiscally induced surge in the economy and markets last year.

Couple with his thoughts to nominate both Stephen Moore and Herman Cain to the Fed Board and we have clear pressure on the central bank not to hike rates regardless of how the economy turns out – especially if the current incumbent Fed is right and the outcome is less dire than the recessionistas suppose.

This battle at the Fed is a good indication of the possibility to be structurally worried about the outcome but tactically positive about such a move – for risk assets anyway. I thought Guy Lebas, Janney Capital Management’s chief fixed income strategist, put it perfectly during the week on Twitter.

SPOT ON FOLKS !!!! – Source: Twitter

Of course Lebas also noted Friday that while the headline number for non-farms of 196,000 was a good headline the underlying data was less positive and very late cycle. So even though unemployment is at 3.8% folks are still worried about the outlook for jobs.

The key here though is the pressure is on the Fed to do nothing for a long time if it really believes the economy is in the “good place” NY Fed President John Williams said it is recently. That BofA CEO Brian Moynihan used the same phrase last week to describe the economy means Williams might be right.

The point is the Fed won’t do anything to upset the apple cart right now and is more likely to cut than raise rates on a 12 month horizon. But that’s a good thing for risk folks – as any of you who have sat through the almost 30 years of Australia’s economic expansion without a recession a long pause to evaluate the economy and then either  a cut, or a hike, is a big part of avoid the very recession everyone fears.

Bonds already hit our tactical target, what’s next?

Which brings me first to bonds and then stocks and the US dollar below.

Having noted the opportunity for a tactical short in US 10’s to run to 2.49/51 and the previous breakdown region of 2.55% last week it was interesting that we saw  a test of and reversal off 2.55% already in the last week.

But such is the increased volatility of bonds right now that this is not entirely unexpected. And for mine that test of 2.55% is a structural buying opportunity even though the dailies do suggest we might see further bond rate weakness – higher levels.

Structurally though the 10’s are in a weekly downtrend – we could see 2.643%, maybe a little higher before a solid reversal. So it’s likely a market to ease into not go full wack upfront. Or of course we can wait for the daily indicators of my system to turn – I update in each mornings newsletter during the week.

US 10 Year Treasury Rate Weekly – TradingView

Still bullish Stocks?

Last week I also highlighted that I favoured the topside for stocks and noted – using the S&P 500 as a global bellwether – that it was , “looking like a retest of the 2,866/77 (resistance zone and Fibo level) are on the cards. Above that it is the 138.2% projection at 2,897. Support is 2,785/90 then 2,760”.

Friday’s futures high was 2,897.5 – so mission accomplished. But, as Miss DU a China’s SAFE in in Beijing used to say to me “what now Mr McKenna”. To answer that I’d refer you to the weekly chart of the S&P 500 below.

The arrows are my JimmyR indicator – just the 15 and 30 ema crossover – which is long. The MACD is still rising and even though the stochastic is in overbought territory that in itself can persist for some time.

S&P 500 (ES futures) Weekly – TradingView

So the weekly points higher toward the record highs as does the daily chart. And as comfortably this is for my rhetorical self because of the vertical nature of the moves this is how things are setting up still.

Russell 2000 ETF Daily – TradingView

That means it’s a buy the dip rather than sell the rally market right now with 2,840 and 2,810 critical support for longs. And if stocks in the US retain a bid – and the Russell has just broken out too, then global markets will likely retain their bid.

At least until we see the data start to dip once more and the narrative turn back to global growth concerns rather than that we’ve passed peak pessimism as I noted last week.

Here’s the S&P versus the FTSE 100, DAX, and Nikkei Monthly.

THE BELLWETHER – S&P 500 v FTSE, DAX, and Nikkei (TradingView)

The USD remains bid…

Despite the pretty awful recent data flow in the US which has seen its Citibank Economic Surprise Index falling to the lowest level since 2017 over the past week the US dollar has retained a mild bid tone.

The USD is still not super strong by any stretch of the imagination, but certainly better than many of the naysayers have been suggesting. Yet, that said the Euro still managed to hold above recent lows and the DXY is yet to best the 97.70/97.90 range top and Fibo resistance that is needed to kick it to 100+, 103/104.

USD Index (DXY) Weekly – TradingView

But, as you can see in the chart above, besides this significant resistance level in the 97.70/98.00 the overall outlook chart wise – weeklies – is for a continuation of the USD rally.

An ultimate break to the topside seems only a matter of time. But, as I always say and write I respect lines and levels – unless or until they break. Above 97.70/98.00 is the multi-touch red trend line you can see in the charts which dates back to the DXY’s April 2016 low and comes in at 98.55/65.

One of the interesting things though about this USD move, and the Euro and Aussie as well, is that the sellers are getting diminishing returns for the selling they have been doing – see CFTC section below.

Indeed the orange lines – spec positioning – shows there are still available position limits to sell more of both currency and thus buy USD. But that also we are getting closer to those extreme levels and it’s not seeing the historical follow through oin the price of AUDUSD or EURUSD right now.

Which, realistically with the levels of resistance in USD and support in Euro is – in a short term trading sense – about the only reasons not to be uber-bullish the USD.

Just look at EURUSD, it fairly screams collapse. It just needs to break below the 1.1165/85 support zone. But Friday saw industrial production in Germany print a little better than expected which rescued Euro from the lows and let it finish the week above 1.12.

EURUSD Weekly – TradingView

But and here’s the thing, I do wonder if the looming trade truce – Kudlow confirmed talks are continuing next week via video conference – is a USD negative. My hypothesis being that a truce will be viewed as the US lifting its foot off the throat of China and thus the global economy and as such economic growth relativities will move back in favour of China, EM, and other currencies as well.

But we need to see a deal first, its outline, and judge its efficacy before that happens. Till then the USD is bid, but I’m leery of the big levels noted and the inability of the Greenback to make substantial headway against the CAD,SGD, CNH/Y, or the Aussie dollar.

It really is a time to watch levels and react to either holding or breaking.

And just quickly,  the CFTC data

The table speaks for itself. The market is getting longer of net USD exposure across the board while getting longer of WTI and short US 10 year Treasuries.

The positions are getting extreme. But that is not a reason in itself for a reversal. We need a catalyst for that. I’ll update during the daily newsletter should that catalyst appear.

EDITORIAL – Don’t get caught hating everything. Are we here to make money or are we here to be right?

This editorial is dedicated to a very shouty twitter right now and hopes to suggest that getting caught in vitriol (actually love OR hate) is bad for your returns. Being flexible and matching time frames is as important as it ever has been right now.

To wit, I’m a very fluid strategist and trader, I’m kind of fluid in many aspects of my life actually. I am not nostalgic, not sentimental, don’t hold on to the things or the past, and my kids listen to more music from the era when I was growing up than I do.

So maybe I’m hardwired in a manner consistent with being able to abstract my rhetorical and judgemental beliefs from what I see when I’m trading and strategising about markets and economies.

Or maybe the fact that when I started trading all those years ago I played futures aggressively so that when I’ve managed portfolios I’ve always had this “momentum guy” thing about me. Short term I go where the river runs, the path of least resistance as Bill Williams wrote 20 years ago – or at least I try to. Medium and longer term are more macro and strategic.

The economy is not the stock market…Citi Eco Surprise versus the S&P 500

Why does this matter?

Because there are so many Trump haters, so many folks who are sure this market is going down because the economy is slowing sorry already in recession, so many who think what President Trump is doing to the Fed will end in tears, so many who are worried about the US debt position, and so many who still think the USD is dead and losing its appeal.

So many who treat everything through THEIR PRISM and fail to take account of other factors

What we end up with is so many hand wringers and shouters who are in turn so vocal on Twitter it is almost impossible to avoid them. Yet stocks keep rising, the US dollar retains a bid, bonds are still relatively well bid themselves and the shrill voices of Twitter grow louder.

Of course, partly this is how one markets oneself on Twitter and in the press, and partly it is genuine blindness to the opportunities in front of them as these folks search to be right and say – at some point in the future – “see, I told you so”. Exclamation mark, Exclamation mark.

And they may be right – but being early can be the same as being wrong. particularly if you hold a rusted on rhetorical view which hamstrings your trading before the event crystallises

So in light of President Trump’s latest Fed comments, the clear attempts to goose the market with trade talk, my editorial repeats what I said in the daily earlier this week :

“I am not defending President Trump. To me he is an infantile bully. But we aren’t going to make any money if we let our love, hate, disdain, admiration, whatever the emotion cloud our judgement about what is going on here”.

That’s as true of  one’s approach to President Trump, the trade talks, the economy, central banks, as it is of the market reaction to  all these stimuli.

Trump is the leader you get in the fourth turning, if you want to put it that way, and of course there will be a reckoning and reversal at some point. But central banks – not just in the US but around the world – have signalled in the past few months they are not ready for that reckoning. Markets, traders and investors, have reacted to that.

So, what’s that old adage? Trade the market in front of you.

We’ll get a chance to act on a many of the views I agree with but aren’t serving traders well at the moment at some point in the future – maybe very soon. Indeed rhetorically I’m struggling with this risk reversal as much as anyone else. When it comes to the turn I will try to catch it as soon as possible.

Oh, and there is this:

Source: Twitter

Peter is right, and you’ll – we’ll – all be much happier. BTW this is my own personal guide – The Desiderata, and has been since I was a kid.

The week ahead

The week kicks off Monday with Japanese trade, consumer confidence and the eco watchers survey. In Australia we get ANZ job ads for March which will be more important than usual given teh RBA’s entreaty that the jobs market in Australia is strong. German trade is out in Europe and then in Canada we get housing starts and building permits. In the USA it is factory orders for Feb which are released.

Tuesday’s home loan data in Australia will garner the lots of interest given falling house prices and the correlation with debt demand. Italian retail sales are out as is the NFIB survey in the USA. JOLTS and the IBD/TIPP business survey are also out as are the API crude data late in the Day in the US and very early Australia and Asia Wednesday.

Wednesday  kicks off with Fed vice chair Clarida giving a speech at 8.45am my time which is 6.45pm NYC. We also get South Korean unemployment Japanese PPI and machine orders plus a speech from BoJ governor Kuroda. In Australia Westpac consumer sentiment is out – that’s important, but so too is the unemployment expectations sub-index of that number. We also hear from RBA deputy governor Guy Debelle.

In the UK we get Feb GDP, manufacturing and industrial production and trade. But the highlight for the day will be Mario Draghi and his colleagues at the ECB’s decision, statement, and then Press conference. In the US it is CPI inflation, a speech from the Fed’s Chair Jerome Powell and governor Randy Quarles, and the last FOMC minutes at 2pm Washington which is 4am my time.   Of course EIA crude and other inventories will be out as well. AND, EU leaders will hold a meeting April 10  to discuss Brexit option – 2 days before the new deadline. Watch the French folks.

Thursday the focus shifts to Asia with CPI, M2 and new loans released. We also get NZ food prices, Japanese money supply and foreign bond purchases and another speech from RBA deputy governor Debelle.  German and French inflation is also out while in the US we get PPI, jobless claims and then 5 Fed speeches from Powell, Clarida, Williams, Bullard, and Bowman. Friday’s newsletter will write itself 🙂 The Indian elections kick off Thursday as well.

To round out the week Friday we get Korean exports and China trade both very important leads for risk assets and global growth. The RBA releases its financial stability review, Germany issues a wholesale price report, the UE has industrial production out and in the US it is export and import prices.  And, earnings season kicks off in the US with JP Morgan and Wells Fargo releasing their results.

A decent week of catalysts – Enjoy.

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution is ONLY allowed with permission. Please speak to Greg McKenna to obtain same.
Copyright © 2018 gregmckenna.com.au, All rights reserved.

[/vc_column_text][/vc_column][/vc_row]

read more
Greg MckennaThis most hated risk rally continues as President Trump calls for QE – McKenna Macro Markets Weekly

Stocks end a stonking quarter on a high, the data this week is going to be huge – McKenna Macro Markets Weekly

on March 31, 2019

Hi folks, welcome to my weekly newsletter. 

This is post is sponsored by SMARTMarkets one of the two brokers I currently have deals with for you to be able to open an account to earn up to a 100% rebate on subscriptions fees – I’ll have the links soon. So it will be free to everyone on the broad list each weekend, normally on a Sunday. 

Don’t forget the Daily Newsletter and Video are behind a paywall now. But if you’s like a trial subscription let me know – it’s not for everyone. But if you want a guide thorough the daily and weekly tumult of markets, someone who’s done it for decades and successfully then I’m sure you’ll benefit. 

Here’s a bit of feedback from a subscriber recently:

“We deal with 20 Banks globally and I get more from your note and video than all of them”

Key Takeaway

Stocks are staying bid despite the bond market rally and many fears that with momentum stalling and the buyback blackout period starting they’d be falling. That’s important information – even if this is a topping process after a very strong first quarter reversal of the weakness at the back end of Q4.

Past its peak certainly is British democracy. Sterling traders finally noticed that Pommie Pollies are so divided and hopeless they couldn’t even boil water let alone figure out Brexit. But the Pound hasn’t broken wide open yet because hope springs eternal for a positive outcome.

On currency markets the USD did better and is close, but has not yet broken. It sets up a tantalising week with non-farms to be released Friday.

The week that was…

Now for the week ahead, let’s dive in.

Key Themes driving markets

Brexit, delay, defeat, no deal exit?

What a mess. The UK parliament knows what it doesn’t want – a no deal Brexit or Mrs May’s agreement with the EU. But it can’t resolve on what it does want. We see factions with parties of Remainers and Brexiteers and we have self interest running very close to the surface and driving many of the actions we’ve seen in evidence from Pommie Pollies over many months.

Yet still a deal is not done, a path is not clear, and the Commons has effectively rebuffed the EU’s offer of an extension to may 22 and now has only a couple of weeks with which to sort itself out or risk – again I know – the reality of crashing out of the EU without a deal.

Of course the alternatives are either no exit from the EU – remain – or a very long extension. And of course we have the theatrics of the political battle between the Conservatives and Labour, not to mention the conservatives with themselves.

Indeed, over the weekend the Sunday Times (via Reuters) reported that the Conservative government of Mrs May is at risk of “total collapse” as the Remainers and hard-line leavers at at odds. All the while Mrs May’s advisers are rumoured to be talking about an early election which can fracture her party and her leadership…which seems fatally flawed anyway.

GBPUSD Daily – TradingView

Until last week Sterling traders weren’t troubled by the shenanigans and while the dam hasn’t burst just yet a move below 1.2960/80 (range low and 200 day moving average) could set the cat among the pigeons for another 2+ big figure move lower. While it holds though we remain in this 4 big figure range and prone to continued headline risk.

Peak pessimism? A tactical low for bonds may be in.

I looked at the candle on the 10 year treasury rate Friday morning and wrote in the Market Summary part of the daily newsletter, “US 10’s are at 2.39% (short term low in?)”.  

Following on from Thursday’s candle was another mild up day for rates on Friday and it looks like the chance of the move back to test the break down level in the 2.49/2.51% (Fibo levels over different time frames) and possibly the bottom of the recent range at 2.55%

US 10 Year Treasury Rate Daily – TradingView

That’s not to say I am abandoning my outlook which says 2.28% perhaps 2.02% (maybe lower) will ultimately trade. But tactically we may have hit peak pessimism in the past week as the Fed has signalled – 3 or 4 speakers at the end of last week – that there is a difference between patience and the need for rate cuts.

It’s in contrast with Markets pricing for cuts this year in the US and increased calls for recession. Note this is tactical and a break – and close – back below 2.35% would reignite the rally. But for the moment it’s setting up as a chance for bulls to reload their longs as rates back up.

Can we really be bullish Stocks?

The most widely despised bull market I can remember in many years has continued to defy the doomsayers. I myself have had a few goes at shorting this market after capturing the initial leg of the rally from early January as my system turned.

Rhetorically though it’s been a difficult rally for many investors to participate in  outside the momentum crowd as the rally went against the deterioration in the data flow.

Source: Twitter

But there are signs – not least of which are in the price action – that as we head into the buyback blackout period real money is stepping back into the market.

Reuters reported Friday that its “latest asset allocation poll of 40 fund managers and chief investment officers in Europe, the United States, Britain and Japan” found “global funds recommended switching cash back into equities in March as stocks have recovered smartly despite some turbulence this quarter from a deep sell-off late last year”

The poll showed equity allocations were up 2% on the previous month with the resulting drawdown in cash levels to a 4 month low of 5.8%.

This poll Reuters said, “showed a clear shift away from the more defensive approach among long-term investors held over the previous months”.  And the poll showed “nearly 85 percent of the fund managers who answered an extra question expect the upswing in U.S. equities to continue for at least another three months, including over 55 percent who said six months or more”.

That’s pretty bullish really folks, it says the fund managers don’t see the chance of rate cuts or recession that many in the market are calling for, it says that the constancy of the Twitter bearishness I see each day is off pace, and it suggests that buy the dip is a live and well.

S&P 500 Weekly (arrows are crossovers in my JimmyR indicator) – TradingView

Looking at the price action then you can see above on the weekly chart the simplest of indicators – my JimmyR system for stocks which is just the 15 and 30 ema crossover – has been long for a couple of weeks.  It’s one reason that despite the daily charts looking like a pullback was needed I tempered my bearishness.

It’s now looking like a retest of the 2,866/77 (resistance zone and Fibo level) are on the cards. Above that it is the 138.2% projection at 2,897. Support is 2,785/90 then 2,760. I favour top side short term – especially after the weekend China NBS PMI pick up.

S&P 500 Futures Daily – TradingView

Could we see new record highs – certainly if those levels above break. Do I think we’ll see new record highs? No because I’m going to respect those lines and levels. But they break then we’ll need to completely reconsider the outlook. Likewise any break below 2,760 opens, 2,720 and below that fresh thinking would be needed.

It’s worth keeping an eye on this too – it will shape the narrative.

Dow Jones versus Dow Jones Transports Daily – TradingView

US dollar, Euro, rates and the Fed

last week was a good week for the Greenback in both e DXY terms and across the board. But, as you can see in the chart below, it is still clealry inside the range it has been in for a while now and it is also clearly yet to best the 97.70/97.90 range top and Fibo resistance that is needed to kick it to 100+, 103/104.

US Index (DXY) Weekly – TradingView

Naturally if it does best, and hold on close, above that 97.90 level the whole conversation about the USD will change. It’s a question of when not if from where I stand – eventually anyway. When it will break I’m not sure and until it does I’m going to respect that line and levels.

That said when the break comes it is likely to be the start of a big acceleration.

Turning to the Euro, it too is close to an important level. The recent low of around 1.1175 was just 10 points below the 1.1185 61.8% Fibo level of the 2016-2018 rally for the Euro (yes I still call them points not pips – can’t help myself I’m an old interest rate trader).

Euro Weekly – TradingView

A break here is likely easier than a break of 97.70/90 but they won’t be unrelated if they comes. Through 1.1175 I have 1.1080 as the next target as the weekly support that has been touched 3 times (not shown above) and below that 1.0990 as a Fibo projection and then 1.0900/20 as the bottom of the downtrend channel in the chart above.

And if the USD is either breaking, or holding on these two measures of strength then it is likely to be doing likewise across a number of pairs. I’d expect the Aussie to be below 70 cents, the Pound below 1.2960, USDCNH above 6.7450 to name a few.

I’m a USD bull…but I’m a patient one knowing how often recently the USD has had setbacks at important technical levels.

Australia’s RBA continues to fight the rate cut advocates

It’s the first Tuesday of the month this week and that means that as in 11 months of the year (the RBA is at the beach in January) the RBA board will sit down to discuss the economy, rates, and the governor will make his statement.

Last week’s surprise uber-dovish tilt from the the RBNZ will have a few folks excited that the RBA will follow suit.

Indeed, the market is pricing in RBA rate cuts soon. Two of the four Major Banks are saying the RBA should cut this year. AMP Capital’s Shane Oliver was one of the most bearish on housing early and says the RBA should cut, many others are now on the rate cut bandwagon.  I myself have said the RBA should cut, back last year when it was Shane, the Kouk, Capital economics and few others.

A big part of this is the weak housing outlook and the impact that could, would, likely will have on on consumption and the domestic economic activitut the RBA is hanging steadfastly onto the notion that it is the jobs market which will be the salve for what ails the economy.

Just last week RBA assistant governor Luci Ellis ended her speech on Households saying (my bolding):

“My talk today has deliberately not overlapped with what the Bank has recently said about the housing market…Whatever other forces might be affecting housing market developments, fundamentally demand for housing rests on the household sector’s confidence and capacity to take on the financial commitments involved in the purchase or rental of a home. Without enough income, and so without a strong labour market, that confidence and capacity would be in doubt. This is not the only reason we are watching labour market developments closely. But the nexus between labour markets, households and housing are crucial to our assessment of the broader outlook.”

Source: Twitter

Could the RBA make an RBNZ style dovish pivot after that ending to an important speech and with ABS job vacancies look strong still? It would be a surprise/ And that means a tactical play in AUDUSD and the crosses might be present itself this week.

Oh, and the other question we could ask ourselves is why would the RBA signal a cut when the budget is likely to add plenty of fiscal stimulus when it is read this week.

And just quickly,  the CFTC data

The surprise of the week was deliver to me Friday with the CFTC data showing the big speculators had not materially changed their positioning in the US 10’s. Equally interesting is the build in longs for oil and gold, while it is clear the USD is still favoured, maybe crowded, but equally still strong.

The key to the USD is that when it comes to these US dollar longs there is still substantial position limits available is history is any guide.

The week ahead

The last first week of the month is always a huge one for data in the way that the back end of the month is not.  That means that by the end of the next week we’ll have had enough data from enough jurisdictions to know if the US dollar, bond, and stock market rallies can be supported and kick on or if perhpas the magnificent first quarter move for 2019 was really just a low volume path of least resistance head fake.

It’s going to be huge.

Monday kicks off with manufacturing PMI’s across the globe – Australia, Asia, Europe, the US and elsewhere. In Japan the Tankan is out as well while in Australia we get HIA new home sales, the monthly inflation gauge and (apparently) the NAB monthly business survey. I say apparently because it is not usually out on a Monday and Feb’s survey was out March 12. But that’s when the last survey said it would be released.

Naturally there will be much interest in the Caixin China manufacturing PMI and the EU PMI’s to see if the actual full survey estimate is as weak as last month’s flash surveys. EU CPI and US retail sales will be watched closely as well along with US business inventories and construction spending. ECB’s Guindos is speaking as well and there are a couple of Bundesbank speakers out on the hustings.

Tuesday kicks off with NZ Business confidence, building permits in Australia, and of course the RBA decision and statemetn from the governor. The Federal Budget with its fiscal stimulus – it’s an election year – will also be out, 7.30pm AEDT Tuesday.  EU unemployment and PPI along with US durable goods, ISM New York, and total vehicle sales are also out along with the global dairy auction and API crude data (early Wednesday my time). Outgoing ECB chief economist Peter Praet is giving a speech as well.

Wednesday kicks off with services PMI’s around the globe. They’ve done better recently than their manufacturing siblings so lets hope that continues. We also get Australian retail sales for February along with trade for that month.  EU retail sales are also out along with mortgage applications, ADP employment, and EIA crude (and other) stocks data in the US.  Atlanta’s Raphael Bostic and Minneapolis Fed’s Neel Kashkari are speaking

Thursday’s relatively light with ANZ commodity price index in NZ, German factory orders, the French Budget, Challenger job ads and weekly jobless claims in the US.  e Fed’s Williams and Mester are sepaking also.

Friday is non-farms day in the US while Canada also has it’s jobs data out. Apart from that we have Japanese household spending, German industrial production data and a speech from the Fed’s Bostic after the close.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution is ONLY allowed with permission. Please speak to Greg McKenna to obtain same.
Copyright © 2018 gregmckenna.com.au, All rights reserved.

[/vc_column_text][/vc_column][/vc_row]

read more
Greg MckennaStocks end a stonking quarter on a high, the data this week is going to be huge – McKenna Macro Markets Weekly

Bond rally and data flow spook traders and investors – McKenna Macro Markets Weekly

on March 24, 2019

Hi folks, welcome to my weekly newsletter. 

This is post is sponsored by SMARTMarkets one of the two brokers I currently have deals with for you to be able to open an account to earn up to a 100% rebate on subscriptions fees – I’ll have the links soon. So it will be free to everyone on the broad list each weekend, normally on a Sunday. 

Don’t forget the Daily Newsletter and Video are behind a paywall now. But if you’s like a trial subscription let me know – it’s not for everyone. But if you want a guide thorough the daily and weekly tumult of markets, someone who’s done it for decades and successfully then I’m sure you’ll benefit. 

Here’s a bit of feedback from a subscriber recently:

“We deal with 20 Banks globally and I get more from your note and video than all of them”

Key Themes driving markets

THIS WEEK’S NEWSLETTER IS DEDICATED TO THE BOND MARKET – SHAKEN AND STIRRING OTHER MARKETS

Bond rates surge as the global economy tanks….

During the week US 10 year bonds broke the bottom of what I had termed the Goldilock’s Zone between 2.55% and 2.82%. Something I’ve had in my positioning thoughts for months now and something I’ve oft repeated in this weekly is that rates below the bottom of the range would not be a good thing.

Indeed, “if 2.55% range low were to break that would be a bad signal for risk assets” is what I’ve had pinned because the type of data flow that would be necessary to do that would signal the economy has gone awry – in the US and across the globe.

US 10 Year Treasuries Rate Weekly – TradingView

When that level broke during the week I highlighted in my daily Newsletter (as I had in this note last week) that I now had a target of 2.28%.  That is the 138.2% target of the break of 2.55%. But as you can see in the chart above the case for even lower levels looks high now that the convergence of important support has given way in the 2.49/51% region.

2.02/2.05% is in the frame folks – maybe even the record low eventually.

Now, I know you are going to say that the Fed’s dovish tilt has been the primary driver and that is true. But it is the data – and a little stocks market shenangins in thin holiday liquidity – which caused the Fed pivot.

But the data has been weak. Just look at that table above only the UK is materially beating beaten down economics expectations while Australia is slipping toward negativity once again.

EU Citibank Economic Surprise Index Weekly

More importantly Europe has been below zero for almost all of the past 13 months while on Friday it’s composite “flash” PMI fell back to 51.3 – a two month low. Likewsie services printed a 2 month low of 52.7 while the manufacturing PMI and manufacturing PMI output indexes hit 71 month lows of 47.6 and 47.7 respectively.

IHS Markit’s Chris Williamson said in a note accompanying the release that:

“Forward-looking indicators such as business optimism and backlogs of work suggest that growth could be even weaker in the second quarter. Worryingly, with order book backlogs shrinking at the steepest rate since late-2014, more and more companies are pulling back on hiring, and likely reviewing their investment spending.

Any such further loss of growth momentum in the second quarter compared to the 0.2% GDP rise signalled for the first three months of the year would raise doubts on the economy’s ability to grow by more than 1% in 2019.”

In contrast those 4 measures above for the US printed 54.3, 54.8, 51.6, and 52.5 respectively with IHS Markit’s Williamson saying in a note, “The PMI survey
data nevertheless remain encouragingly resilient, indicative of the economy growing at an annualised rate in excess of 2% in the first quarter, suggesting
some potential upside to many current growth forecasts.”

Anyone want to buy Euro folks. Yellow vest protests week after week in France, Italy abandoning the west and signing on to China’s Belt and Road, Brexit still a mess with a not insignificant chance of no-deal, and then potentially fractious EU elections in late May.

Oh, and that’s before we factor in relative economic and central bank outlooks.

1.1185 is the key – but Euro is setting up for a sharp fall in the months ahead. That’s important for Global Forex

The Euro, the USD, and by consequence a large number of forex pairs have been in ranges recently. It’s something I’ve stressed here in the weekly and in the dailies for some time. I’ve often written not to get too excited about the coverage of one days moves because we are still in the ranges.

But, while the rangey nature of this market is still holding true the setup is growing for an eventual break of the Euro down below 1.0990, toward 1.08 and perhaps 1.04/05. The DXY will be up and through 100/101 on that scenario and likely stronger in time.

But let’s focus on the weekly Euro.

EURUSD Weekly – TradingView

In the chart above we have a clear test of the 61.8% retracement level of the 2016/18 rally recently at 1.1185 from which the Euro bounced. That low, actually around 1.1175, came on the day Mario Draghi and the ECB waxed dovish. Last week’s spike high in the EURUSD, which couldn’t hold above the medium term down trend channel, happened on the day the Fed waxed dovish.

That gives us a nice bookend of the move and a very ugly weekly candle.

Now, it is important to note that the USD is still in the overall widish range. but the lower highs of the past 6 months – of which last week’s was the fourth – points to a downtrend.

So, my outlook is for  a test back toward the 1.1175/85 support and if (when) that breaks a run to 1.0990 with 1.0800/50 the bottom of the channel at the moment.

If we see this we will see a substantially stronger USD across the board – except perhaps against the Yen, though it will gain materially on the crosses. Under this scenario I’d expect the AUDUSD to be at 0.6800/25, maybe lower, USDJPY around 1.0770/1.0830, and USDCNH back toward 6.85/90 – but in many ways that’s another story.

More troubling under this scenario, is what USD strength, will do to EM forex levels, their economies, and stocks markets. Especially in the current economic environment.

Can I be wrong? Of course. If I am, sell rallies in the Euro, Aussie and so on, and wait for the inevitable break of the ranges.

The outlook above is triggered by a clear break in a level on the EURUSD – so we are still rangey till then. And this outlook is very macro rather than simply trading. So it may take time to play out. But it’s where things are now starting to set up – even as the US economy slows a little

Bonds know this but do stocks? “US PMI signals greatest pressure on corporate earnings since 2016” says IHS Markit

Earlier this week (March 20) in the daily newsletter I included the following chart and said, “…with concerns about earnings and the economy it is easy to see why big money investors are not yet rushing to join the party”. That was in reference to the BAML survey with the chief strategist noting the biggest chance was a melt-up because so many investors hadn’t joined the rally.

Source: Daily Shot via JesseFelder’s Twitter

To that end after the US flash PMI IHS Market said that, “PMI survey data provide an accurate advance guide to corporate earnings growth, EPS gauge is derived from survey indices measuring sales, pricing power and profitability, and frst quarter earnings momentum is at three-year low”.

Source: IHS Markit

The point being that bonds get this, they see the slowdown. Stocks not so much in price but certainly in the lack of real money participation in the rally so far. USD you ask…that’s about relativities not outright levels.

Stocks then?

Despite the rally Thursday in US stocks I wrote in Friday’s newsletter in the Positioning Thoughts section that (bolding for this week’s note) “not triggered on the S&P short [signal from the previous day] and fundamentally I don’t like this market where it is. It smacks of QE and maybe that’s what is coming but prices seem preemptive. But technically support is holding. I’m going to pencil in a move to 2,740/70 as a minimum. It’s a question of when”. 

S&P 500 Weekly – TradingView

Now of course, you can see the blue arrow which is my JimmyR indicator which suggests process are still biased higher on a weekly basis. So I’m not outright bearish. But my system has generated another sell signal if Friday’s low is taken out Monday and – as the chart below shows – there was a lot of bearish engulfing days trade Friday in the US.

Source: Twitter

That matters because if the US does catch cold for more than a day or a week then so too will global markets. Here’s the monthly chart of the S&P 500 versus the Nikkei, DAX, and FTSE.

Stocks Monthly – S&P 500(black), Nikkei(blue), DAX(orange), FTSE light blue)

Chances of a funk with bonds where they are, earnings looking crook, and the data printing poorly across the globe have to be rising. 2720/45 looks incredibly important for the S&P 500 and thus global markets. Below that and things get funky again. But that is support for the moment.

Theresa May – Monty Pythons Black Knight or a Machiavellian strategist Redux

Ugh, Pommie Pollies. What a hash they have made of the Brexit process.

1 million people walking in a street protest to let the people take back the process, weekend news that Cabinet is trying to plan a coup even though theoretically they can’t oust Mrs May till the end of the year.

Britain has a short window with which to work itself out thanks to an EU withdrawal extension. But the chances of a no-deal Brexit have likely risen to a non-material 20/25%.

That means it is still the risk case not the base case. But the clock is ticking.

And just quickly,  the CFTC data

I want to highlight what I wrote last week again this week;

“…check out the 10 year short coming down. Look out for a short covering rally folks if 2.55% breaks. It could move materially, 2.28% would be my target on a break. That could fuel a big rally in stocks initially. At least until folks recognise what’s caused it”.

As you can see as at last Tuesday there had been a small but not immaterial fall in the net shorts. My guess is next week’s report will show a materially lower net short. The tailwind of this unwind and potential positioning switch to longs could drive the 10 year to my targets articulated above.

US dollar longs are still substantial but history suggests there is more position limits available.

The week ahead

The last week of March could prove mercifully quiet given the lack of data flow. But with multiple speeches from Fed members, RBA assistant governor Kent, as well as the RBNZ decision and a speech from Mario Draghi keeps central bankers front and centre.

Not to mention the price action of bonds and stocks themselves.

Monday we here from the Fed’s Evans (twice I think) in the Asian session, BoJ’s Harada speaks as well and we get Ifo expectations, current assessment, and business climate.  Fed’s Harker is speaking in US time when the Chicago Fed national activity index and the Dallas Fed manufacturing index will be released.

Tuesday, the RBA’s Luci Ellis is speaking early morning Australian time. We also get Kiwi trade, the BoJ’s summary of opinions, Fed’s Rosengren will give a speech and we’ll get the release of the Gfk consumer confidence survey in GUS housing starts Germany.  US housing starts, building permits, Case Shiller, consumer confidence, and the Richmond Fed manufacturing index are all out along with the API crude data.

Wednesday the RBNZ’s interest rate decision is the highlight though rates are expected to be held at 1.75%. Like other central banks it is what they say that is the key. We also hear from the ECB’s Mario Draghi and De Guindos  who both give speeches. US and Canadian trade is out along with the API crude data. Esther George from the fed will speak at the end of the day in the US very early Thursday in Asia.

Thursday sees the release the ANZ business and activity index, EU money supply, industrial, business, and consumer sentiment. The Fed’s Quarles will be speaking while Jobless claims and the latest read on Q4 GDP will be out. PCE data will also be out at the same time be German inflation, a speech by the fed’s vice-chair Clarida, pending home sales, and Kansas Fed manufacturing index.

Friday rounds out the week with Tokyo CPI, Japanese employment, unemployment, industrial production, and retail trade are out. RBA private sector is out along with German import prices, retail trade, and unemployment. UK GDP is out along with US personal consumption, income, and expenditure data along with the Chicago PMI, new homes sales, and a speech from the Fed’s Quarles.

A big week, not as huge as the last, but plenty to chew on just the same. Enjoy.

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution is ONLY allowed with permission. Please speak to Greg McKenna to obtain same.
Copyright © 2018 gregmckenna.com.au, All rights reserved.

[/vc_column_text][/vc_column][/vc_row]

read more
Greg MckennaBond rally and data flow spook traders and investors – McKenna Macro Markets Weekly

Stocks break higher, what’s with that? US dollar slips – McKenna Macro Markets Weekly

on March 16, 2019

Hi folks, welcome to my weekly newsletter. 

This is post is sponsored by SMARTMarkets one of the two brokers I currently have deals with for you to be able to open an account to earn up to a 100% rebate on subscriptions fees – I’ll have the links soon. So it will be free to everyone on the broad list each weekend, normally on a Sunday. 

Don’t forget the Daily Newsletter and Video are behind a paywall now. But if you’s like a trial subscription let me know – it’s not for everyone. But if you want a guide thorough the daily and weekly tumult of markets, someone who’s done it for decades and successfully then I’m sure you’ll benefit. 

Here’s a bit of feedback from a subscriber recently:

“We deal with 20 Banks globally and I get more from your note and video than all of them”

Key Takeaway

Despite the previous week’s bearish engulfing move US markets had a great week of gains. Better than that actually the week saw the Nasdaq and S&P 500 break out of the range highs and push sharply higher.

In many ways it was a curious move given the data was on the weaker side of the ledger which rates, bonds, and US dollar traders noticed and reacted to. Not so the equity market bulls who – fuelled by buybacks, hopes the Fed is on hold for a very long time, and no credible alternative investments chased return. That saw inflows into junk bonds and cash back into stocks.

It’s as if QEInfinity is back on the table – in the US and across the globe – as central banks wax dovish once more having noticed that their paradigm is upside down and growth harder to sustain than weakness in the global economy so investors are betting on lower rates and more stimulus.

That backdrop that supports that renewed stimulus would trouble stocks buyers and perhaps it will in time. But the market weighing machine is now a perpetual motion machine with FOMO and buybacks at least – if not more – important than fundamentals.

The week that was…

Now for the week ahead, let’s dive in.

Key Themes driving markets

Stocks markets rally – the party where no one came….

Even with last Friday’s bounce of levels around 2,721 in the S&P 500 (I missed my TP by less than a point) when I sat down to write last week’s weekly the bearish engulfing candle that was the previous week’s candle suggested that the weakness hadn’t played out fully yet.

Indeed I wrote that even after the bounce that previous Friday, “we are still left with a bearish engulfing candle on the weeklies. Crucially – for my outlook on stocks – it also means the JimmyR trend indicator is still another week away from crossing bullish”.

Early in the week though it became clear that this outlook was wrong. My system triggered a long in the Nasdaq, I bailed on my shorts, and now we find that the S&P 500 has risen – in physical terms – to finish at 2,822 while the futures at 2,829 and around 107/8 points above the previous Friday’s lows.

That’s one heck of a rally given “real money” has largely sat this move out.

Source: FT.com

That the party was raging while nobody came is best exemplified by this chart above from the FT. of course we know that momentum traders have been following and driving prices higher since the lows and it seems clear that buybacks are also a big part of the rally so far.

Source: Twitter

This combination helps explain how – and why – the stock market can ignore the economic fundamentals. Because the rally has nothing to do with them.

But that begs the question when stocks are going to succumb to the inevitable gravity that a slowing US and global economy, weakened earnings outlook, and expectations of a swift trade war settlement which likely need to be unwound will happen.

It could be this next month many say as buybacks fade because of the earnings blackout period. That certainly seems reasonable. But here’s the question I ask myself. Could, fear of missing out, FOMO, replace buybacks. That is could money that is on the sidelines and the risk of underperformance drive cash back into stocks driving them higher until the air finally gets too thin?

The answer is YES.

Reuters reports, “Investors plowed $14.2 billion into global equity funds this week, the largest amount in a year as investors jumped on to 2019’s stock market rally, Bank of America Merrill Lynch said on Friday, citing flow data provider EPFR…U.S. equity funds were the biggest beneficiaries with net inflows of $25.5 billion while emerging markets saw net outflows…European funds also saw $4.6 billion of outflows after the European Central Bank slashed its growth forecasts and signaled a cautious economic outlook at its latest policy meeting”.

And that means that while rhetorically I can’t see any reason to buy stocks my daily system is now long again while the weekly system has been long for 9 weeks (that’s my trading not rhetorical self there).

Crucially, the JimmyR indicator has now switched to long again  can see by the arrows on the chart below.  I’ve talked about what this is a lot. But suffice to say it’s a good very MACRO indicator of overall direction. The funk in December has caused the Bolly bands to open up in a way that I haven’t seen for a very long time which is a warning that we may see more choppyness. But for the moment this stocks market rally may find more support than many think.

As discussed in the dailies, any moves into the 2,675/2,725 region is expected to be very well supported. I’ll update in the dailies as to whether we have a signal that such a move is a foot. Fo r the moment though, price is still pointing higher.

S&P 500 (futures based) Weekly – arrows = JimmyR 15 and 30 ema crosses

The EU’s data flow is now less bad than the data in the US – Implications for asset prices

It had to happen eventually (just because of the construction of the indexes), but the past week has seen the Citibank Economic Surprise Index (CESI) score for the United States fall below that of Europe, Emerging Markets, indeed almost everyone except China.

Now when I say it had to happen because of the construction of the indexes I mean that as data prints poorly so then are expectations re-calibrated such that the data eventually stops missing expectations. What had been remarkable was that EU data was so weak for so long.

That told us just how poorly the EU was performing economically. So it was no surprise to me or you dear readers that the ECB turned tail and is now trying to figure out how to restimulate growth and still claim it has done a back flip with a full twist.

Anyway the ECB did pivot, the Euro did fall and the USD rise, EU stocks have lagged the US for a bit, but now that the US data is worse than expected and the EU data is starting to be less bad what does it mean?

For the US dollar (in DXY terms and more broadly – right hand side of the chart below) the data flow looks to be a negative that could see the greenback lose a couple to a few percent from where it currently sits. In DXY and Euro terms that might see prices head toward the bottom and top of the respective ranges we’ve been trading in over the past few months.From a stock market portfolio the divergence between the S&P 500 and the data flow has been stark. While these charts are 12 week rate of change and thus the Stock component (LHS of the chart above) reflects the big bounce from the very week December period it is easy to see why real money has been leery of buying back into this US stocks market rally.

That’s the battle between our (my own) rhetorical or fundamental selves and our trading and signal based selves. For the moment the traders are winning.  

Looking at the Euro and USD directly we see they both have reversed off important levels over the past week.

In the USD Index terms that level is 97.70/90 which is both the multi-month range top and the 61.8% retracement of the big fall to the 2018 lows. It’s a solid level and the eventual break I expect will be decisive. But for now it’s a nut too hard to crack – and the data suggests it might remain so for a little while yet. That may put 95.00 perhaps even 93.70 into the frame first.

USD Index (DXY) Weekly – TradingView

For the Euro the level was 1.1185 which as the 61.8% retracement of the big rally into last years highs is analogous with the 97.70/90 region in the DXY. An eventual break below there – which I expect – will drive EURUSD toward 1.08/09 perhaps even 1.03/04.

For the moment though it too is a macadamia nut fresh from the tree.  That puts 1.14, perhaps even 1.1520/70 back in the frame. Either way it appears a period of consolidation/pullback is in the offing for the USD and thus for many pairs against the USD.

EURUSD Weekly – TradingView

Bonds don’t believe the hype…does that matter?

Looking at bonds then it is important to both note we should not ignore the signal they are sending about cross asset values but equally to recognise that – for now at least – the 10’s are still in the “Goldilocks zone” I have been talking about all year.

To reiterate what I have been saying in my daily spot positioning thoughts for many, many weeks now, “Bonds are in a 2.55%-2.82% range a break either side would be a very important signal for markets more broadly. Holding below 2.82% is a bullish sign for risk assets . But if 2.55% range low were to break that would be a bad signal for risk assets. Above 2.55% for the 10’s is kind of Goldilocksy. Watch this though. 10’s are telling us something right now.”

So, we’re not there yet. Not quite anyway.

US 10 year Treasury rate – TradingView

But again, it is clear in he flow into junk bonds over the past week or two, in the new money coming into stocks, in the bounce in oil, and the price action of the S&P 500 and junk ETF that bonds are telling a very different story.

And this is why a host of real money is on the sidelines. Bonds are likely to be right. But with the hope of more stimulus coming for stocks they may elevate first. But then….

10 year Treasury rate(black), JNK ETF (purple), S&P 500 (blue), and WTI (red) – TradingView

Theresa May – Monty Pythons Black Knight or a Machiavellian strategist?

Those of you who have been reading me for a while that I have been bashing the “Pommie Pollies’ for the ham-fisted way in which they have been handling the Brexit negotiations with the EU and then in the Commons itself.

You’ll also recall that last year when we saw Mrs May’s deal and everyone was up in arms I suggested that she may have just found the right mix that could pass because in pleasing no one really she’d struck the middle ground.

Much water has flowed under the bridge since then and the theta on my calls has steadily decayed. But, there is a growing school of thought that perhaps Mrs May just might have snookered her opponents – at home and in the EU – such that with the time constraint and bookends of a hard Brexit and the EU parliamentary elections she has finally focused attention on both sides of the Channel that a little compromise wouldn’t hurt.

Source: Twitter

To that end in the Bloomberg opinion piece referenced in the tweet above Mohamed El-Erian argues in a  that, “to many, this week’s handling of the Brexit saga by the British government has appeared chaotic and inconsistent, leading some to predict the demise of Prime Minister Theresa May’s leadership and the risk of the UK stumbling into a disorderly Brexit. That is certainly a possibility. Yet game theory suggests that, with external constraints starting to bind a lot more, the government could well end up using a strategy that allows it to outmaneuver its critics, both within and outside the UK”.

I must admit that I both agree with him and that equally I have been so focused on the ineptitude of the Pommie Pollies that this notion had receded to the back of my mind recently.

So it is something I have not been articulating but El-Erian is right when he says, “with many European officials likely to oppose UK participation in the elections, the prospects of a disorderly hard Brexit essentially imposing itself will prove very threatening to British politicians on both sides of the argument. In other words, a May-proposed deal that includes some further EU concessions will certainly still not be optimal for them but will be better than being widely blamed for the alternative. And Brussels would go ahead, also fearing the alternative”.

It’s an interesting take. GBPUSD is already better bid than it was a couple of week’s ago and this week got near the 50% retracement of the Brexit high/low at 1.3400. If it gets through there we’ll be talking about 1.37 maybe 1.40.

But to do that we need more than the UK parliament voting to take no-deal of the table. We actually need that to happen. Brussels will be crucial.

And just quickly,  the CFTC data

Not a lot of movement from  speculative community over the past week. But check out the 10 year short coming down. Look out for a short covering rally folks if 2.55% breaks. It could move materially, 2.28% would be my target on a break. That could fuel a big rally in stocks initially. At least until folks recognise what’s caused it.

The week ahead

Plenty of central bank meeting this week with the Fed on Wednesday and the SNB and bank of England Thursday the highlights. We also see some meetings in EM Asia as well.

Monday kicks off with Japanese trade data before EU trade stats are released later in the day. The Buba’s monthly report isn’t usually that exciting but what they say about the outlook might get some attention. Canadian portfolio flows and US NAHB index are also out.

Tuesday we get the Westpac consumer survey in NZ – my heart goes out to all my readers across the Tasman, what that bastard did Friday at prayers is unspeakable. But of course we must speak against it. In Australia we get a speech from RBA assistant governor Chris Kent on Bonds and benchmarks. Sounds a bit dry so shouldn’t move the markets. We do get the house price index and the minutes to this months RBA board meeting are out.

Swiss and French trade are out along with UK employment and unemployment data, the ZEW survey is out in Germany and the EU while in the US it’s factory orders and then the API data at the end of the day’s trade.

Wednesday’s fare is dominated by the Fed meeting, decision, statement, dot plot projections, and press conference. But before that we get Kiwi current account, the Westpac leading index for Australia, minutes from the BoJ meeting last week, and a speech from assistant governor Michele Bullock at the UDIA – given that forum she may touch on housing.

German PPI and UK inflation – RPI, CPI, PPI – is out as is the EIA crude inventory data.

Thursday is HUGE in the antipodes with Kiwi GDP and Australia’s employment data out. Unsurprisingly for employment the forecast is 15k and a 55 unemployment rate. But there are whispers of negative prints so watch out. The SNB is out with its decision as will the BoE a little later on. We also get UK retail sales, US jobless claims, and Philly Fed index.

Friday sees the release of Japanese inflation data and it is also Markit’s second biite of the marketing cherry with the release of the “preliminary” PMI’s in Japan, Europe, the US and across many jurisdictions. Good marketing, poor practice – why release partials like this a week before the actual numbers unless it’s just for marketing and to move the markets and get folks talking about you in the press.

Anyway, climbing down from the high horse, we also get Canadian retail sales and BoC inflation data. Existing home sales are out in the US along with wholesale inventories and CFTC data.

A big week, not as huge as the last, but plenty to chew on just the same. Enjoy.

A big week, not as huge as the last, but plenty to chew on just the same. Enjoy.

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution is ONLY allowed with permission. Please speak to Greg McKenna to obtain same.
Copyright © 2018 gregmckenna.com.au, All rights reserved.

[/vc_column_text][/vc_column][/vc_row]

read more
Greg MckennaStocks break higher, what’s with that? US dollar slips – McKenna Macro Markets Weekly

Stocks swoon, bonds rally, and the trade war gets sticky – McKenna Macro Markets Weekly

on March 10, 2019

Hi folks, welcome to my weekly newsletter. 

This is post is sponsored by SMARTMarkets one of the two brokers I currently have deals with for you to be able to open an account to earn up to a 100% rebate on subscriptions fees – I’ll have the links soon. So it will be free to everyone on the broad list each weekend, normally on a Sunday. 

Don’t forget the Daily Newsletter and Video are behind a paywall now. But if you’s like a trial subscription let me know – it’s not for everyone. But if you want a guide thorough the daily and weekly tumult of markets, someone who’s done it for decades and successfully then I’m sure you’ll benefit. 

Here’s a bit of feedback from a subscriber recently:

“We deal with 20 Banks globally and I get more from your note and video than all of them”

Key Takeaway

Markets got a real sense that president Trump is trying to hard to goose stocks and is desperate for a trade deal last week. China seems to have as well and is pushing back. Throw in Mario Draghi and the ECB’s outlook for EU growth, the continued China slowdown, OECD downgrades, Australia’s poor GDP performance, and the consequences were inevitable

Stocks swooned and bonds across the globe caught a bid tone.

That oil defied that tone is interesting, that gold and the yen waiting till Friday’s awful non-farms to catch a bid was remarkable, that the USD still had a really positive week seems surprising – except that it’s still the least ugly duckling in forex land.

Now for the week ahead, let’s dive in.

The Week that was….

Key Themes driving markets

President Trump is trying hard to goose the market even as China pushes back on trade deal terms

Last weekend I tweeted that president Trump was trying too hard. He’s too invested in stock prices as an arbiter of the success or otherwise of his presidency.

That makes him vulnerable on two fronts. First his protagonists – like China in the trade battle – will see this as a weak spot and exploit it. Second, it is making him talk to much and seem desperate to get the trade deal done which makes him vulnerable politically and vulnerable to the market completely ignoring him when he talks.

Friday’s comment by the president that (my bolding), “as soon as these trade deals are done, if they get done, and we are working with China, we’ll see what happens, but I think you’re going to see a very big spike,” in markets is just the last in a long line of comments seeking to try to move the markets.

“If they get done” though is the operative word.

Even the White House’s version of Dr Peter Pangloss  – Larry Kudlow – was, I would say, more circumspect than he’s been portrayed in this interview with Bloomberg it gets interesting a little after the 5 minute mark.

But he does say the president could walk away.

And that is something the Chinese are wary off as I highlighted in my daily notes last week.

The latest update from Bloomberg is that, “China Warns U.S. That Trade Deal Enforcement Must Be ‘Two-Way’” Vice Commerce Minister Wang Shouwen said over the weekend any enforcement measure must be “two way, fair and equal”.

Which is exactly as you’d expect. China s=would never accept being a vassal of the US by accepting one way enforcement mechanisms. More important though is that China continues to highlight that any deal has to be two way, middle ground, fair and equal and so on.

More tellingly though is that the very structural issues the US – Mike Pence, the USTR, and Kudlow in that Bloomy interview link above – are pushing for don’t get a mention in China comments.

Indeed Wang’s comments above and a South China Morning Post report Saturday where  Xiao Yaqing, chairman of the State-owned Assets Supervision and Administration Commission (Sasac) says, “State-owned enterprises are independent market players. They are self-operated, self-financed, self-sustained, self-disciplined and self-developed” screams PUSH BACK.

So it’s starting to feel like we have come a bridge too far. And with President trump having walked away from North Korea’s Kim Jong-un  in Hanoi is it any surprise that China is leery of sending President Xi to the US only to have trump walk out?

Apparently it’s what Clinton did to Zhu Rongji back in the 1990’s over WTO. It didn’t play well at home.

So where are we?

Less certain a deal will get done anytime soon. And even less certain that it will be able to hold markets up when the global economic backdrop continues to weaken.

USD Range reinforced by a disappointing non-farms print

I’ll get to stocks in a sec.

But first I want to talk about the USD which just couldn’t break resistance again after February non-farm payrolls missed by a mile with a 20,000 print Friday. Markets had been expecting 180,000 new jobs.

Balancing out the miss was the increase in wages to a 3.4% annual rate, the fall in unemployment to 3.8% and the fact that over the previous 2 months the US economy is reported to have produced 538,000 jobs.

USD Index (DXY) Weekly – TradingView

But it was a bad enough miss to halt the US dollar’s rally in its tracks. In DXY terms it still can’t break 97.70/90 which is both the recent range top and the 61.8% retracement of the 2017/2018 fall.

A break above there and we’ll be talking about 100/101 in DXY terms.

Likewise though Euro traded mildly below the 61.8% retracement level of the big move to last year’s highs which comes in at ~1.1185.  As you can see on the chart below though the bias still looks to be lower in time.

EURUSD Weekly – Trading View

The question is how is the reaction in Euro and thus other currencies against the USD is. Friday was an inside day, so that actually doesn’t tell me anything.

So I’ll stick with my system which is short Euro on the Dailies and is looking to now short on the weeklies.  resistance looks to be around 1.1330/50 fr the Euro.

And it is worth noting that the USD had a very strong week against EM forex, the Singapore dollar, the CAD – even after Friday’s bumper jobs report and reversal – and a host of other currencies.

But the ranges and important levels have been reinforced – so we might need a reaction before the USD eventually breaks. But when it does…

Even with this slowdown the US economy and the US dollar are still the least ugly duckling.

Stocks need to find support

A momentum, liquidity, and holiday capitulation in stocks in late 2018 gave way to a momentum, low participation (real money) rally in 2019. Roughly 20% down and then back.

So given the drivers of the selloff and rally it is no surprise that as momentum faded and as the talk of stickiness in negotiations and China push back against US demands has grown that stocks in the US – and thus across the globe – have pulled back.

Friday’s bounce back from the lows was impressive – I missed my TP but under 1 point :S – but we are still left with a bearish engulfing candle on the weeklies. Crucially – for my outlook on stocks – it also means the JimmyR trend indicator is still another week away from crossing bullish.

S&P 500 – TradingView

Bearish engulfing on the weeklies, dailies pointing lower – that suggests stocks need to fall to levels where real money buyers might find value.

We’ll only know that ex-poste but some levels to watch are 2,700 which is the first – 23.6% – line of Fibo support from the 2018/2019 bounce. Below there it is the 2,625/30 region as the 38.2% level which, to me at least, is most likely to attract real money flows as stocks approach that region.

Why? Because if I abstract the liquidity/holiday funk the range was 2,600 – 2,825 approximately before the December funk. So back toward the bottom of that range and given the strong bounce my guess would be money managers might exhale a sigh of relief and start putting money back to work.

In the meantime I’ll update the dailies during the week. At present I’m still short on this basis.

Bonds suggest that stocks are still going to struggle

You know global growth is doing well – NOT – when you have a synchronised rally in global bond rates.

German 10’s ended the week at just 0.075% – that’s the lowest weekly close since October 2016. This rally in bunds is indicative of the reaction in global bond markets to the renewed and accelerating economic weakness.

US, German, UK, and Australian 10 year bond rates

Of course those rates are rallying because the data has been truly awful recently relative to what the market was expecting. [Please note I’m not sure why the Citi ESI for Australia is higher after recent data flow].

So, with US 10’s ending the week at 2.62%, with oil’s rally stalling recently you have to ask the question. Can stocks elevated levels continue to hold?

US 10’s(black), CLc futures(red), and S&P 500 futures(blue) – TradingView

For me at 2.62% the US 10’s don’t actually threaten the overall rally. Certainly that level suggests a pullback. But I’ve labelled the 2.55% to 2.82% region the “Goldilocks” zone.

That is, a break either side would be a very important signal for markets more broadly as it would describe an economy either a little hot or too cold.

Holding below 2.82% is a bullish sign for risk assets . But if 2.55% range low were to break that would be a bad signal for risk assets. Above 2.55% for the 10’s is kind of Goldilocksy.

But watch out if 2.55% breaks – as it is stocks need to dip a big based on this analog anyway.

And we are finally back up to date on the CFTC data

Finally, the CFTC is now up to date. Woo Hoo!!!

But what’s it mean when we look at the positioning data for the large specs I watch in the markets?Big money likes the USD is probably the key takeaway, though the history of the last few years shows there is still plenty of position limits available to get even more short if we see the big levels mentioned above break.

The short on 10’s is noteworthy as well given what I’ve written in the section above – watch 2.55% folks.

The week ahead

Don’t forget the clocks change in the US Sunday so you’ll need to adjust you timing on when the market opens and closes. For me it’s halfway to my preferred timing with the stocks markets close now 7am my time from 8am…soon it will be 6am, but not yet.

That timing difference makes the writing of the daily note and running of systems so much easier…ANYWAY.

Monday kicks off with Kiwi credit card spending data, nothing of note in Australia and we’ll be waiting for the Chinese data on New loans and M2 growth to see whether the PBOC is still manning the monetary pump. Japan has machinery orders and Germany releases industrial production and trade data – should be interesting.

So too will US retail sales data for January after Friday’s non-farms. Business Inventories are also out.

AND DON”T FORGET – Fed Chair Jerome Powell will be on US 60 minutes during Asia trade Monday.

Tuesday sees the latest round of home loan and investment lending data in Australia and the ALL IMPORTANT NAB business survey. Chinese FDI is out as is UK manufacturing and trade data. In the US CPI will be worth a look but so too will the NFIB business optimism index.

Wednesday sees the Westpac Consumer Sentiment data in Australia which with the previous day’s NAB survey will give a good read on whether the hand wringers or the RBA is right. I’m with the hand wringers.

the Kiwis have theor food price index out, Japanese machinery orders will be released, EU industrial production and then US PPI is out. US Durable goods will also be released and will be an important gauge on where the economy sat as we entered 2019. Construction spending is out as is the EIA crude data. The UK budget will be released as well.

Thursday’s data is dominated by the triple treat in China with the release of retail sales, industrial production, and investment data for February. It’s a big release, especially for risk assets and the Aussie dollar.

German and French CPI is out also Thursday along with the jobless claims and import and export price releases in the US. Canada has new housing prices.   while the US has new home sales.

Rounding out the week Friday sees the release of the latest decision and thoughts from the BoJ on interest rates. Board members and governor Kuroda have been battling in public lately, so it’s mostly but not exclusively a non-event. EU CPI is out later in the session and then we get US industrial production and capacity utilisation for Feb along with January Jolts and Michigan consumer confidence.

A big week, not as huge as the last, but plenty to chew on just the same. Enjoy.

Greg McKenna
@gregorymckenna on Twitter
In collaboration with SMART Markets

The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution is ONLY allowed with permission. Please speak to Greg McKenna to obtain same.
Copyright © 2018 gregmckenna.com.au, All rights reserved.

[/vc_column_text][/vc_column][/vc_row]

read more
Greg MckennaStocks swoon, bonds rally, and the trade war gets sticky – McKenna Macro Markets Weekly