Market Weekly

Buy Stocks Wear Diamonds – McKenna Macro Markets Weekly

on November 17, 2019

Hi folks, welcome to my weekly newsletter 

To sign up for this report weekly click here

Interested in a trial of the daily subscriber service to get words, charts, ideas, and system positions on markets each day you can sign up here for a trial

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

I’m pretty sure this little exchange between two fellows I follow closely on Twitter and who’s work I’ve been watching for years is indicative of how many feel after the S&P 500 finished the week at a record close of 3120.46 and the Dow crossed the 28000 mark for the first time at week’s end to close Friday at 28004.

Source: Twitter

Many on Twitter are incredulous at the price action – raging against the move higher which they appear to see as anathema to their sense of where things should sit if not for the obvious, and directed decision, of the Trump Administration to continue to talk makrets higher via trade. No Peter Navarro this week, no he’s been relegated to the back benches as larry Kudlow and Wilbur Ross were trotted out to spin positively.

The message? Buy stocks where diamonds – this is the greatest US economy ever.   

We know that not to be true. The US economy has clearly decelerated over the past year. But the Fed is right when it continues to tell us – as many fed officials have been want to do in the past couple of months – that Economy USA is “in a good place”. Consumers doing okay, jobs market still reasonably strong, even as manufacturing struggles – ahhh, the service and consumption-based economy, a joy to behold.

[My thesis, FWIW, is the reshaping of developed markets economies into service/consumption lead generates lower growth but also the lower amplitude of growth. So more stability, less frequent booms and busts, longer periods of expansion, and overall lower inflation through time.]

Back to stocks then and in the same way as the hand-wringers who were calling for a recession last year or at least by now in 2019 have had to rework – or at least retime – their hypothesis so too those who thought a redux of equity market weakness was coming [like me back in October] have had to rework that thought.

Indeed, as the CNBC headline said of the latest BAML fund manager survey during the week, “Fear of missing out on a rally replaces recession worry in the most widely watched investor poll”. Via the article (my bolding): 

Michael Hartnett, chief investment strategist at Bank of America, also said that manager global growth optimism surged by the most in 20 years to 18-month highs, a sign investors expect better manufacturing and profit numbers worldwide.

“The bulls are back…global recession concerns vanish and ‘Fear of Missing Out’ prompts wave of optimism and jump in exposure to equities & cyclicals,” Hartnett wrote in a note to clients. “We say…easy part of rally over, tougher part of rally beginning…but rally it can as no ‘excess greed,’ there is ‘excess liquidity’ (and trade/fiscal easing), and corporate earnings set to accelerate.”

No wonder the latest Kudlow goosing attempt Friday found traction with the buyers and the big option level of 3100 gave way.

I may sound hard on the rusted-on bears, but as Juliet Declercq told Eric Townsend on a Macrovoices AllStars Podcast last week – it is the loudest handwringing shouters [I’m paraphrasing] who seem to attract the most coverage and followers while the more even-handed and even-tempered folk are left in their wake.

Apparently making money isn’t the key consideration any more – it’s clicks and likes :S

Oh, and Juliette is one of the sharpest out there and only has 8300 odd followers on Twitter – it’s a travesty, go follow. Here is here Twitter handle @JulietteJDI

I myself am glad that in writing on markets almost every day for decades I’ve been able to develop a strategy where I exercise my rhetorical self and give it voice but it’s my trading self – THE ONE THAT FOLLOWS THE PRICE ACTION – which has the most influence on my positioning.

Indeed since I put out my “A risk management approach to Markets right now” after releasing my thoughts to paid subscribers the day before the S&P 500 is up 6.21%. Yes I still have a pile cash in my account, unfortunately, and yes I’ve rolled the delta back down consistently as price has risen in the S&P 500 and global stocks – but I’m comfortable I’m hedged in my superannuation account where my rhetorical self invests.

Positions and orders as at 13.10 pm Sunday, November 17 Sydney time

My trading self though, as you can see in the positioning is long stocks and the Jimmy R has been long for some time – since early March this year at levels around 2800.     

S&P 500 Physical Weekly – TradingView

So, in a trading sense even though the stall in price below 3100 in the S&P 500 and overall in some other indexes generated some sell signals on the daily MACD system last week they were not triggered by price and the longs remain intact for the moment.  And while the 15 ema – my short term trend indicator – is at 3073 and chasing the price higher, while the S&P 500 price stays above it the uptrend remains intact.

S&P 500 Physical Daily – TradingView

But clearly this trade in stocks in the US and around the globe is highly geared to the FOMO which is in turn associated with the Phase 1 trade deal. BAML’s Michael Hartnett said in the survey note that investors still said “trade war” as the biggest risk to this rebound in stocks. But, like me I guess, they thought a “trade truce” can be enough to keep stocks grinding higher. 

Troublingly though it does appear the “tariff rollback” on the US side of the trade war that China continues to request and the US President seems to resist has changed the narrative on the Phase 1 talks. You can see that – assuming I’m not overreading things – in a Xinhua story Sunday where the Chinese news site says:

BEIJING, Nov. 17 (Xinhua) — Chinese Vice Premier Liu He, a member of the Political Bureau of the Communist Party of China Central Committee and chief of the Chinese side of the China-U.S. comprehensive economic dialogue, held a phone conversation at the request of U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Saturday morning.

During their talks, the two sides had constructive discussions on each other’s core concerns in the “phase one” deal, and agreed to maintain close communication.

That seems to be a long way from the signing of the deal that seemed to be in train a few week’s back – before Navarro and Trump pushed back on Tariff rollback.  

So, where does it leave us?

As always a very good question.

The reality is that for the umpteenth day, week, and month in a row we are at risk, or reward, from the trade war and where talks head. My sense is still that it is in both sides interests for a deal to be done. China is struggling economically and President Trump needs to square away agricultural purchases so he doesn’t have to spend too much time, energy, or money in those states he carried last time and would hope that purchases retore to his side in the 2020 election.

That said, Barrack Obama’s intervention in the 2020 Democrat campaign screams volumes about the drift to the left and the unelectability that may come with it for the Democratic candidate. So maybe President Trump will again do better than we all think possible – as candidate trump did in 2016. 

Whatever the outcome, this President sees the stocks market as integral to his narrative and he’ll do all he can to keep it elevated over the next 11 and a half months till that first Tuesday in November 2020. They used to say “don’t fight the Fed”, maybe it should be adjusted to “don’t fight the Donald”????

[Here’s a tip though, if you see the Russell 2000 close above 1610 on any day, and especially on a week, you’ll know stocks are going higher across the board. Perhaps substantially so.]

Now, it’s clear when you look at copper at just $2.63 a pound, or the US 10 year bond at 1.83%, or the Aussie dollar at 0.6819 that the positivity – or at least FOMO – on display in US and other stock markets is currently lost on other assets when it comes to any real and genuine expectation about a bounce in the global economy. That makes sense global weakness is about more than just trade wars.

You can see that in the still crook state of the Citibank Economic surprise indexes for the globe, G10, Emerging markets, and especially China – though Europe’s economic surprise index is climbing back toward zero from deeply negative levels just a month ago. Maybe that’s an important part of the Euro’s bottoming right on the 61.8% retracement level of the recent rally near 1.0995.  1.1060/70 and then 1.1110/20 which is the key. 

EURUSD Daily – TradingView

In so many ways there are not a lot of catalysts other than trade this week till Friday’s release of the flash PMI’s around the globe. We’ll have RBA and Fed minutes, a few speeches from central bankers, but we are likely to be dominated by talk of trade.

And, as Larry and Tom highlighted at the very start of this week’s piece. Price is everything right now, for some it always is, but in the echo chamber of Twitter and momentum following style that myself and others use as our trading selves, it is going to be key to the outlook. For the moment – and unless or until the trade truce breaks down – dips seem likely to be well supported. That means bonds should drift a little higher, gold will face resistance, the Aussie should do okay, the Euro too, maybe even teh Yuan and Sing dollar too.

Now. it’s worth noting my “buy stocks wear diamonds headline was facetious”, it echoes what a sales guys used to say to me about selling the Aussie dollar a couple of decades back. So, unless we see copper back up and through $2.73 we’ll know regardless of the rally in the US and other stocks many traders just aren’t buying the narrative.  

Have a great week.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter

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 © 2019 gregmckenna.com.au, All rights reserved.

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Greg MckennaBuy Stocks Wear Diamonds – McKenna Macro Markets Weekly

Peter Navarro Fights Back – McKenna Macro Markets Weekly

on November 10, 2019

Hi folks, welcome to my weekly newsletter 

To sign up for this report weekly click here

Interested in a trial of the daily subscriber service to get words, charts, ideas, and system positions on markets each day you can sign up here for a trial

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

Short and sharp this week as it’s Sunday but my usual time to write this piece has been truncated by my presentation at a conference in a couple of hours.

Specifically though, while we have Larry Kudlow and even Wilbur Ross intimating the Phase 1 trade deal will be signed shortly, the Chinese talking bullishly about a deal and the chance of tariff rollback, and while the press hounds chase source after source on both sides of the trade war, it seems that trade hawk Peter Navarro is mounting a rear-guard action to stop any tariff rollback at this point.

He told Yahoo explicitly on Saturday that rollbacks were not part of the October handshake agreement on the Phase 1 deal and China was suggesting things that’s weren’t agreed. That he felt the need to publicly out himself when he was clearly the source of the story to that effect earlier in the week suggests that momentum was growing in the White House to move in this direction. And he’s clearly got to President Trump as well because he said at week’s end that stories to the effect that tariffs would be lifted were incorrect. 

As I tweeted Saturday morning my time before the close after President Trump’s comments and Global Times EiC Hi Xijin’s tweet, that stocks and bonds held up into the week’s end was somewhat remarkable. 

Source: Twitter

Folks this is not a good twist in the otherwise positive tale on the trade truce and will remind traders of what happened in May when China seemed to overplay its hand and the whole trade deal fell apart and tariffs got ramped. Remember at that time:

The S&P lost more than 200 index points.  

S&P 500 Physical Daily – TradingView

And US 10 year bonds rallied around 50 bps to 2% or thereabouts. 

US 10 year Treasury Yield Daily – TradingView

Naturally, the question is if markets are placed in a position to see these types of moves repeated.

In the first instance, the answer has to be yes. New record highs for the S&P 500, which has encouraged traders to bet against a volatility breakout in a classic pro-cyclical move which really does put the market at risk from a mini [or large] Volamageddon in the first couple of days of the week – till of course we get duelling headlines again saying it’s all good.   

Source: ZeroHedge Twitter Account

But of course we know that money has been flowing into equity funds again after rushing out for much of the year. That in itself is a bit of a red flag if the Navarro line gets traction.

The FT reports:

Source:FT

Mutual funds and exchange traded funds that invest in global equities attracted $7.5bn for the week ended Wednesday, according to EPFR Global.

The inflows help explain a surge in equity markets that led the US S&P 500 index to new highs this week and the FTSE All World back near its 2018 record. Investors responded favourably to reports that the US and China could remove some tariffs in a partial trade deal currently under discussion. 

And of course, there is the non-QE injection of cash into the system from the Fed which seems to have coincided with the bull move in stocks in the past 5 weeks or so.

Source: Twtitter

So, where does it leave us?

That is a very good question.

Rhetorically I still have a substantial cash balance ready to put to work in stocks on the next big pullback. That was hedged at the beginning of October with call options that I have rolled back down in terms of the delta as the convexity of the moves higher increased the delta on the option.

So I’m covered to a move higher, but at a relatively lowish delta again [as an aside, this is a method of trading equity options I was taught back in the 1990’s when I had a cash, bond and currency fund at State Super and used to sit next to the funds Equity Options guy. One of the smartest people I have ever worked with – and a great bloke to boot].

Bond wise I’ve been gagging for the move into the 2.00/2.12% region to unhedge the cover on my bonds and get a little longer. I haven’t done that yet.

The key for me is that last week’s price action for the S&P 500 (using it as the bellwether) was both troubling and encouraging. Troubling because I hate the look of those 5 candles and feel like a retest of the break and the 15 ema on the dailies – 3060 and then 3042 respectively – needs to be made and then we’ll see on the strength of the short term uptrend…but I like prices low for a retest to here. 2985/90 is support on the weeklies.

The encouraging bit is the price action at week’s end in the face of these negative trade comments. It is clear that markets have swung from not thinking a deal could happen to expecting one to happen even with these comments. But frankly, that in itself is problematic as the VIX positioning highlights.

So, in the end, I’m going to say I expect to see stock prices, and bond rates lower to kick off the week. That will impact gold and silver and risk assets like the Aussie and copper, oil too.

Then we’ll see. It’s not a great feat of analysis to say that it all depends on competing comments and stories, but unfortunately, this is Trumpland now and the old rules are less relevant in the immediate time frame of days or a week.

Longer-term it has been and will remain about the global growth outlook. Trade is a big part in that outlook and sentiment toward it. So, we watch this space.   

Have a great week.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter

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 © 2019 gregmckenna.com.au, All rights reserved.

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Greg MckennaPeter Navarro Fights Back – McKenna Macro Markets Weekly

Still fighting the move higher? You might want to rethink that – McKenna Macro Markets Weekly

on November 3, 2019

Hi folks, welcome to my weekly newsletter 

To sign up for this report weekly click here

Interested in a trial of the daily subscriber service to get words, charts, ideas, and system positions on markets each day you can sign up here for a trial

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 suggestion that the increase in cross-asset correlations but not of gold meant it might be time to break out the champagne proved right with the S&P taking out the resistance line of what many saw as a megaphone top to end the week at 3066. Of course – and subscribers know this – the key was that the US economy again showed a level of resilience which underpins both the Fed’s constant assertion America’s economy is a “good place” and my own assertions the hand-wringers have been off the mark for more than a year now.

Who’d-a-thunk I’d see myself lining up with the Larry Kudlow view of the world but, as he reiterated again to Jonathan Farro on Bloomberg Friday, the Household Survey is still suggestive of further gains in US employment. He also suggested the 128,000 print in non-farm payrolls was actually more than 300,000 and a blow out when you add the 90,000 in revisions to the previous month and adjust for the GM strikes impact. I know, I know, he makes my version of Pangloss pale into transparency compared to his. But is he wrong?

The Fed doesn’t appear to think so, as Vice-Chair Richard Clarida made clear Friday, also on Bloomberg. If you haven’t had a chance to see the or hear the interview you should catch up with it – here’s a link to the page it’s on. Oh, and Kudlow, among others in the Administration, said Friday that the trade truce is playing out well and the likelihood of agriculture and finance being sorted out is high. So phase one is on track.

No wonder the S&P 500 finished at a record high! 

The Week that was…

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

Key Themes driving markets

Correlations still working toward a positive breakout

last week I highlighted that my cross-asset correlation work – specifically the absence of gold in terms of high correlations – suggest we were going to see a risk on, not the usual risk-off that we oftentimes see when things tend to correlate to +1 or -1 across assets. You can see that as at Friday cross-asset correlations are still very Christmassy but that gold (together with the Swissie and Crude oil) are still marching to the beat of their own drum on a day to day basis. 

The extent of green and red shows the correlations of =/- 0.75 and above

This is different to usual folks and I still hold the point I made last week that “on this occasion, my sense is that the path of least resistance (maximum pain) might actually bond rates, stocks, and risk appetite higher”.

Now bonds had an interesting week insofar as the 10’s in the US, Germany and beyond actually reversed sharply intra week with the US 10 – for example – ending ~7 points down on the week at 1.728%. Interestingly though that close Friday was actually ~12.5 points from the high of the week and a very solid rejection of downtrend resistance. We have to respect these kinds of levels – as the McKenna Mantra says – unless or until they break. 

US 10 year Treasury Yield Weekly – TradingView

With the S&P 500 US 10’s yield daily correlation around 0.81 at the moment, the chance has to be that if this lift in equity sentiment holds then bonds will certainly have another pop at the trendline and this time the chance of a break is elevated.

It’s worth highlighting that my view stocks would be lower started to change in late September and then in very early October I issued a piece to Paid Subs and then repeated it a day later to Indeed, earlier this month I published “A risk management approach to Markets right now” where I highlighted that the balance of risks given where the market psyche was at was to own stock calls and bond puts.

A big part of the story for me was and remains market positioning – the absolute flow of money from stocks into bonds and the risk that the US and China may indeed pull a rabbit out of the hat and put a trade deal together. The last part of that seems to be occurring, Brexit seems to be happening too, and the resiliency of the US economy is there for all to see – not to mention a NOT terrible earnings season.

So, as it stands I was dead wrong about the equity market a few months back and am glad I figured out I needed to hedge the cash I want to put into the market with stock calls. The S&P is up about 125 points since I first wrote that and while I’ve rolled the delta back and taken some money out of the market I’m still covered.

That’s particularly poignant when a market doyen like Peter L Brandt says maybe the S&P 500 is headed to 3524….3524 folks.

Source: Twitter

Now of course my positioning in the trading systems – not my pigheaded rhetorical self – is that the JimmyR has been long since March and around ~2750, the MACD daily has been long since October 10 (the same day I told paid Subs it was time to risk manage), and the weekly MACD got long a week later.

As at 11.32 am Sunday, November 3 Sydney time

So, PLB might be right, upward pressure might remain. Especially if money comes into the market and the push from both sides of the trade deal that things are moving in the right direction continues. That’s a point Kudlow made on Bloomy Friday that sets this apart from previous moves toward a deal…Chinese spokespeople seem to be on board. To wit, U.S., China reach consensus on principles after trade talks: Xinhua.  

Bonds, on the other hand, have been pretty much a wash with the US 10 year yield down a couple of points since I sent out my “risk management” piece. That’s interesting in itself and in some ways tells us that the expectation for global growth and inflation is still weak. That may change and bond rates may move higher again if stocks strength persists.

But it also tells us that there will be plenty fighting this rally in stocks. Maybe that’s what teh market needs, nothing like a wall of worry to keep the market bid.

To my charts then and while the JimmyR is pointing higher (weekly 15/30 cross as a trend indicator) it is also worth noting the 15-month ema has been supporting the S&P 500 price on its many dips since December 2018. Remember I believe markets are fractal and as such use exactly the same approach and system on all time frames, even down to the minute – which of course I don’t trade these days, nor hourlies either. So the level to watch as support in November is 2880 on a very long time frame. On the weeklies, it is 2972, while on the dailies at the moment it is 3017.

S&P 500 physical Weekly – TradingView

My own target, based on the weeklies is 3170/80. I know, I know, you think me stupid and I’m sure Mr Market will give me plenty of opportunities to feel so. But things look and feel like they are or have turned. So stay tuned – I’m staying hedged. 

Just quickly on currencies as the USD breaks down

The USD is close to a clean break lower and run to at least the bottom of the channel at ~96.50, maybe 95.85 and if that breaks then the outlook for foreign exchange markets across hte board is going to be very much changed as positions flips, long dollar positions are exited and short everything else (almost anyway) are chased to sqaure and maybe even longs entered.

USD Index (DXY) weekly – TradingView

You’ll know that this positioning piece has been something I’ve been banging on about for a little while now as USD longs persisted even in the face of the turn in many currencies against the Greenback. We are at levels that – to me at least – are very clearly close to triggering stops and exits.

You can see the positioning in the CFTC chart below.  

EURUSD weekly – TradingView

And you can see in the chart above that like the USD index above the Euro is through the 15 and 30 ema’s and resting on or about the 50 sma. A break through these levels – weekly basis – would signal a bit of a turn in the outlook more broadly. 97.22 is the DXY level while 1.1232 is the level to watch for the Euro. That’s a little bit higher than where the reasonably omnipotent 200 day moving average for the EURUSD sits at 1.1200. Euro has been above the 200-day ma for only 5 days of the past 18 months. So a break would be important, as would another reversal. And if a break of the 50-week sma happens then we might see some decent short covering to drive Euro higher – where I believe it (and many other pairs) will ultimately go against the US dollar.

Here’s the view of one of my favourite Elliot Wavicians (@TTCSteve on Twitter) on Euro. Up, down a bit, up quite a bit and then…look out BEEEEEELLLLLLLLLLOOOOOOOOOOOOOOW.  I tend to concur with that outlook, USD weakness for a bit and a move toward 1.14 initially…then we’ll see how things play out. 

Source: Steve’s Twitter page – pre-NFP

And I can see AUDUSD above 70 cents maybe a few cents higher, USDCNH, below 7 again, the CAD and Kiwi doing better. For a time at least. 

CFTC Data 

We saw some short currencies against the USD positions build a little in the Euro and Yen. But we’ve also seen CAD long positions swell, Aussie short positions cut, Pound too. So overall the USD long is falling. I expect that to continue. 

Source: CFTC, Refinitiv, McKenna Macro

Elsewhere it’s noteworthy the VIX positioning is still getting even more short, while gold is getting longer and US10’s shorts are growing again. That’s fairly bullish for risk appetite set of circumstances there. And remmber I’ve been saying for over a year now what’s good for the trade war – in terms of descalating – is bad for the USD. That’s what seems to be, or is at risk of, playing out. 

 The week ahead

Ugh, the worst time of year for a daily newsletter writer based in the Sydney Melbourne time zone is upon us. With the clocks change in the US this weekend the stocks close is 8am my time and forex doesn’t click over till 9am. Ugh, Ugh, Ugh….

Anyway, another big week beckons with Australian retail sales for September opening the batting along with ANZ job ads and monthly inflation for Oz. Japan is out and Europ has the release of its manufacturing PMI’s, before US ISM-new York and factory orders.

Tuesday is services PMI day and if these are half decent or not terrible and deteriorating we might be able to say that perhaps the worst is over for developed world growth at the moment. We kick off in Australia and then work around the globe. China will be important, Germany and the Euro Area too, then, of course, we get the US with both the Markit and ISM measures. Tuesday is also RBA day in Australia as well as Melbourne Cup Day. No change expected from Australia’s central bank. Euro PPI is out with US and Canadian trade along with the IBD/TIPP optimism index, JOLTS, and ISM non-manufacturing in the US. API weekly crude is out after the bell.

NZ unemployment kicks things off Wednesday and a little later on we get the BoJ’s minutes to the recent meeting…might be interesting to guage the shift toward dovishness. German factory orders are out in Europe then it is the European services PMI’s. In the US it is non-farm productivity, unit labour costs and EIA crude. Canada releases the Ivey PMI.

  Thursday is Australian trade and Construction PMI. RBNZ inflation expectations are out in NZ while it’s vehicle sales in Japan and industrial production in Germany before the BoE meeting and associated releases. Jobless claims are out in the US while the EC releases growth forecasts.

Finally, Friday is Japanese household spending, RBA quarterly SOMP and home loans data in Oz. German and French trade is out as is China’s trade data. Canada releases its trade data and we get Chinese inflation apparently…which seems weird. I’ll double-check this week. 

Have a great week.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter

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 © 2019 gregmckenna.com.au, All rights reserved.

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Greg MckennaStill fighting the move higher? You might want to rethink that – McKenna Macro Markets Weekly

Positivity is almost breaking out, champagne time? – McKenna Macro Markets Weekly

on October 27, 2019

Hi folks, welcome to my weekly newsletter 

To sign up for this report weekly click here

Interested in a trial of the daily subscriber service to get words, charts, ideas, and system positions on markets each day you can sign up here for a trial

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

Interesting week as stocks climbed a wall of worry but cross-asset moves seem to both confirm and correlate with a better tone in markets at the moment. Will this massive week of data be able to deliver on the promise or will the S&P turn again and take the nascent rally in risk with it? My sense is maybe we might get some positivity for a change. But, as Peter L Brandt would say, that is a strong conviction weakly held. 

But with crude breaking out, copper trying to, stocks better bid and bond rates higher it’s been a week where the positivity of Brexit and Trade talk has resonated. With another few week’s till the Chinese and American delegations meet the rhetoric is likely to be ramped up.

The Week that was…

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

Key Themes driving markets

Mmmmmm…normally when things start to correlate toward 1 I get worried. But this time it might be risk on NOT off where the risk lies

I watch correlations closely because while they tend to ebb and flow when my 30 day cross-asset correlation table gets all “Christmassy” like it is at the moment things usually get a little funky.

I’ve been noting the increase in the number of red and green cells in this table below over the past week or so with my daily subscribers and while it is an indicator that there is a single narrative starting to dominate markets and while that is usually troubli9ng as it suggests fragility, on this occasion my sense is that the path of least resistance (maximum pain) might actually bond rates, stocks, and risk appetite higher. 

The extent of green and red shows the correlations of =/- 0.75 and above

Indeed, earlier this month I published “A risk management approach to Markets right now” where I highlighted that the balance of risks given where the market psyche was at was to own stock calls and bond puts. A big part of the story for me was and remain market positioning – the absolute flow of money from stocks into bonds and the risk that the US and China may indeed pull a rabbit out of the hat and put a trade deal together.

So as the bears continue to rage about President Trump and his teams constant market goosing fake news about the trade deal we had this Friday – U.S., China ‘close to finalizing’ parts of Phase 1 trade pact: USTR. And of course, we have heard positive noises from China too. 

Goodness, even Brexit seems to be finally reaching some sort of endgame – even if it is only the end of the beginning. And not to mention that while earnings season hasn’t exactly shot the lights out, not is EPS anything to get excited about, it’s mostly been better – not worse – than expected.

Source: Twitter

Bonds up, stocks too, even copper is trying to break out 

Is it any wonder then that risk assets are reacting to this period of relative positive news rather than the constant hits of negativity by climbing higher – it’s a wall of worry clearly they are climbing, but whether it’s stocks, junk prices, crude oil, bond yields, copper, and the CNYJPY rate, we are seeing prices rise.

US 10’s (black) v Oil (WTI dark red), the S&P 500 futures (blue), JNK ETF (purple), CNYJPY (red), Copper (orange) Weekly – TradingView

And that supports the positive tone and the risk as you can see in the chart above.

US 10 year bond yields, the CNYJPY exchange rate, and copper are moving – at least directionally – almost in lockstep. Oil seems to have made a recent bottom when the other 3 did, as have the S&P 500 and the JUNK ETF. And, if you look at the correlation table above you see – as at Friday – AUDJPY, one of the original and best measures of risk appetite and risk aversion going around, is highly correlated with 9 of the 13 other markets as at Friday whereas it was correlated +/- 0.75 with only 5 markets the week before.    

No surprise – the US and German 2’s and 10’s are rising then is it?

And as articulated previously my target for the US 10 is 2-2.10% at present, though a break of 1.90% would be a big one. In Germany, my view is we eventually get back to ZERO, but for now, the target is 0.2%. 

US and German 2/10 curves and 2 and 10 year government bond yields – TradingView

Stocks rising toward record but still plenty of wood to chop

Last week’s agnosticism on the S&P 500 and stocks disappeared pretty quickly as the headline to Tuesday’s subscriber newsletter made clear. Friday’s close at 3022.55 is the second-highest weekly close on record. And, whereas the previous weekly close high at ~3025 was constrained by proximity to the megaphone top – or upper resistance line if that’s what it is – that is not currently the case with resistance up at 3061.

So if we see a break and close above 3028 then that would be the target, or thereabouts anyway – 3050/60.  

S&P 500 Physical Daily – TradingView

Clearly not the biggest potential rally ever, and there is plenty of resistance here between 3020 and 3030 before stocks can go for a bit of a gallop. Throw in US Q3 GDP, the Fed, Bank of Canada, Euro Area Q3 GDP, and of course non-farm payrolls on Friday and we have plenty of catalysts for the bulls to either press the advantage or capitulate.

But as you can see in the positioning table below my daily MACD system is long stocks pretty much across the board, short bonds, long both crudes, copper and AUDJPY too. And somehow I’m long gold and silver :S I don’t like that last two. More importantly when it comes to the S&P 500, for example, the JimmyR is still pointing higher and I have orders for this week to buy both crudes, the S&P 500 and Dow, the ASX and FTSE 100 too, and the weekly is long copper – though it’s worth noting it’s still long bonds. 

So the risk is this move has legs folks. 

As at 5.09 am Sunday, October 27 Sydney time

Just quickly on currencies

Ugh, just when you thought the Euro might finally break out the pesky 200 day moving average motors into view and traders turn tail and panic away in fright. Of course, why wouldn’t traders be troubled by the Euro’s 200 day moving average. Price has spent the grand total of 6 days since May 2018 with a Euro close above that moving average. It comes in around 1.1200 at the moment so Euro would need to crack that level to have a chance to kick on. 

EURUSD Daily – TradingView

During the week I’d targetted 1.1060 and though the low for the week was 1.1073 a break of 1.1060 is still necessary to get the next leg lower happening.  

To the DXY then and on a very different timeframe – monthly candles – we see that price fell from the multiyear resistance line but equally has held the 15 ema for the moment. Those who are regular subscribers know I use the 15 ema as the indicator of trend. If you miss a move you can use it to get in as when it is trending price appears to find support or resistance at this level across multiple markets. The DXY closed the week at 97.86 off a low of 97.14 early in the week. Support remains this 96.85/97.00, then 96.00 on the longer time frames while on the DXY daily it is the break level from Friday at 97.70. 

USD Index (DXY) monthly – TradingView

Naturally, to a large degree where the DXY and Euro go so will other forex rates be lead. But if we are at the start of a risk on move – or not as may be the case – the CAD, CNY, SGD, and EM currencies – not to mention the Aussie dollar – will push higher.  

CFTC Data 

We almost got there in the past week or so. The “there” is a level where traders will flick or flip their bullish USD/bearish most other things positions.

As you can see in the table below Euro positions fell by about 1/3, Yen shorts were increased, Pound shorts cut, and even Aussie shorts pared a little. That reinforces to me that if the Euro can get back to last week’s highs, heaven forbid break above the 200 day moving average there could be a Tsunami of covering which would propel the USD even lower – 96.00 here we come hey???

Source: CFTC, Refinitiv, McKenna Macro

Elsewhere it’s noteworthy the VIX positioning is getting even more short. It’s a mitigant to the rally thesis I guess.

 The week ahead

UGE, no need for the H this week it’s just UGE. So many big data points, central bank meetings, and releases.

We’ve had Chinese industrial profits today and they aren’t great with a 2.1% fall against some forecasts of a -1.2% print.  And then Monday kicks off the week slowly with German import prices and Euro area loan growth (credit is important folks so have a squizz). CBI distributive trades is out in the UK and the Chicago Fed activity index in the US along with goods trade and wholesale inventories and the Dallas Fed manufacturing index. Mario Draghi is speaking – but no one cares, he’s yesterday’s hero. 

Tuesday is South Korean business confidence, Tokyo CPI, a speech from RBA Governor Lowe, housing and credit data out of the UK, and in the US its the Case Shiller house price index, pending home sales and after the bell API crude inventories. Wednesday is Japanese retail sales, Australian inflation for Q3 and new home sales, French Q3 GDP is out along with German inflation and employment as well as Spanish unemployment. Euro-area business conditions and confidence are out. 

And then it’s the Americas with the release of Mexican and US GDP data for Q3. We also get PCE prices and all that plus ADP employment as a precursor to Friday’s non-farms. The BoC has a decision, EIA crude and energy data is out and then the big one is the Fed decision – widely tipped to be another cut. But will it be? The Saudis and Brazilians also have interest rate decisions out 

Thursday is South Korean construction and industrial data. It’s also the end of the month. Building approvals and RBA credit data are out in Australia and China jumps the gun with the NBS PMI data as well. The BoJ has an interest rate decision and then we wait till German retail sales, French inflation, and Spanish GDP for Q3 as a little taste before the Euro Area GDP is out. Italian and Canadian inflation is set to be released as is the Challenger Job cuts data in the US. Canada releases its latest GDP and in the US we get PCE wages and employment data plus jobless claims. Chicago PMI is out too. 

Friday is November 1 – can you believe it – so that means its manufacturing PMI day. The “flash” indications of the PMI’s weren’t too flash a week ago so let’s see if the data is better or worse than those estimates. Risk will react either way. Korean inflation is out, Japanese unemployment too and Australian PPI. And then after we’ve been buffeted by manufacturing PMI after manufacturing PMI as the world turns we’ll all be waiting for US non-farms to usher in the close of the week. There are also 4 Fed speeches. 

Have a great week.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter

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 © 2019 gregmckenna.com.au, All rights reserved.

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Greg MckennaPositivity is almost breaking out, champagne time? – McKenna Macro Markets Weekly

Plenty of uncertainty as stocks stall, the USD falls, and BoJo’s deal doesn’t pass – McKenna Macro Markets Weekly

on October 20, 2019

Hi folks, welcome to my weekly newsletter 

To sign up for this report weekly click here

And if you are interested in a trial of the daily subscriber service to get this and the 3000 odd words I write – and lots and lots of chart – on markets each day you can sign up here for a trial

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 week started and ended on pretty much the same footing – China trade then GDP data sapping the life out of the rally as traders and investors worry more about the risks to the global economy than any positives of the “Phase 1” trade deal. That’s a telling take on where market psychology is right now. 

You know that’s my view on trade too. But I thought the half-life of trade truce positivity might have been longer than a few seconds this week. Yet the S&P’s inability to hold above 3000 told us that is not the case at the moment. But it still hung in there.

Not so the USD which fell almost completely out of bed. That is ended the week above 97.00 is about the only thing it has going for it at the moment and it seems to me with the repricing we are seeing in some bond markets about rates – especially the EU’s 2 year forward 2 years – the USD reversal might have a little further to go. Watch out if the stops get hit though…

And it was the week we had a Brexit breakthrough. BoJo, who knew? Anyway, Mark Carney’s comment at week’s end that any Brexit deal is positive for the economy it just takes away a tail risk was reflected in Sterling’s performance across the board – though the FTSE is not so keen. But all the hope has so far lead to nothing as BoJo’s deal didn’t even get voted on.

The Week that was…

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

Key Themes driving markets

Boris asks for an extension – GBP should pull back a little 

An unsigned letter asking for an extension. That’s how British Prime Minister Boris Johnson seems to have justified in his own mind asking for a Brexit extension past the October 31 deadline now that Parliament postponed the actual vote on the deal Saturday in favour of a process which allowed for the passage of the enabling legislation first.

It sounds a little semantic and the 322 to 306 vote Saturday to take this path and force the PM to ask for an extension looks a lot like the margin by which a deal may have been defeated anyway. So this is a neat trick by the forces opposed to both Brexit and a new general election to slow both down. 

Will we have a meaningful vote this week, will BoJo’s plan lose regardless? Maybe, maybe not.

But the Telegraph reports Sunday:

EU leaders will not decide whether to delay Brexit until after MPs have voted on Boris Johnson’s deal next week.

There was frustration and exasperation in Brussels that MPs did not take the chance to ratify the Brexit deal struck at an EU summit last week.

“It will be for the UK government to inform us about the next steps as soon as possible,” the European Commission’s chief spokeswoman said on Saturday. 

So, what’s become clear in the last week as BoJo managed to do something most thought impossible – actually get the EU to reopen the deal and move on the Irish Backstop – and that means s that for the moment at least the chances of a no-deal Brexit have receded.

But surely the EU’s patience with British Lawmakers endless delays must soon evaporate. So no-deal Brexit is not exactly off the table and with that in mind and after going verticle over the past week or so from 1.22 to nigh on 1.30 (actual high around 1.2990) toward the end of this week. 

GBPUSD Daily – TradingView

Now, as we ready to open Monday the likely is of an increase in uncertainty and an abundance of caution. Taken together that suggests it is time for a pullback for GBPUSD and rally in EURGBP. And regular readers know I never trust vertical moves like the one we have seen in GBPUSDand given it is both tenuous on the trendline and outside the Bolly Band Friday the level for me to watch Monday is 1.2830. below that gets me 1.2688 as your garden variety 38.2% retracement and then the 15-day ema at 1.2595/1.2605 zone. 1.2435 will be big support if things really go awry. 

USD slide accelerates

The reality is that some of the USD’s weakness last week can be attributed to the surge in Sterling but on its own given the 2.56% surge in the Pound and the weight of GBP in the DXY that explains a move to around 98.03 based on the Pound’s move. But the DXY fell from 98.33 the Friday before last to close out the week at 97.14 last Friday – a loss of around 1.2%.

So something else is going on and that something else is broad-based USD weakness. The Euro has been rallying for the last 3 week’s which might seem incongruous until you think about the push back against negative interest rates “negatives” on banking and the economy we are seeing from within and without the ECB.

Indeed that and the little lift in global bond rates recently has seen German bonds reprice higher with the 10 hitting -0.34% last week. Importantly the notion of where rates will be in a couple of years time has changed as well. Do you remember this chart? A couple of years back it was all the rage as the driver of Euro and folks were as excited about it as the recession that was supposed to have started in the US by now just a year ago.

EURUSD (blue) v EUGOV2YF2Y (orange) – Refinitiv

What you see above is the Euro against the implied EUGovie 2yr, 2 years forward.  And as you can while the overall strength of this analog on a day to day basis is not consistent, directionally it is. So, to that end, as traders reprice expectations that Mario Draghi went a bridge too far at the last ECB meeting corralling a recalcitrant bunch of policymakers into a move they didn’t want. And as markets reprice expectations for where EU rates are going so Euro has caught a bid.

Source: TradingView

And the corollary of that is the USD is offered right now – on many fronts. As you can see in the chart above of Monthly forex levels. It’s a very long look at foreign exchange markets. but in many economies, this is the most important transfer price in that economy. And long-run moves matter for investment decisions and the returns on those investments.

The Aussie is above 0.6830 and could run now it’s bested near term resistance. The Euro has a long way before it hits meaningful resistance, the Kiwi has bounced from support, the DXY reversed aggressively from long-run resistance and is vulnerable if 96.90 breaks, USDJPY is struggling, USDSGD is pointing lower, and of course, GBPUSD has roared away from support.

DXY Monthly – TradingView

So the Greenback is struggling as you can see in the monthly chart above. It’s completely fallen off a cliff on the daily charts from around 99.00 just 7 trading days ago and it has had – like the Euro – 3 week’s of weakness. And as you’ll see in the CFTC data below the spec positions on the CFT have hardly budged from their USD longs – short most everything else. So the market is vulnerable to a catalyst which sends the USD longs scrambling.

We’ll see – it might be a test and break of 96.90. If that happens Euro will have satisfied my 1.1200 target I’ve been talking about in the daily newsletter and may be on its way toward the 1.1400 region I floated late last week. Everything else will get dragged along in the wake with USDSGD and USDCAD especially interesting – I also expect USDCNH to head back toward 7.0. 

Stocks supported but not going on with the rally

Are you bullish or bearish after the past week’s price action? Your answer to that might reflect either your positioning, bias or a myriad of factors.

Me? I’m agnostic, let me explain.

As you can see in the chart below (top panel) the S&P physical jumped higher and held well above the 2943/55 support/resistance zone. But you can equally see that it traded above – but could not hold on close – 3000.

S&P 500 Physical Daily (top) Weekly (bottom) – TradingView

So is that bullish or bearish?

As I said I’m agnostic. When you look at the bottom panel you see that there is plenty of overhead resistance for the S&P 500 between here and 3060 where the top of this megaphone sits and the trendline rests. We also have the record high in the mid 3020’s as a natural barrier not to mention the big fat round number of 3000 which shouldn’t matter but does for traders. At least on close last week.

As at 4.07 pm Sunday, October 20 Sydney time

And as you can see in teh table of MACD positioning at present the system is long S&P’s daily and short weekly, but teh JimmyR is still long on the weeklies as you can see in the lower panel of the chart above. Hence my agnosticism.

Unhelpful I know in many ways but it leaves me with some clear views nonetheless.

First, a break and hold on a daily time frame above 3000 is unequivocally bullish on that time frame. Equally, second, I wouldn’t be surprised to see a test back toward 2943/55 after those couple of candles at the end of last week for the S&P 500. If the lower level of that range breaks on close things look ugly again for US and global stocks (great for gold though and probably support of bonds and the US dollar). If however, the 43/55 region holds then I’d be looking a for a probe back to 3000 on the dailies.

See, clear as mud. But who said this trading and investing game was easy?

Bonds indecisive as well 

Complicating the picture – or reinforcing the current complications between rates, growth, policy action, and investor/trader positioning is the moves we’ve seen in bonds lately. When you look at the US 2’s and 10’s as you see below – or the German version I always talk about in the daily subscriber note – two things are clear.

That is rates have bounced from recent lows quite aggressively but last week the rise in yields seemed to cause some buyers to come out of the woodwork and overhead resistance hold.

US 10 Year Treasury Yield Daily (top), Weekly (bottom) – TradingView

So like stocks, we have a bit of a range which either needs more news on trade, data flow, or central bank comments to break. There is not a lot of data till Thursday flash PMI’s but there is a bit of central banker speak, and of course, we have Mario Draghi’s last ECB meeting. That could be very interesting.

In the meantime it’s probably moves in stocks and perceptions about trade and Brexit that drives markets.  

CFTC Data 

Remarkable. But dangerous.

That is how I see the forex CFTC positioning when I look at the relationship between the EUGov2yrFwd2yr I’ve highlighted above with the Euro and by inference the USD and other pairs. So far, the moves haven’t been enough to see the USD longs startled or start to reverse course and cover longs.

EURUSD (grey) v Big spec net positioning (orange) – Refinitiv, McKenna Macro

And where the level is I’m not sure. But what I do know is there is a nice little directional relationship more often than not between the Euro and positioning – it’s not lockstep naturally but the Euro is going in a different direction now to positioning. So watch that space and maybe the 200 day moving average at 1.1209. 

Source: CFTC, Refinitiv, McKenna Macro

Surely that GBP positioning must have changed by week’s end (remember this data is at COB Tuesday). But it does look like the USD long are vulnerable to me if this selloff gets much further traction. US 10’s continue to cut longs, WTI is stable, and VIX shorts are rising and at some of the highest levels in years again. Time for a stock selloff?????

Souorce: CFTC, Refinitiv, McKenna Macro

 The week ahead

It’s going to be mostly news flow this week folks as it’s very light on the data front till we get to “flash” PMI’s Thursday.

Monday is going to open with forex traders reacting to the vote in the British Parliament on Boris Johnson’s Brexit deal. Or non-vote as it was.  Then it’s Japanese trade, Chineses house prices and then a big wait till German PPI and the Bundesbank monthly report. Of course, the Canadian Federal election is on Monday and we get speeches from the Bank of England’s Andrew Haldane, ECB’s de Guindos, and Bowman from the Fed.

Tuesday is South Korean PPI, CBI business optimism in the UK, and retail sales in Canada along with the BoC’s own business outlook survey. We get existing home sales in the US, the Richmond Fed Survey and a speech from Dallas Fed’s Kaplan. API crude data is out 4.30 New York Time.

The RBA’s Chris Kent is up Wednesday morning and then there is a gap till US mortgage application data, and house prices along with Canadian Wholesale sales. We get Euro Area confidence a little after that and then the EIA releases its energy data.

Thursday, as noted above, is “flash” PMI day where IHS Markit milk the news value of their PMI series by giving us a look under the hood before the full details are known – yes I’m cynical, but hey, that’s marketing right. The PMI’s kick off in Australia and then cycle around the world. It will be interesting to see where we end up…have we hit bottom yet? Bond traders suggesting maybe.

South Korean GDP for Q3 is out and will be also watched closely for indications of what it might suggest for the globe. We also have an ECB interest rate decision, Mario Draghi’s last, which isn’t expected to adjust rates but will be interesting nonetheless for what the Dovish One says at the press conference. Durable goods are out in the States along with jobless claims, new home sales, and the Kansas City Fed index.

Friday is another barren day in Asia with South Korean consumer confidence data before a big gap to Germany’s Gfk index, French and Spanish PPI, and then Germany’s Ifo index. Nothing of note in the US and on Sunday next we get industrial profits out of China to kick of the last week of October.  

Have a great week.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter

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 © 2019 gregmckenna.com.au, All rights reserved.

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Greg MckennaPlenty of uncertainty as stocks stall, the USD falls, and BoJo’s deal doesn’t pass – McKenna Macro Markets Weekly

Trade War positivity drives bond and stocks higher, now for US earnings – McKenna Macro Markets Weekly

on October 13, 2019

Hi folks, welcome to my weekly newsletter 

To sign up for this report weekly click here

And if you are interested in a trial of the daily subscriber service to get this and the 3000 odd words I write – and lots and lots of chart – on markets each day you can sign up here for a trial

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

From nowhere to somewhere in the space of a few days. That’s where the trade talks and Brexit negotiations seem to have and by week’s end there was much ebullience and expectation on both sides of the Atlantic.

In the UK it seems BoJo and the EU are really making progress which saw the Pound make great strides against both the USD and the Euro and while the FTSE 100 lagged the gains in the FTSE 250 indiex it was still higher despite GBPUSD spiking to end the week at 1.2646 – earlier in the week it had been near 1.22 looking for all the world to be on the cusp of a significant break lower.

Likewise stocks in the US looked crook before both China – mainly – and the US started to rumble toward Friday’s announcement of a “phase 1” trade deal which postponed the tariff increase that was due this week, signaled some kind of currency pact, more agricultural purchases and ongoing talks. That the December tariffs are currently still on the table and that the deal is nieither signed nor gauranteed dragged stocks materially off their highs Friday. But despite that and the fact the S&P was only up 0.6% on the week it was still around 80 full points (~2.75%) from its lows for the week. That 10 year bonds closed 23 yileds points higher from the week’s lows at 1.73% and gold closed $30 from its highs is testament to the unexp-ected nature of the week’s events with regard to trade.

Naturally, the big question is of the stickability of the lat week moves – will they prove ephemeral and reverse quickly or will both China and the US change their rhetoric and thus the narrative before President’s Xi and Trump meet again in mid-November. My guess is that not withstanding Friday’s withering reversal in stocks from the highs this reversal of recent market moves will have some legs – and way to go – yet. 

The Week that was…

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

Key Themes driving markets

Earnings season kicks off this week could it be enough to end the TradeTruce terrificness already? 

This is a dangerous time for stocks trading. On the one hand, there is the obvious benefit that no further escalation in the trade war for the moment gives risk appetite and sentiment. On the other though, the reality is that it’s not just trade which ails the global economy. There are other issues, particularly in Europe and Germany which predate the start of the trade war and President Trump’s tariffs. Thus the globe’s issues are not easily solved simply by a truce in trade. 

Source: Twitter

Indeed the outlook for earnings too is of serious concern to the overall outlook for the stocks market and what it says about the economy.

This week’s earning’s season kicks off with the banks on Tuesday and already downgraded expectations will need to be exceeded if earnings is not going to detract from sentiment which both sides in the trade war are clearly aiming to give a lift.

Ultimately the price action is key though and on that front, we have a bit of a clash with Friday’s reversal from the 3000ish high in the S&P 500 clealy signalling traders are wary that this might all be hot air – AGAIN. But when you look at the long Weekly time frame it’s possible to see some positivity in the reversals from weakness in the past two weeks.

The top panel in the chart below shows the daily S&P 500 cash market and you can see that failure around 3000 and big reversal. If, as I do, you believe that one candle can convey a strong signal then the chance of a fill back into the 2943/55 gap and support/resistance zone seems a decent chance in the days ahead. The question then is whether the price can hold above that zone or closes back inside it pointing lower once more. Short term, on the dailies, that is critical.   

S&P 500 Physical Daily (top) Weekly (bottom) – TradingView

The bottom panel showing the weekly price action is more positive while the monthly chart – not shown here – shows the S&P continuing to hold above the 15 month ema with 2 or the last 3 months lows pulling up just above that short exponential moving average. back to the weekly now and you can see this megaphone is still working through near the top as price holds below that level which comes in at 3055/60 this week.  The purple line, which has been quite the influential trendline too comes in at 3026 just around the record high and the recent run back into the 3020’s.

And like the monthly chart the weekly remains above the 15 ema and it is worth noting that the JimmyR is still signalling that long is the way to play this market over the weekly timeframes.

Speaking of positioning, my system – that I share with paid Subs each day – went long the S&P, Nasdaq 100, and DAX on Thursday morning and short US 10’s the day before. Here is the latest position as at Friday’s close. 


Bonds are rising fast and that is a risk to many markets

The Fed has been pretty upbeat lately about the prospects for the US economy with numerous speakers following Chair Powell’s lead and reiterating the economy is in a “good place” right now. Even Charles Evans and Neel Kashkari seem to have come around a little with the latter saying Friday that the time for a big shock and awe rate cut has probably passed.

And we heard in the minutes recently that there are those on the FOMC who think the market has got it wrong with reference to how many rate cuts are priced in – something the dot plot from September’s meeting clearly emphasised. So with a bit of a trade truce the pressure may be on the bond market bulls. That’s particularly the case when so much cash has been pulled from stocks and placed into cash and bond funds this year – and still is flowing as recently as last week.

That’s a big risk to bond bulls and stock bears – and it is what prompted me to share more broadly what I’d told subs on Thursday about the need to take a A risk management approach to Markets right now  We always need to cover where we could be wrong and in this case, it seems – and still does – that if this is the start of a genuine thaw in relations on trade – within a broader Cold War II – then sentiment and prices can have a way to run yet.

US 10 Year Treasury Yield Daily (top), Weekly (bottom) – TradingView

To that end US 2’s have broken out and are headed toward 1.8-% it seems and the 10’s aren’t far from a break of 1.80% which would see them run toward 2%, probably higher. And with these moves – as you can see on the chart above the curve is also trending higher once again as well. Maybe it won’t force the recessionistas to back peddle. But for consistency they – and the Fed – will need to take the cue the curve steepening is giving.

Likewise also taking a cue from bonds is gold – among other markets including silver and eventually stocks – which will come under exerted downward pressure if US 10’s break up and through the 1.80% region and run toward 2%.

Gold (black), Silver (blue) ZN1 , US 10 year Tnote price (purple) – TradingView

You can see the relationship between the ZN futures – US 10 year note (price inverse to yield – and gold and silver in the chart above. As bond prices fall – yields rise – so that puts downward pressure on gold. I could see a path to $1380 trading before this reversal in bonds and gold is done folks.      

The USD will lose ground if a real trade truce breaks out

In some ways, it’s been remarkable that with the Fed having raised rates to last year and even with the rate cuts, that relative asset market and economic returns didn’t see the USD much higher than the recent high it got to in DXY terms or lows in Euro, Aussie and other pairs. I could have easily seen a case for the Aussie below 60 cents just on AU-US 2 year spreads alone.

But then again, that’s the beauty and difficulty of forex markets and currency trading they are hardly ever single factor trades are they? No, there is usually always a myriad of competing forces pushing and pulling at any given pair. So while the overall trend to a strong dollar has been evident for well over a year now the reality is it has been a grinding USD rally prone to serious reversals from time to time.

This may be one of those times when the USD comes under pressure as traders and investors start to look around the planet for alternatives to US investments. That will come if they believe the US and China are really going to have an extended truce because what it would signal is that the US administration is taking its foot off the throat of Chinese and global growth and with it the need for a safe haven like the Yen or secure harbour like the USD are diminished.

Likewise the “currency pact” part of this “phase one” trade deal will be interesting insofar as it will like allow both the US and China victory in currency markets. President Trump does not want the USD too strong and President Xi and his minions at SAFE don’t want the Yuan too weak – precipitating capital flight.

Monthly Currency Pairs – TradingView

Looking at the monthly charts of a number of pairs we see decent areas for reversals for the Pound, Kiwi, and Aussie (if it can get back above 0.6830/50). USDSGD looks to be reversing and the DXY is constrained by the long term overhead resistance line. USDJPY can probably rally back to 110, maybe 112 and while Euro is the least positive of all these pairs if the other moves happen it too could run back toward 1.12, maybe a higher.

USD Index (DXY) weekly – TradingView

When you look at the DXY directly – as a Euro linked bellwether for the USD – we see that the price closed Friday right on support. My sense has been a test to and reversal or break from/of the 15-week ema at ~98.00 is the key to the USD and with it currency markets more broadly. Below that I’d be looking for 97 and 96.00/20 is increasingly looking possible.     

OPEC made a stand this week – right at the right time and place 

There has been a battle over recent months between the forces of supply – cuts and outages from the Saudis and OPEC+ – and demand, trouble for the global economy and continually downgraded demand growth expectations. Both OPEC and the IEA did that recently again. For a time as the trade war escalated that meant the price was falling as the bears won out and OPEC stayed silent.

But last week OPEC Secretary-general Mohamed Barkindo signalled OPEC had had enough of the slipping sentiment and prices saying that come the December meeting more cuts would be on the table for consideration. That put a flow under prices which looked likely to slip and hold under $51 (WTI) terms as the week progressed. Throw in positivity about a trade deal and then the attack on the Iranian tanker and we had the makings of a bounce from the range bottom in the $50.50/51.00 region. 

Now back at $54.70 WTI looks set to run and run hard if it can best $55.00. If not the price would revert back toward the bottom of the bottom half of the range. The system was already long before Friday’s move in WTI so I am sticking with it right now. 

WTI continuous contract Weekly – TradingView

CFTC Data 

Check out the big fall in shorts for US 10’s. That is a very interesting move given what’s going on in US bonds right now. On forex markets, there is definitely vulnerability to a USD reversal in DXY and overall in many direct pairs as well. We’ll see how the price action goes but there are clear levels – like 6830 for the Aussie – which could see positions flip. Elsewise the Euro is at risk of a bigger reversal than expected given shorts are growing again while the small Yen longs might find they are on the wrong side of things again this week.    

Oil longs have been pared but are like to rebuild over the course of the week if $55 in 

 The week ahead

Mrs McK has had me doing yard work the last couple of weeks as we do the old Spring clean and get the house ready for sale. So I’ll be back to normal next week.

But just quickly China trade and CPI and PPI will be very important this week along with the German ZEW report, US Q3 earnings, US retail sales, Australian unemployment, lots of speeches from central bankers, and of course Brexit and Trade News will drive things. 

Have a great week.

Enjoy.

Greg McKenna
@gregorymckenna on Twitter

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 © 2019 gregmckenna.com.au, All rights reserved.

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Greg MckennaTrade War positivity drives bond and stocks higher, now for US earnings – McKenna Macro Markets Weekly

A risk management approach to Markets right now

on October 11, 2019

Morning Folks – I had this little section in my Morning Note to paid Subscribers yesterday and given the news Thursday on Trade and the talks in Washington at the moment I thought I would share it with a broader audience. 

Remember for non-subscribers, If you want to have a trial of the daily subscriber service to get this and the 3000 odd words I write – and lots and lots of chart – on markets each day you can sign up here for a trial

Here the section verbatim from yesterday’s morning note:

Here is the big risk if we get a surprise deal…stock calls, bond puts? 

Trading and investing is about making money, it’s about taking calculated risk adjusted bets and running them. But in many ways trading is also mainly about risk management – where you put your stop, how you figure out you are wrong, what you do if you are wrong, when you take profit and so on. Setting these proper protocols – which are usually different for each trader – is the key to your payoff (absent leverage which also has to be managed).

I start this section in that way because if I was running a diversified portfolio right now my long term views on bonds wouldn’t change, my risk thoughts about stocks would be the same too. But I would certainly own stock calls and bond puts.

The reason for that is best summarised in the money flow data.

Reuters reported Wednesday “investors retreated from the U.S. stock market by unloading nearly $11.8 billion from mutual funds and exchange traded funds that hold domestic equities last week”. And Scutty shared this tweet in my evening last night.

Source: Twitter

So, as I editorialised on Twitter when I retweeted it, “Ouch – wouldn’t a trade deal upset that Apple cart…Unlikely as that may be right now”.  

So, even though my bet right now is that a trade deal is a low probability the risk management approach would be to own low delta out of the money stock calls and bond puts because if those flows even partly reverse there is going to be some decent moves in each of those markets. 


It actually looks like I might be wrong and some sort of deal might pop up – think Steve Mnuchin, Top Hat and Rabbit – either way this is a good way to cover your contingencies. Even at these levels because a trade deal would really turn sentiment for a while – even it is ultimately ephemeral. 

Have a great day

Greg 

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Greg MckennaA risk management approach to Markets right now

Data and politics the key to the outlook this week – McKenna Macro Markets Weekly

on September 30, 2019

Hi folks, welcome to my weekly newsletter – This is post is sponsored by SMARTMarkets. It is the last one under that arrangement and the format of this is likely to change from next week and come out on a Monday at the reqwuest of my family who would like me to tak a bit of my weekends back and spend time with them. 

To sign up for this report weekly click here

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 finished lower this week as the chances of a Presidential impeachment in the US increased even if the numbers to convict in the Senate aren’t there yet. Throw in Friday’s news that the Trump administration is thinking of restricting Chinese access to U.S. markets and U.S. access to investing in Chinese firms and were sliding towards the CCP celebrations with a bit of a risk off tone.

Bloomberg reported Saturday that a U.S. Treasury official said the administration had no plans ‘at this time’ to institute the types of measure the previous days story suggested.

But we’ll file that as a non denial denial.

And of course all the while signs the signs that the global economy continues to slow, that Europe is at the epicentre of that slowdown, that China too is slowing had weighed on asset markets across the globe.

So as the CCP 70th anniversary celebrations begin and President Trump battles his political opponents the economy drifts and markets are at risk.

The Week that was…

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

Key Themes driving markets

The S&P drifted but closed just above important support

There is a lot of uncertainty in the global economy and markets at the moment. The rumoured intervention in Chinese inbound and outbound investment by the Trump Administration is just the latest in a series of headwinds facing the global economy. So too is the rising chances of impeachment of the current US President for “high crimes and misdemeanors”. 

We’ll see where the headspace of traders and investors is early this week as they get a chance to react to the Bloomberg story countering their earlier story suggesting a more interventionist path for the Trump Administration.

Is the ‘at this time’ in the headline – U.S. Treasury Says No Plans to Block Chinese Listings ‘at This Time’ enough to reverse Friday’s negativity which drove the S&P 500 down to a low of 2945 before closing above the important support zone in yellow between 2943 and 2955 you can see in the daily chart of the S&P 500 below. 

S&P 500 Physical Daily – TradingView

In the first instance 2955 is probably the most important number in markets right now. That’s the level that if, I’d say when, the S&P 500 closes below there’s a fair chance a deeper decline perhaps even toward 2800 will have begun. But for greater confidence a move below 2943 has to ensue in the day or so after that close to really hammer in the nail.

As at 4.44pm Saturday September 28 Sydney time

As you can see above from the system details and positions I share with paid subscribers each day the daily MACD system is short. So, even though Friday’s close climbed back above the 2955 level the candles last week speak to a market which is losing support of the buyers. With China celebrating and out for a as week potential positive trade news to buoy prices may have to wait till the 10th then when the trade talks are scheduled to restart.

Looking longer term though you can see in the weekly chart that although the JimmyR is still up the S&P has fallen back below this influential trendline and is nearing the 15 week ema. That comes in at 2940 so a drop below that will see the S&P cascade lower – that will likely take bonds with it, copper and the Aussie dollar too, and see gold and silver higher again. As you’ll note in the table above the MACD system looks to go short this week in the S&P 500.

You can signup here for a 14 day trial of my subscription service.   

S&P 500 Physical Weekly – TradingView

Interestingly last week Europe did a little better than time U.S. was it the creeping shift toward fiscal stimulus being lead by the unlikely source of Angela Merkel and her German governmental colleagues. That German ECB Hawk Sabine Lautenschlaeger resigned from the governing council this week in protest to the Uber dovish tilt from Mario Draghi only serves to confirm what a shift this is in Germany.

In DAX terms we had a big recovery from the low Wednesday that was followed by solid rallies Thursday and Friday to leave price at a critical juncture on the weekly DAX chart with overhead resistance, a bounce of the 15 week ema and a tantalising candle from last week. 12490/12520 is now the overhead level to watch – while below that the bias looks sideways to down. Above that level anhd we could see another 300 points or so of upside. 

DAX Weekly – TradingView

On the Repo shenanigans in the US

The Fed appears to have got the US repo market back under control with its open market operations over the past week. But I’m still intrigued as to why the liquidity appears to have been hoarded over recent weeks.

US overnight bond repo rate – Refinitiv

It doesn’t feel like GFC level liquidity event but more like the New York Fed forgot what its job was for a time because life was so easy with a massive balance sheet and ample liquidity and assets in the market over the past 5 or 10 years. 

But it would be naive to rule out some lingering systemic issues completely out of hand. So as they used to say in the ads here on Australian TV – I am alert, but presently not alarmed. Watch this space folks it ihappens again in OCtober with the obvious excuses of Corporate tax and quarter end we’ll know to get titchy   

Here’s a good example that economic surprise indexes can swing and not reflect reality

Hands up if you think Australia has the strongest economy going around at the moment. No? No takers? Well of course not, Australia is stumbling through at best. Sure employment is still doing okay, but inflation and wages growth are largely absent in any material way and together with generally healthy commodity prices have remained a relative light on the hill in and Australian economy otherwise underperforming.

So when you see the CESI score for Australia at +51.7 I urge you to remember the “surprise” bit is the key. It’s why these indexes fall in a heap and often rise very fast.

Put simply the pundits extraplolate trends in economic data and when the prints come in weaker or stronger as may be the case then there is a “surprise” and the index either falls or rises. It’s why these things tend to mean revert – it’s not about the data it’s about the pundits being in or out of synch with the data.

I use them as sentiment indicators persistence higher or lower at and too extremes impact on valuations – or specifically setting up the chance for expectations about relative value changing. That said global growth has been a bit crook, the “flash” PMI’s were crook too, so this week’s update from CHina before it goes on holidays for the 70th anniversary of the CCP and then the start of the monthly data cycle will be very important for asset returns which favour lower bonds and stocks right now and a USD which is stronger but not running away.

All that said, as you’ll see at the end of this note today, there is a lot of data this week and that sets up a tanalising array of stimuli for traders and markets. 

Gold, silver, and bonds

There remains, overall, a pretty solid directional relationship betwen the price of gold and silver and that of bonds – in this case the price of US 10 year Tnote, rather than yield which is the inverted. So if stocks are set to swoon a little then we are likely to see a fall in bond yileds – rise in the price of the ZN1 contract – and thus gold and silver to stay bid.

If it works out 2943/55 holds for the S&P 500 we’ll then see the reverse of what is articluated in the preceeding paragraph. 

Gold (black) Silver (blue) and ZN1 (US 10 year Tnote) price (pink) Daily – TradingView

Either way this is an important relationship to remember when trading and with US 10 year Treasuries (yield) looking like they are heading lower again, there is likely to be buyers on any dip in gold toward the $1484 region.

Here’s the 10’s, this week support is 1.58%.

US 10 year treasury yiled Weekly – TradingView

And here is gold, you can easily see a big dip if it only falls a little further and down and through $1484. You could easily see $1455/60 if that occurs. 

Gold (XAUUSD) Weekly – TradingView

Oil reversed sharply again and could have further to fall

In last week’s weekly I said the “[previous week’s] weekly candle certainly suggests $56.00, maybe $54.80 again” and we saw the low Friday at $54.75 before the big recovery by the end of trade.

It was a solid recovery but for 9 days trade we’ve had oil prices close lower than where they opened. That tells you something about sentiment right now in oil markets and the bias of prices – naturally. So, whether I look at a weekly or daily Candle I see lower still. Not the easier losses of last week. $54.00 likely, maybe $53.00. Any rallies are likely to be sold.  

WTI continuous contract Weekly – TradingView

The USD Index and Euro are at a critical juncture as we end the month – that’s important for forex 

On Friday afternoon my time, Europe’s morning, i shared the monthly Euro DXY chart highlighting the overhead resistance the USD – in these terms – is facing right now. It’s a trendline that has been resistance and support, now reistance again since 2011/12. So it is a powerful line many traders are clearly watching and trading against. 

USD Index (DXY) Monthly – TradingView

That’s exactly my approach too.

You know the McKenna Mantra, respect lines and levels unless or until they break. So I’m fading this move right here while reserving the right to be wrong and get back to being the core USD bull that I remain.

And in technical terms the USD is still clearly in an uptrend – DXY, and against currencies like the Euro, Aussie, Kiwi, Yuan and so on. But it is a mild rally at best which still awaits – it seems – the decent catalyst bulls like me have been waiting for. 

99.60/75 is the level to watch topside as we close the month Monday. Support is 96.70/80. 

Turning to the the Euro now and we all know it’s in a big downtrend on the weeklies and more recently in a 1.0925/1.1111 kind of range. But this week Euro traded down to 1.0905ish as it continued the downtrend before the bounce Friday in what looked like a little position squaring into week’s end.

EURUSD Weekly – TradingView

I remain a longer term USD bull, Euro bear.

CFTC Data 

The big story for me in the CFTC data continues to be the fall in US Treasury shorts which have been cut by around a third in the past week to last Tuesday. What the implications of this are for the yields (and price) of bonds is interesting. But maybe the preconditions to lower rates are growing….   

Forex wise Euro shorts were cut but the core position remains while Sterling shorts have been reloaded as the Pound rolled over and are back approaching where they were a month ago. Aussie shorts growing shows some risk if the RBA passes on Tuesday. that seems remote given market expectations and Martin Place would find no cut very hard to justify and take a FURTHER huge hit to its credibility.   

 The week ahead

To quote a yellow haired narcissist in the White House, this is going to be a big week, huge, maybe the bigeest ever. Hyperbole? Possibly. But with CHina out, a week chock full of data that ends with US non-farms is one that offers much to trade off.

The week kicks off Monday with the release of “canary in the coal mine” data from South Korea with industrial production and and retail sales data the highlights. Japan has similar data out then Australia has the monthly inlfation gauge and private sector credit. Before it goes out for the week Chinese markets are open and we get both the NBS PMI’s as well as the Caixin manufacturing PMI today.

Retail sales and unemployment are out in Germany along with inflation later in the day. Spanish GDP is out along with inflation, Italy releasese inflation data too, while in the UK we also get the final Q2 reading along with the current account and mortgage and consumer data. Europe’s unemployment rate is out. Canada releases its PPI while in the US it’s Chicago PMI and Dallas fed manufacturing.

Tuesday China begins its rest of the week holiday but the day could be trouble for markets. It depends if the “flash” PMI’s were – or were not as may be the case – too pessimistic. Australia opens the batting with the AIGroup and CBA/Markit versions of manufacturing PMIs. South Korea relaeses inflation and trade data and Japan has unemployment as well as the very important Tankan survey together with the Jibun bank manufacturing PMI. Then it is manufacturing PMI’s right across the globe.

The RBA releases its interest rate decision, RBA governor Phil Lowe will also give a speech later that evening. As the PMI’s flow through Asia and Europe and into the Americas we also get Euro Area inflation, Canadian monthly GDP, a speech from Fed vice chair Clarida and the big momma and daddy of PMI’s – the ISM in the United States. Speeches from the Bundesbank’s Jens Weiddmann and ECB’s Mario Draghi are also due around lunctime in New York. And then of course we get API crude after the bell.

Wednesday is like the halftime break in an otherwise chockers week. Consumer confidence in Japan, US MBA mortgage and ADP employment data is out, the Fed’s harker speaks and Williams speak, we get EIA crude and associated data and ISM New York is out.

The sides line up again Thursday with Australian kicking off with the AIGroup and CBA/Markit services PMI’s before we go global with similar releases through Asia, Europe and into the America’s.  Australia also has trade data out, we get speeches from the Fed’s Evans, Clarida, and Quarles as well as ECB’s Guindos, we get EU PPI, Frech retail sales, then Challenger job ads and ISM non manufacturing in the US. 

Finally Friday and it’s a big one for Australia with retail sales for August out and a speech from the RBA’s Luci Ellis. New home slaes are also out in Oz and in Germany we get the construction PMI. Another speech from the ECB’s Guindos, then Canadian and US trade before the big momma and daddy for the week in US non-farm payrolls and associated unemployment and earnings data. The Fed’s Bostic is speaking along with Powell, Brainard, Quarles, Clarida, and George.

HUGE folks. 

Have a great 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 © 2019 gregmckenna.com.au, All rights reserved.

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Greg MckennaData and politics the key to the outlook this week – McKenna Macro Markets Weekly

On the Repo mess, trade war, stocks, oil, and forex – McKenna Macro Markets Weekly

on September 22, 2019

Hi folks, welcome to my weekly newsletter – This is post is sponsored by SMARTMarkets 

To sign up for this report weekly click here

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 S&P 500 tagged a high around 3022 last week, just a handfull of points below the recent record high. But rather than set a new record the S&P reversed off that high Thursday to end the week at 2992 – 30 points lower and seemingly on the back foot once more.

Of course it was the recent and usual suspect – the trade war – which derailed the market from a new high as news hit that the Chinese weren’t doing a farm visit afterall and as President Trump seemed to disavow any idea he might go for an interim deal.

That saw US 10’s dipped to end the week 15 bps off the previous week’s high at 1.75% while USDJPY ended back at support around 107.55 whereas at one point during the week it looked as if 109 was on the cards. Naturally with bonds and USDJPY lower, gold and silver are higher while other assets which can act as a “Risk” on/off switch – AUDUSD, AUDJPY, Copper, and so on – were lower. Oh, and I haven’t even mentioned Oil’s wild spike and then reversal.

So we enter the new week with heightened uncertainty – what will it bring?  

The Week That Was…

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

Key Themes driving markets

The Repo ‘hiccup’ last week is easily explained but equally inexplicable

Repo rates – the interest rate applicable to short term/overnight secured borrowing where the agreement is to unwind the loan the next day or at a specified date in the future – spiked last week in the US unleashing a Tsunami of misinformed press and Twitter commentary which showed just how many folks who hold themselves out as gurus in this current market don’t actually understand the plumbing of US and global banking and finance.

Source: Twitter

The result was the New York Fed’s open market operations to inject $75 billion to ease the stress in Repo rates was thus easliy misinterpreted by those who didn’t understand the mechanism and machinations. So too may be the longer term Repo operations that the Fed announced Friday to ease the strain over the quarter end in this next week trouble many as QE as well.

But they are not – these are the legitimate tools of central banks to manage lumpy flows in and through their banking systems – both injecting and withdrawing liquidity to support the proper functioning of the market at or around their announced interest rate.

Source: Twitter

What appears clear though is that those with the cash/reserves decided not to take advantage of the elevated rates to lend to the market, rather leaving it to the New York Fed’s desk to clean up the shortfall.

And now the New York Fed wants to know why that was the case too. The FT reported over the weekend, “Mr Williams [NY Fed President] and Lorie Logan, senior vice-president in the markets group at the New York Fed, said officials were looking at why cash failed to move from banks’ accounts at the Fed into the repo market, where banks and investors borrow money in exchange for Treasuries to cover short-term funding needs.”

It’s an excellent question and why the headlinie to this piece of the weekly was The Repo ‘hiccup’ last week is easily explained but equally inexplicable. If you have excess reserves, cash, why wouldn’t you lend it out? I know when I ran a cash fund all those years ago we lived for the extra points we could earn for the fund, and the cash desks their banks, by injecting money in when rates became elevated. In Australia it used to generally be Easter where I had the most fun. But in general it didn’t last because the central bank – in my case the RBA – used to inject liquidity if needed and the banks with the cash, or funds like me, would place the money into the market and it would end up easing the cash shortage.

But what’s interesting here is banks didn’t seem to want to lend even collatoralised as Repo’s are. That’s curious and in 2007 a few times and certainly in 2008 that was emblematic of deep distrust between counterparties. It doesn’t feel the same at rthe moment. But while I say this is a usual pre-crisi area operation by the fed which other central banks across the globe use all the time it would be silly of me to say ignore the Repo market.

My guess is this is just a tax payment, treasury settlement, reserves hoarding (or put to other use) episode rather than anything systemic – but lets watch this space just in case. If you can’t repo and you can’t fund then if you aren’t a balance sheet bank you may have to liquidate. Then things really would get interesting.    

Hopes dashed – China missing their farm visits and comments from President Trump saw sentiment sour Friday

This period of a trade thaw seemed genuine – for about 5 minutes – but it was always a risk that it was simply the strategy to allow the CCP 70th anniversary celebrations next week to get some clear air and allow China to garner the greatest propaganda opportunity possible for this august anniversary.

That was my view articulated to subscribers earlier this month and it remains my view now.

But I did fall for the possibility that President Trump might make an interim deal that would seek to build on the 90% agreement we’ve been told was where things were before the train went off the tracks around May. yet that hope was dashed Friday with President Trump saying he wasn’t keen on a partial deal and maybe he doesn’t even need a deal at all before the 2020 election.

“No, I don’t think I need it before the election” he said adding, “I think people know that we’re doing a great job, China’s being affected very badly. We’re not, we’re not being affected”Cue the Chinese delegation to say stick your farm state visits up your jumper fella, we’re outta here.   

And so the S&P 500 dipped 20 points on the news which also seemed to answer for the moment the question of whether or not taking stocks to a new record high was prudent.  

But as data gets less bad can that keep stocks bid? 

Save for a few FOMC members I sometimes felt all alone out on the limb saying the US economy is doing well and will do better than many are forecasting. That’s been my consistenet mantra to Subscribers this year and it remains my base case for the moment.

That’s not to say the business cycle has ended or that the US will never go into recession again – but I believe strongly that like Australia before the recent hiccup (based on central bank intransigence in the face of the obvious slowdown) the US can do a little better than many of the doomsayers have been saying.

But it’s much easier to gene4rate press and followers with a bad news story than a good news one. And no matter what happens when they are eventually right – regardless of the path to that status – they’ll claim victory and be all over Twitter and the press. 

UGH, anyway who cares – my job is to make money not be quoted everywhere. Though that is a nice way to generate free publicity. Come to think of it – “the S&P is going to 1800, in the next few months, subscribe to my newsletter now to find out why” 🙂

Just kidding, though I have got cash on the sidelines for a stock market swoon sometime soonish, and if you DO want to take a trial on my daily paid service you can click here

Citibank Economic Surprise Indexes – scores and charts

Anyway, the good news is that the global data flow has stopped being as awful as it was with the Citibank Economic Suprise indexes lifting recently in the US, G10, and even Emerging Markets. Europe is clearly still lagging, but overall it’s a less bad picture. Now, it is worth noting that these indexes tend to be mean reverting. And I use them really as an indicator of where sentiment may head or currently sits. So to the extent that it liked like me might get a trade truce this month helped underpin stocks so too has the dataflow. 

But that dataflow improvement is only relative to expectations – overall growth still looks crook in many places outside the USA for a while until the headwinds and uncertainty lift. Sometime in the future, but not soon. 

To stocks prices then and the charts for the S&P 500 and the DAX. 

For the second week in a row what looks like a wedge line, or at the very least the trendline that the S&P 500 fell below and then regained, has acted as support. That level, around 2978 last week is clearly the level to watch this week, but the trend line sits in the 2990/95 region so much below Friday’s 2992 close for the S&P and we could see a bigger drop. That said, the break out level I’ve been talking to Subs about each day is the 2955/60 zone – two week’s back the low on that trendline was 2957 – so that for me is the major region to watch in the week ahead.

And I wouldn’t get too bearish unless 2955 breaks. 3025/30, then the top of the megaphone in the 3048/53 region is resistance above that.   

S&P 500 Physical Weekly – TradingView

Butu as you can see in the MACD table of positions I share with subs each day I have the first sell signal for Monday on the daily S&P 500 – among other US markets – on the daily system since August 28th’s buy signal. The Nasdaq has generated a sell on both the daily and weekly system. The Russell 200 looks particularly intersting having failied at long term resistance again recently. 

As at 7.37am Saturday September 21, Sydney

Plenty of signals and potential position changes if they are triggered.

The last couple of weeks the DAX has breached my 12400 target fropm the break of 11850 but not held materially through it with the high both weeks around 12490 and friday’s close at 12468. The question, of course, is what’s next  and to that end I have put a new line on the chart.

I’d call it tentative at the moment with resistance in the 12500/20 region as the purple line and then the old trendline channel bottom (blue) comes in at 12700/20 if purple resistance breaks. Me though, I’m happy to be square at the moment and waiting for the next signal. 

DAX Weekly – TradingView

Oil reversed sharply but we aren’t out of the woods yet. 

As noted last week I preferred to fade the oil rally which I expected to be very solid when futures markets opened on Monday morning in Asia. It’s fair to say that prices opened even stronger than I thought they would. But the point was not to sell on open rather to fade the move once it made a high. Monday’s candle looking like it was just hanging there begging to be sold. But realistically my signal didn’t come till Tuesday/Wednesday really on the dailies – remembering I’m not a day traders anymore. 

So for me the sell didn’t come till around $59.30 almost $4 below the high of Monday. Now when you look at Friday’s close it looks like a move through $5753 opens up a few more dollars of downside and the weekly candle certainly suggests $56.00, maybe $54.80 again.

WTI continuous contract Weekly – TradingView

But we still need to be careful. Over the weekend the Iranians said they won’t start a war but someone else might, they also announced joint operations with Russia and China. On the other side of the debate the Saudis are saying if it was the iranians then it is an act of war and the world must deal with them, the US President has authorised US troops to be increased in Saudi Arabia. And despite what the Saudis say about getting production back on line pretty swiftly the Houthis – who clearly want to distance themselves from the Iranians a little bit – said there is another attack coming.

So rhetorically it all means the geopolitical/disruption bid is likely to stay in the price for a little while longer and only disappear once a decent period of time has elapsed from last week’s attacks. 

Forex markets still trying to figure it all out

If the CESI scores for a number of regions – US, G10, and EM – are all improving then is it any real surprise that the USD hasn’t ripped and roared even though the Fed has signalled it is in no hurry to ease rates more than one time in the next 12-15 months and that Jerome Powell and the majority of his colleagues continue to stress the US economy is in a decent place right now.

And we don’t need to look to far do we. The consumer is spending, jobs are still plentiful, and the market strong, and we are yet to see the major leakage of manufacturing weakness into the services sector or jobs market. So to that end you could argue the USD should be doing really well given the moribund nature of European growth and the OECD’s downgrading of the growth outlook just last week. 

And sure, the USD was stronger last week but not materially so. Hardly at all to be frank when you think about it. Sure 98.46 isn’t weak but it’s not strong yet either really is it – still constrained by overhead resistance and a surfeit – it seems – of US growth doomsayers and hand wringers.

USD Index (DXY) Weekly – TradingView

And in technical terms the USD is still clearly in an uptrend – DXY, and against currencies like the Euro, Aussie, Kiwi, Yuan and so on. But it is a mild rally at best which still awaits – it seems – the decent catalyst bulls like me have been waiting for. 

So the USD volatility, or up and down ness of trade – continued within this uptrend. Support is 97.00, then 96.00. resistance is 99.00 then 99.60. 

Turning to the the Euro now and we all know it’s in a big downtrend on the weeklies and more recently in a 1.0925/1.1111 kind of range. But this week I wanted to pull out the monthly Euro chart to give some of that longer term perspective that has mee as a USD bull, Euro bear.

You can see in the chart below the strong and long term downtrend. you can see the little uptrend support from the 2017 low has given way. And, I think, you can see why the 1.0925 low is so important. EURUSD needs to bounce from that to have any chance to get back to 1.1220. But even then on a monthly close that looks like solid resistance right now. So I’m a seller of rallies when it comes to the Euro. All the way up to 1.1430. 

EURUSD Monthly – TradingView

CFTC Data 

Even before the Fed decison Wednesday (this data is at COB Tuesday in Chicago) which reinforced the policy and economic divergence between the US and the rest of the globe had already seen the balance of long US dollar positions increase. Shorts in the Aussie were lower, longs in the CAD up, so the big shifts were in Euro shorts and reduction in Yen longs (oopps). WTI was strangely stable given what happened at the start of the week as was gold positioning.  

Interesting that the short reduced as the sell off in 10’s intenisfied. That’s entirely appropriate of course, you get a big morve like the one we saw the week before last and then things start to roll a little why not cut shorts and wait for another chance to get back in.  Intersting dynamic as it is hard to see a mechanical trigger for the fall.  

 The week ahead

The week kicks off Monday with Markit’s extra bite at the marketing and market movement cherry with the preliminary – flash – release of its series of PMI’s for a number of nations including Australia, France, Germany, the Euro Area, and the US. Mexico has retail sales, Canada wholesale sales, and in the US the Chicago Fed activity index and are speech from New York Fed President Williams is going to be of interest too – he is after all the fellow who is responsible for the NY markets desk which interfaces with the market and manages the repo operation. :S

We also get a speech from Mr Whatever it takes Mario Draghi as well as speeches from the Fed’s Daly and Bullard.

Tuesday kicks off with the “flash” PMI’s for Japan as well as a speech from BoJ Governor Kuroda. Business confidence is out in France and Turkey, the Ifo business climate and conditions are out in Germany which will be telling given recent concerns about the state of the german economy, and RBA governor Lowe is speaking in the evening on the economy. In the UK it’s CBO trends and orders while in the US it’s Case Shiller house prices, the house price index, and Richmond Fed manufacturing. I’ll be watching the Conference Board consumer confidence index closely in the US as well as the API data at the end of the day. The ECB’s Guindos is also giving a speech Tuesday.

Wednesday we get the minutes to the recent BoJ meeting which will be of interest to those of us who would like to know if they contemplated easing, Frnech consumer confidence is out, the ECB’s Benoit Coeure is speaking (twice), Spanish PPI is out, and we get French employment data and UK CBI distributive trades. In the US it’s mortgage applications and a speech from the Fed’s Evans. New home sales are out as are EIA crude stats. 

Thursday we get South Korean consumer confidence, Kaplan is speaking in the US evening – about 9am my time – and we also hear a speech from BoJ governor Kuroda, The ECB economic bulleting is out and then the big one for the day is the latest read for US Q2 GDP and the associated data. Mario Draghi is speaking, as is the Fed’s james Bullard, while we also get pending home sales, Jobless claims, and the Kanssa City Fed index before Clarida, Daly, and Kashkari are all out on the husting’s speaking. Banxico has a policy decision out.

Finally Friday and it’s the latest update of Tokyo CPI, CHina’s industrial profits, German import prices, housing prices in the UK, and consumption and inflation data in France. Retail sales are out in Turkey, speeches from the BoE’s Sauders and ECB’s Guindos as well as Italian confidence and PPI data together with Euro Area business confidence and industrial sentiment and Indian money growth data. Brazilian unemployment and consumer confidence is out along with Durable goods, PCE, personal spending data in the US. The Fed’s Quarles speaks as well.  

Have a great 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 © 2019 gregmckenna.com.au, All rights reserved.

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Greg MckennaOn the Repo mess, trade war, stocks, oil, and forex – McKenna Macro Markets Weekly

Oil to open the week with a bid after Saudi attacks, then it’s a big one for Central Banks – McKenna Macro Markets Weekly

on September 15, 2019

Hi folks, welcome to my weekly newsletter – This is post is sponsored by SMARTMarkets 

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Key Takeaway

That the rout in bond markets over the past week or so hasn’t really disrupted the more positive tone in stocks and other risk markets is remarkable on some levels but also an example that we likely saw a period of peak pessimimism and the associated FOMO in bond markets as traders and investors scrambled for yield before it disappeared. But the bond market sell off continues with US 10’s at 1.90% from a recent low around 1.4% – some move, do the math on that :S.

But stocks are still bid because there is enduring positivity about the chances of a breakthrough between the US and China. And you that this is the case because bonds are offereed, as is gold and silver, while copper has caught a bid. While prices in stocks rise toward resistance the fact that there is some sense an interim deal might get done will keep a bid in the market – at least until the FOMC possibly undertakes a hawkish cut mid-week.

And of course in what is a huge week for central bank decisions including the BoE and BoJ, not to mention many EM nations, the focus early doors Monday is going to be on the fallout from the weekend attack on the Saudi facility which has knocked out around half of the Kingdoms capacity in one fell swoop.  

The Week That Was…

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

Key Themes driving markets

Oil is going to open the week bid after weekend attacks on Saudi oil facility

On Saturday Saudi Arabian authorities confirmed that around 5.7 million bpd of productive capacity had been temporarily knocked out after – Houthi apparently – attacks on the facilities. Crucially though the new Oil Minister Abdulaziz Bin Salman said the Kingdom’s export customers would be supplied from inventories.

We won’t know the real impact of the attacks – in terms of how long this capacity is knocked out for – for a couple of days according to  Amin Nasser, CEO of Saudi Aramco who – according to Platts – emailed a statement saying, “work is underway to restore production and a progress update will be provided in around 48 hours”

So we have a window of uncertainty where sellers might be a little nervous and the bulls will have the whip hand. But in the same way where the financialisation of Crude Oil has seen a recent battle between those who believe a slowing economy will hurt oil demand and those who believe that the OPEC+ plan to continue to press inventory levels lower has lead to a broad range, so the same forces will now battle at some higher level at which oil prices seem ridiculous to the global growth slow down folk or those who understand how long the Saudis can supply from stocks and the rest of OPEC+ can step in to bridge the Saudi gap.

You’d have to think there are contingencies.  

The open Monday could be very interesting if we haven’t heard any timing from the Saudis and I have a sense of where the technical levels might be in WTI and Brent. But that said, the reality is where, how fast, and how high oil prices really go is going to be a function of how much information is available at the open and subsequent trade before things settle down. And how much emphasis traders put on the Saudi statements about supply from inventories or of the Trump Administration saying it can tap emergency reserves if necessary.  

I won’t pretend to know the answer to that, only to say this is a big outage, how long it last and how quickly OPEC+ can fill the void is going to be crucial to the outlook.   To the technicals then – using Brent for this week’s chart.

Brent Weekly

For Brent the range top comes in at $68.62 and old trend channel resistance at $70.62. That seems like the most natural places for sellers – if they are game – to get involved. In WTI terms the levels of resistance are $58.58/85, $60.90, $63.93 then similar bottom of old trend channel at $67.74.

You can see from the above that I’m looking to fade this rally at some point – but lets see how long the outage is going to be before I rush in.  

Could we be on track for an interim trade deal?

China is playing the thaw in relations that they have sought in the lead up to the 70th anniversary of the CCP on October one masterfully. They have pushed the Hong Kong protests from the front page, they have agreed talks, they appear to be buying more US soy – even as they finalise an agreement with Argentina to buy which will allow them access to the world’s biggest soymeal producer – and they have been able to get President Trump to delay tariffs by 2 weeks to avoid the clash of the anniversary and the new tariffs coming into place.

It may all come to nothing given the mercurial nature of President Trump. But, I have to agree with AGF’s Greg Valliere who wrote Friday that maybe there is now available a Plan B on the China Treade Dispute. Valliere said (his capitals): 

“Both sides agree that about 90% of a trade deal is completed; negotiators have made that assertion for the past few months. So why not sign a deal on that 90% and leave the remainder for additional talks that could last through the winter? That idea seems to be gaining traction as both sides look more conciliatory.

WE STILL THINK A COMPREHENSIVE DEAL is many months away, but real signs of progress are possible when talks resume in October. Beijing is buying soybeans again and has offered concessions in free trade zones in China, while Donald Trump is delaying some tariffs and considering other concessions”.

Now I can’t fall into the trap of thinking President Trump will do something because I would, or maybe most folks would because clearly he’s shown himself not to be that guy. But I’m with Valliere. This would be a very elegant way to de-escalate trade if President trump wants to. It’s a big IF and an important one for markets. But he did say last week he might be open to an interim deal – so we’ll see.

Critically China will probably require some reduction in tariffs for even an interim deal to get done. But, eithyer way, we can probably have a few weeks more where both sides are spinning positive messages.  

Correlations are almost back to normal – so things have settled down

There is still plenty of Green and a bit of red. That reflects correlations of greater than plus or minus 0.75 ove rhte past 30 trading days. But what you don’t see here is the universal panic of almost full green and red we did a few weeks back. Rather what we have is what we could term more “normal” correlations.

So, crisis averted thanks to China deciding to buy time on trade.  

That means the bond market rout isn’t having the impact it could have more broadly

This reversal in bond rates – bond prices – has been extremely aggressive and reminds me very much of 1994 when US and global bond markets came under intense upward pressure. back then US 10’s rose from the nadir in 1993 in the low 5% region to a peak around 8% in November 1994. As a young interest rate portfolio manager it was a trying time and I learnt a lot from great mentors – thank you Greg Michel and Peter Whitty.

Now I’m not saying this is the same thing and certainly not saying that we are going to see a reaction of that magnitude. But as I explained to paying subscribers early last week in keeping with my style as a FI portfolio manager I would want to keep the running yield on bonds bought last year (when I went bullish) and am using futures to hedge that position until the bond rout has run its course. At the time I said the current targets for 10 years bunds are a run toward -0.40% while for US 10 year Treasuries it is the 1.87% region. 

We’ve seen US 10’s move through that level and they are at 1.901% on Friday’s close while german 10’s are up at -0.45% now. But as I also told subscribers – and Twitter – I don’t want to make the easy mistake of prematurely extrapolating the recent reversal into something more pernicious. But there is a technical setup which suggests US 10’s may actually head toward 2.00/2.10%. 

Source: Twitter

2.10% is just the garden variety retracement as it represents the 38.2% Fibo of the of the move from around 3.24% last year. Bond rates in the US and across the globe have moved far and fast from the recent lows. But as I also told Subs last week my sense was we’d seen a pessimistic cresendo in bonds rally so hard on worries about trade and growth and that the rally was fuelled by FOMO when it comes to running yield – and a little bit of reach for capital gain.

Things never turn out well in global finance when bond managers are worrying more about the RETURN ON their capital not the RETURN OF their capital. 

Now, while the reduction in tensions has played a part in the bond market rout so to has the subtle shift in the german government’s position on the possibility of Fiscal stimulus. Last week that tack was signalled when the finance minister said there were many many billions which could be deployed to shore up the German economy. Then of course we had mario Draghi’s dovish surprise – to me at least – while he emplored the governments of Europe to get busy on the fiscal front.

Source: Twitter

And over the weekend Olivier Blanchard made the right case for the combo of fiscal and monetary policy. get off the pot Pollies. So of course we’ve seen European bond rates lead the global reversal in many respects and it doesn’t look done yet. 

German 2-10 spread (top), German 10’s (middle), German 2’s (bottom) – TradingView

Stocks still bid but nearing important resistance – a deal might be coming though

The rally in global stocks continued this week with more positive noises about trade and some signs in the data that the US economy is nowhere near as rubbery as some folks thought. It was an interesting weak where the small cap Russell 2000 well and truly eclipsed the performance in the bigger indexes by many percent and as there was a rotation from growth to value.

For me, though I recognise there was a bit of quant messiness in the relative performances, the moves represent a mild recognition that maybe things in the US might turn out a little better than investors had thought. So we had a self reinforcing positive loop for a changte in data, sentiment, and smaller cap stocks performance.

US Retail Sales YoY(blue) v US GDP Annualised(black) – TradingEconomics.com

Take retail sales for example, it’s no surprise with a still strong jobs market, relaitvely robust wages growth, that retail sales are still printing fairly solidly. Data released Friday showed a rise of 4.1% year over year in August after the month printed a stronger than expected 0.4% to follow the previous month’s outsized 0.8% growth rate. Of course I could cue those who will tell you consumers usually do better than the actual economic growth levels show and recession can still occur.

I’ll accept that and stay on guard because it’s clear the US economy is actually slowing. But it is also clear that the data fits the Fed’s entreaties the US economy is doing okay a little better than the handwringing recessionistas. You know my view, another rate cut this week and it will facilitate a mid-cycle positive tap on the economic accelerator which can keep the US expansion going a little longer still. And if the Fed feels the need to cut again in the future it can do it all again.

So we’ve got a more supportive backdrop for stocks and you can see in the weekly chart below the low last week was pretty much on the wedge trendline that the S&P broke down below and then has rallied back through last week. It is still below the top of what might be a giant megaphone so the 3045/50 region – not to mention the record high around 3026ish – could offer decent resistance.   

S&P 500 Physical Weekly – TradingView

In terms of the outlook it is worth reiterating that structurally the JimmyR still has a long signal on the weekly charts while the dailies are are now crossing and the MACD daily system has been long since August 28. The weekly MACD system went long last week – Monday – as well. So, my rhetorical expectation we’d head lower is in abeyance for the moment as 4 of the four methods I use to determine trend are all long. 

And, given the trade war is a handbrake on global growth and because in varying degrees where the US markets – especially the bellwether S&P 500 – drive overall global stock market sentiment then that has also seen my systems and sentiment long global stock indexes individually as well.

The result of course, is that the DAX and others have run higher and hit my 12400 target I was talking to Subs and mentioned here last week on the break of 11850. It’s not all beer and skittles though because as Subs know I reduced positioning in the DAX when it hit 12400 Thursday. Doh, as Homer would say. Overall net long though still and the DAX looks like it is running back toward recent highs around 12660/80. Though there is some resistance in the 12600 region from the old trend channel bottom.  

USD Index (DXY) Weekly – TradingView

The USD looks like it’s heading back to support, perhaps much lower

Whereas we had a month or two of the USD (in DXY terms) trading up and down last week’s down week was the first back to back down weeks for the DXY since the weeks ending the 20th and 27th of May. That in itself is only an interesting statistic if we can glean any insight from it – either technically or fundamentally. 

For me the important point is that while folks are getting a bit more excited about a trade deal – interim or otherwise – the USD suffers for a time because that would in effect mean the US Administration is taking its foot off the throat of the Chinese and other EM economies and currencies – which is what we saw last week with USDCNH down at 7.0454, around the 38.2% retracement of the last leg higher from 6.81back in June/July.

USD Index (DXY) Weekly – TradingView

So, as I look at the DXY below it seems this correction may continue so I’m looking at the set up and watching the bottom of the channel which at present is still just around 96.00. And, as I’ve been saying for a couple of weeks it’s not beyond the realms of possibility that we see a ratchet down toward that level. The 15 week ema is at 97.50/55 and the 30 is at 97.20. They should offer some support on the way lower. 

Turning to the the Euro now and the ECB eased, the Euro fell out of bed – aggressively so – but then bounced – also aggressively – from the recent low at 1.0925 and ended the week at 1.1073. For me it still needs to get up and through 1.1111 to really kick but that is possible given mario Draghi seems to have stepped beyond what many of his senior colleagues thought prudent. That suggests no more stimulus from the ECB unless their is a crisis – notwithstanding 20 billion Euros a month of QE is continued stimulus.

So over to fiscal policy and in that regard it would be supportive of growth, European bond rates, and thus Euro positive. IF, if, it happens.

Techically though, a break of 1.1111 opens 1.1150, then 1.1200/20 then 1.1280. Much wood to chop given the strength and persistence of this downtrend. 

EURUSD Weekly – TradingView

Sterling had another wild week week breaking up and through the recent break down level at 1.2435. Given the run under 1.20 recently this is a powerful rally. As well it might be as a chastened BoJo seems to actually be working toward a deal once more.

Nothing like the scent of a terminal premiership to get one focused on policy not oneself hey Boris????

Anyway, as the chat continues of the hope of a deal and BoJo’s hands are tied on a hard Brexit by the parliament then the Pound can continue to rally. Especially given it’s broken resistance. 1.2600 seems a reasonable target now and if that breaks we might even be talking about 1.28. What a roller coaster ride.  

GBPUSD Weekly – TradingView

CFTC Data 

A nice time for specs to get long Oil it seems with a big uptick in WTI longs shown in the CFTC data Friday. As noted above there is still plenty of limit available for more longs, so that can drive prices even higher still if the Saudi facility is out for a bit. Currency markets strike me as vulnerable if this USD move gets a wriggle on. We have seen a small diminution of AUD shorts, though specs seem to dislike the Pound immensely. So if the USD keeps falling we may see some squaring after the decent bouces. AUDUSD likely needs to get above 69 cents and run toward 70 though. 

US 10’sshorts were reduced which I find interesting in the extreme. But there is still room for further selling as positions are opened up for any dips to be offered (yield terms).   

 The week ahead

The week kicks off Monday with China’s Triple treat of fixed investment, retail sales, and industrial production. Indian wholseale prices are out we get speeches from the ECB’s Coeure (which could be very interesting) and Lane. Italian inflation data is out along with Russia’s insdustrial production. And in the US we get the release of the NY Empire manufacturing index. 

Tuesday we get the RBA minutes to the latest meeting which might be interesting if they reflect disqueit with the lack of fiscal spending and what happens to lower rates. But the board probably won’t let that out even if they did discuss it. Chinese house prices are out and in Germany we get the next update of the ZEW data. The Euro Area version is also out. In Canada we get manufacturing sales, Russian PPI is out and then in the US we get industrial production, manufacturing sales, and the NAHB housing market index. And of course Tuesday late we get the API inventory data.

Wednesday is South Korean export and import prices, Japanese trade, and in Australia Westpac releases the leading index of growth. Italian industrial orders are out along with South African inflation with inflation data also released for the UK and Euro Area. ECB Guindos is speaking and then its South African retail sales and Canadian inflation. In the US it is building permits, housing starts, and the EIA inventory data. Russia releases its GDP and unemployment.

And of course the big one Wednesday is the FOMC decision and Fed Chair Powells press conference. 2pm Washiington and then the presser is at 2.30pm. 

Thursday kicks off with Asia reacting to what the Fed does and Powell says and then forex and rates traders will move onto the Australian employment data and then the BoJ interest rate decision. With the ECB gone, the Fed going, the BoJ might get busy too. If for no other reason to ensure the Yen doesn’t catch a bid. Indonesia also has a rate decision while the Saudi Arabian and Brazilian central banks release their decisions between the Fed and the Asia open. 

Also out Thursday is the Euro Area current account, UK retail sales, Italian construction and current account, another speech from the ECB’s Coeure, and then the BoE interest rate decision and associated minutes and vote cut. Canada’s ADP employment data is out, the Philly Fed is released in th US along with jobless claims and existing home sales. South Africa has an interest rate decision to be announced and Argentinian GDp is out at 3pm New York time – might be interesting for the ARS.

Finally Friday and we get Japanese inflation, or lack there of. Germany release its PPI, the BoE’s quarterly bulletin is out, as are Canadian retail sales and Euro Area Consumer confidence. 

Central Bank week, HUGE – especially the FOMC. 

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 © 2019 gregmckenna.com.au, All rights reserved.

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Greg MckennaOil to open the week with a bid after Saudi attacks, then it’s a big one for Central Banks – McKenna Macro Markets Weekly