Market Updates by Nick the Contrarian

JoshWinter
JoshWinter
edited August 7 in A Bit of News

4th August 2017 NY Summary

Notable Moves:

Friday's U.S. non-farm payrolls added a total of 209K jobs in the month of July, driving the unemployment rate down to 4.3% from 4.4%. Average hourly earnings growth accelerated to 0.3% from 0.2%. These numbers are good enough to stem the slide in the dollar, but based on the lacklustre rally in USD/JPY investors don't seem convinced that another rate hike is warranted. USDJPY traded to a high of $111.06, closing 0.58% higher at $110.69. Euro was down 0.83% at $1.1772. Sterling traded 0.78% lower at $1.3036.

Brent Oil futures were up 0.79% at $52.42 a barrel, while U.S. West Texas Intermediate Crude was up 1.12% at $49.58.

Takeaways:

Key Political developments last week - POLITICO:

  1. DHS waives laws to help build a border wall

Congress doesn’t appear very interested in funding Trump’s promised wall on the U.S.-Mexico border. Senate Republicans, for instance, introduced a $15 billion border security bill this week—and none of that money was earmarked for the wall. Democrats are refusing to vote for any bill that includes border wall money.

But the Trump administration is continuing to take steps to build an actual, physical wall. On Tuesday, the Department of Homeland Security issued a notice that it was waiving more than three dozen environmental laws in order to build border wall prototypes along a 15-mile border in the vicinity of San Diego, California. The waived laws include the Endangered Species Act, Clean Water Act, Safe Drinking Water, and the Antiquities Act, freeing the government from costly regulations like environmental reviews. The notice is still a small move, since the department has only about $20 million to construct the prototypes—money repurposed from other accounts. But it’s another signal that Trump isn’t backing down from his wall.

  1. Trump targets a major financial regulation

In the aftermath of the financial crisis, Congress passed the Dodd-Frank Act, a law intended to protect consumers, tighten up oversight of banks and prevent another deep recession. Republicans for years have complained that the law was unduly harsh, discouraging banks from lending and contributing to the slow economic recovery.

On Wednesday, the Trump administration took a first step to reforming a major component of the law, known as “Volcker Rule,” which prevents banks from risking depositors’ money on certain speculative investments. The Office Comptroller of the Currency, an independent agency currently run by Acting Director Keith Noreika, who Trump appointed in May, requested comments on revising the Volcker Rule, a clear sign that he intends to change the underlying regulation.

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  • JoshWinter
    JoshWinter
    Posts: 442

    7th August 2017 NY Summary

    Notable Moves:

    The Kiwi tumbled on Monday after a survey showed businesses expect inflation to move south soon. On-year inflation expectations slid to 1.77%y/y from 1.92% three months ago, while two-year ahead inflation expectations fell to 2.09%, down from 2.17% previous reading. As a result, the Kiwi dropped 0.65% at $0.7358. Total net speculative Kiwi speculative position rose to 63.5% of total open interest (future only) last week, increasing the odds of a downside correction as an unwinding of long position is likely.

    Oil prices fell on Monday, triggered by a rebound in production from Libya's largest oil field along with worries about higher output from OPEC and the U.S. Brent Oil was down 0.27%, at $52.28 a barrel. U.S. WTI Crude was down 0.52%, at $49.27 a barrel.

    Takeaways:

    1. Reliance On Central Banks Holding Markets Together - Citi's Credit Strategist Matt King :

    Asset prices display a high degree of correlation with central bank liquidity additions in recent years. This feedback loop makes the economy, upon which both corporate profitability and bank net interest margins more reliant on central banks holding markets together than ever before. That delicate balance may well be sustained for the time being. But with central banks beginning to move, however gingerly, towards an exit, is it really worth chasing the last few bp of spread from here?

    The post-adjustment 8.5bp of additional spread on the current index relative to the 2007 tights equates to less than 0.5% of index return –from the point where spreads are back to the tightest level on record. And that was a level that with hindsight was driven by leverage and unrealistic assumptions about credit quality – of banks, of corporates and of sovereigns. The aftermath was not a pretty sight.

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  • JoshWinter
    JoshWinter
    Posts: 442

    8th August 2017 NY Summary

    Notable Moves:

    It has been a slow start into the week so far with most currency pairs trading sideways. With the exception of the Kiwi, which experienced a sell-off the past two days amid a drop in inflation expectation. Kiwi was down 0.52% at $0.7325.

    Oil prices fell on Tuesday, benchmark Brent Oil was down 0.74% at $51.98 a barrel. U.S. WTI Crude was lower 0.67% lower at $49.06 a barrel. Crude oil exports from the OPEC hit a record in July, largely because of gains in Nigeria and Libya, two countries that are exempt from the agreement to limit production that is slated to continue through March 2018.

    Takeaways:

    1. RBNZ Risk Event :

    Kiwi has dropped 2.5% so far this month as softer-than-expected data and a paring back of inflation expectations prompted traders to reduce bets the Reserve Bank will be forced to raise interest rates earlier than the 2019 date projected in its May forecast. The RBNZ is widely expected to leave interest rates unchanged, but the sell-off in the New Zealand dollar over the past 2 days maybe indicative that investors are positioning for less hawkishness from the central bank.

    1. Interesting Jeff Gundlach Comments On a CNBC report :
    • "One of the things that I follow to give a really good short-term cyclical indication of the yield of the 10-year Treasury is the ratio of copper to gold,"
    • "I'll be disappointed if we don't make 400 percent on the puts, and we don't even need a big market decline for that to happen."
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  • JoshWinter
    JoshWinter
    Posts: 442

    9th August 2017 NY Summary

    Notable Moves:

    Safe-haven currencies including the Swiss franc and Japanese yen rose on Wednesday, boosted by worries about increased tensions between the United States and North Korea. U.S. Defense Secretary Mattis officially put North Korea on notice after President Trump retweeted multiple Fox new reports citing either him or the government sources saying U.S. air force jets take off from Guam for training, ensuring they can fight tonight as the U.S. warns they will respond to North Korean threats with “fire and fury” if they make any further moves.USDJPY was down 0.23% at $110.06, close to the psychological level of $110. USDCHF was down 1.10% at $$0.9637 and EURCHF down 1.04% at $1.1332.

    Oil prices edged higher on Wednesday after a report showed U.S. refineries processed record amounts of crude in the latest week, eating into inventories. U.S. crude inventories fell 6.5 million barrels last week, government data showed, steeper than the expected decrease of 2.7 million barrels. Brent crude was up 1.32% at $52.83. U.S. West Texas Intermediate crude gained 0.89% at $49.61. 

    Takeaways:

    1. RBNZ Wrap :

    The Reserve Bank of New Zealand on Thursday said it still expected inflation to rise gradually as capacity pressures increase, underwhelming some expectations that it would strike a more dovish tone given recent soft economic data.

    RBNZ left the official cash rate unchanged at 1.75% and repeated that monetary policy will remain accommodative for a considerable period. RBNZ noted that numerous uncertainties remain; Policy may need to adjust accordingly. The RBNZ also forecasted that headline inflation will likely decline in coming quarters with house price inflation that continues to moderate.

    RBNZ lowers 4Q 2019 on-year CPI track to 2.0% From 2.1% In May.  RBNZ lowers 1Q 2020 on-year CPI track to 2.0% From 2.1% In May.  RBNZ lowers 1Q 2018 on-year CPI track to 0.7% From 1.1% In May.

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  • JoshWinter
    JoshWinter
    Posts: 442

    10th August 2017 NY Summary

    Notable Moves:

    Risk aversion and less hawkish comments from the Fed continues to drive the Dollar lower against safe haven Yen. FOMC's Dudley expressed concern about low inflation, citing that it's going to take some time for inflation to rise to 2%. He felt that sluggish productivity could dampen wage growth despite job gains. As one of the main drivers of Fed policy, Dudley’s cautious views reiterates that the Fed might not be in a rush to raise interest rates, especially after the PPI report. Prices took an unexpected -0.1% dip in the month of July, causing the year over year rate to slow to 1.9% from 2% and jobless claims rose to 244K from 241K. USDJPY was down 0.86% at $109.13. Kiwi fell large after Reserve Bank of New Zealand Governor Wheeler raised the possibility of currency intervention. Kiwi traded 0.93% lower at $0.7271. Wheeler said he would like to see a lower exchange rate, talked about how currency intervention is always an option and how they are always assessing the criteria.

    Oil prices fell on concerns of lingering global oversupply as Russia considered a future output resumption and OPEC boosted its July production numbers. U.S. West Texas Intermediate crude was down 1.86% at $48.64 a barrel. Brent crude futures were down 1.63% at $51.84 a barrel. 

    Takeaways:

    1. VIX spiked 44.37% from 11.11 points to 16.04 points

    As Morgan Stanley's Chris Metli explains:

    Should the S&P fall 3.5%, the VIX could rise as much as 12 points. When volatility is low it tends to move a lot for a given change in the S&P 500.  That effect is likely to be exacerbated now because the skew is steep and VIX rolls up the skew in a selloff, in addition, many players in the VIX market are short.  Taking these dynamics into account he estimates VIX could rise 12 points for a 3.5% 1-day decline in SPX.

    He also notes that If the VIX rises 12 points, 1-month VIX futures are likely up 5.5 points, a 50% increase.  The 1-day percentage change is a big deal in the VIX complex because the levered and inverse VIX ETFs and ETNs rebalance daily based on the percentage change, and some of the thresholds for forced unwinds are based on the percentage change. 

    This is the forced deleveraging scenario, where surging VIX forces vol sellers to unwind, and buy more VIX, creating a feedback loop, that Jeff Gundlach envisioned earlier this week

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  • JoshWinter
    JoshWinter
    Posts: 442

    11th August 2017 NY Summary

    Notable Moves:

    Growing concerns about the risk of conflict on the Korean Peninsula and disappointing U.S. data sent the Dollar lower for the week. On Friday, CPI data rose 0.1% in July, less than consensus expectations. Over the past 12 months, prices have increased 1.7%, which is less than the Federal Reserve’s 2% inflation target. NZDUSD was up 0.62% at $0.7320. USDJPY continues to trade below the psychological level of $110, closing 0.03% lower on Friday at $109.19.

    Oil prices edged higher on Friday. The International Energy Agency reduced demand estimates for OPEC crude this year and 2018, and said there are doubts about the group’s commitment to cutting production. IEA lowered projections for the amount of crude required from OPEC this year and next by about 400,000 barrels a day. About 32.6 million barrels a day will be needed from the group this year, less than the 32.84 million it pumped in July. Brent Oil was up 0.39% at $52.10. U.S. West Texas Intermediate crude gained 0.47% at $48.82. 

    Takeaways:

    1. The fiduciary standard gets punted - Politico:

    The biggest financial reform of the late Obama era was the “fiduciary rule,” the 2015 Obama regulation that requires investment advisers to act in the best interest of their clients when selling products like retirement investments. (The concern was that many advisers were pushing investments with a higher commission for the adviser, rather than a better return for the client.) It was assumed to be doomed under the new administration, but Democrats enjoyed a brief moment of celebration in May when Labor Secretary Alexander Acosta wrote in a Wall Street Journalop-ed that he would allow the rule to take effect in early June.

    It now appears the celebration was premature. Only part of the rule took effect in June, and the Labor Department isn’t enforcing that part until the entire rule takes effect on January 1, 2018. But now even that won’t be happening: This week, in a court filing, the Labor Department revealed that it had sent a rule to the White House for review that would delay full implementation of the fiduciary rule for 18 months, until July 1, 2019—enough time for the Trump administration to make significant changes or repeal it altogether.

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  • JoshWinter
    JoshWinter
    Posts: 442

    14th August 2017 NY Summary

    Notable Moves:

    The Dollar rebounded today as the silence gave investors the chance to take profits ahead of Tuesday’s retail sales report. USDJPY traded 0.63% higher at $109.94. USDCHF was up 1.01% at $0.9726. Next 2 weeks will be crucial starting from "mid-August”, that is anytime from August 15th – the timeframe that North Korea plans to shoot four missiles near the US territory of Guam. Softer Chinese industrial production and retail sales numbers sent Aussie lower, down 0.62% at $0.7855.

    Oil prices fell on Monday. Oil production in several key oil producing regions will grow by 117,000 barrels a day in September, the Energy Information Administration forecast.Total production from these regions will top 6 million barrels a day in August and September. The forecast for this month is significantly higher than a prior estimate, primarily because the EIA began projecting output for the Anadarko region, which covers parts of Oklahoma and Texas, in its August Drilling Productivity Report. Drillers have recently flocked to the Anadarko because the cost of producing oil there is relatively low.
    Brent Oil fell 2.9% at $50.59. U.S. West Texas Intermediate crude fell 2.56% at $47.59. 

    Takeaways:

    1. Trump launches trade war with China by signing Trade Executive Order:

    Over the weekend, administration officials said Saturday that memo will direct U.S. Trade Representative Robert Lighthizer to consider investigating China over its IP policies, especially the practice of forcing U.S. companies operating in China to transfer technological know-how.

    Sure enough on Monday, President Trump signed a memo addressing “China’s laws, policies, practices, and actions related to intellectual property, innovation, and technology” effectively firing the first shot in what many predict will blossom into an all-out trade war with China. Trump said he is directing USTR to examine China's actions on theft of American intellectual property. He said the U.S. will enforce the rules of fair and reciprocal trade.

    On a state-by-state basis, eight U.S. states are running surpluses with China, six of which supported Trump in last year’s presidential election, including West Virginia. In 2016, Louisiana registered the largest surplus, at 2.9% of the state’s GDP. Louisiana’s exports to China are likely inflated given that 60% of U.S. soybean exports are shipped through the Gulf coast. Washington state was second at 1.6% of GDP, largely due to aerospace exports. Tennessee maintains the largest trade deficit with China at 6.5% of GDP, meaning tariff-induced increases in the price of imports could have the biggest impact on this state. Trade wars foreshadows real wars, there are no winners.

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  • JoshWinter
    JoshWinter
    Posts: 442

    15th August 2017 NY Summary

    Notable Moves:

    Retail sales rose 0.6% in the month of July, 2 times more than expected. Retail sales ex autos and gas also rose 0.5% versus a forecast of 0.3%. Spending in June was revised up from -0.2% to 0.3%, instead of contracting spending actually increased 2 out of the last 3 months. Manufacturing activity also expanded strongly in the NY region with the Empire State survey rising to 25.2 from 9.8, to the highest level since September 2014. USDJPY reacted positively on the back of strong U.S. numbers, rising 0.87% to close above the psychological 110 at $110.59. Kiwi fell on lower dairy prices. A rebound was anticipated, but dairy prices fell -0.4%. Kiwi traded 0.74% lower at $0.7234.

    Oil prices inched up on Tuesday. American Petroleum Institute reported that U.S. crude supplies dropped 9.2 million barrels for the week ended Aug. 11. The API data also showed a rise of 301,000 barrels in gasoline supplies, while inventories of distillates were down 2.1 million barrels. Supply data from the Energy Information Administration will be released today.Analysts polled by S&P Global Platts expect the EIA to report a decline of 3.6 million barrels in crude inventories. Brent Oil rose 0.45% at $50.97. U.S. West Texas Intermediate crude rose 0.15% at $47.66.

    Takeaways:

    1. German GDP increases despite falling exports:

    A month before the German election, news regarding German fundamentals are still positive. GDP Growth came in at 0.6%, slightly below expectations of 0.7%. It is the 12th quarter that Germany is printing positive economic growth. Over the last 3 years France GDP only increased 0.5% q/q.

    It is also worth noting that annualized growth is robust with a GDP growth at 2.1% which represents the fastest pace since 2014. German fundamentals are on the solid side with unemployment rate at its lowest since 1989. Nonetheless exports are still concerning as June showed the biggest drop since 2015 - 3%.

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  • JoshWinter
    JoshWinter
    Posts: 442

    16th August 2017 NY Summary

    Notable Moves:

    The Dollar fell on Wednesday. Trump disbanded his two business councils, the CEOs of Merck, Intel, Under Armour, AAM, Campbell Soup, 3M and Johnson & Johnson have left the group following Trump’s response to the violence in Charlottesville. FOMC minutes suggested that policymakers backed a balance sheet move, but views that inflation will remain below 2% for longer than expected suggests that the Fed may wait longer than anticipated to raise interest rates again. Fed fund futures rate hike odds fell to 33.6% from 43.8% yesterday. Safe-haven currencies got bid with USDJPY falling 0.6% to $110.01 and USDCHF down 0.77% to $0.9652. USDCAD fell 1.03% at $1.2625. AUDUSD rose 1.41% at $0.7932. Kiwi up 1.12% at $0.7317.

    Oil prices fell on Wednesday. Refinery runs averaged 17.6 million barrels last week, the EIA said in its weekly report, versus 17.4 million bpd in the week before. Daily gasoline production fell to 10 million barrels, compared with 10.3 million bpd a week earlier. Whatever effect the EIA’s figures have on prices is short-lived as oil’s fundamentals remain largely unchanged, with rising U.S. shale output offsetting OPEC’s and its partners’ cuts that should together take off 1.8 million bpd from global supply. Brent Oil was down 0.79% at $50.40. U.S. West Texas Intermediate crude rose 1.58% at $46.80.

    Takeaways:

    1. Most efficient Tail-Risk hedges - BofA:

    BofA's analysis confirms that Gold is pricing in the smallest probability of a “tail event”. The implication also is that should a "tail event" occur, the return from a gold-based hedge would be the one with the highest return.  Here are the details:

    • As implied from Gold (GLD ETF) options, the probability that Gold rallies over the next month by 10.3% (equivalent to the 10th largest vol-adjusted rally in Gold’s history) is 1.7%. The probability that Gold rallies by 14.6% (equivalent to the average of the 10 largest vol-adjusted rallies) is a mere 0.7%. This suggests GLD calls are implying less than a 1 in 100 chance (1 out of 143) of its average historical tail event occurring in the next month.

    • At the other end of the spectrum is NKY, where options imply the probability that Japanese equities fall by 8.2% (10th largest drawdown) over the next month is 6.1% and the probability they fall by 10.4% (average of 10 largest drawdowns) is 5.1% (1 in 20 chance).

    In other words, just between gold and Nikkei options, the "priced in" probability of a crash is either ~1% in the case of gold, or 5% in the case of the Japanese Nikkei. S&P500 puts are currently pricing in the second-highest level of tail risk after NKY, following the strong rise in S&P skew last week. The probability that US equities fall by 7% (10th largest drawdown) over the next month is 4.5% and the probability they fall by 8.65% (average of 10 largest drawdowns) is 3.1%.

    Deep out of the money GLD calls would offer 56 to 1 payout ratios with this methodology, far more than any other asset, followed by UKX (35 to 1), SX5E (25 to 1), KOSPI2 (9 to 1), SPX (6 to 1), and NKY (5 to 1).

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  • JoshWinter
    JoshWinter
    Posts: 442

    17th August 2017 NY Summary

    Notable Moves:

    The Dollar fell on Thursday. Terror attack in Barcelona leaves 13 dead with 100s more injured. There were also rumors that President Trump’s Chief Economic Advisor Gary Cohn plans to resign. Cohn is a key member of the administration who is determined to press forward with tax reform, the dollar struggled to recapture its gains after the news faded highlights the ongoing turmoil for the Trump Administration. USDJPY fell 0.73% at $109.39. Euro traded 0.46% lower at $1.1716 after dovish ECB minutes. ECB officials expressed concern about the risk of Euro overshooting.

    Oil prices rebounded on Thursday. Brent Oil was down 1.07% at $50.81. U.S. West Texas Intermediate crude rose 0.36% at $46.95.

    Takeaways:

    Brazil could add to energy woes :

    Discovered only 10 years ago, Brazil’s pre-salt area has rapidly become the biggest oil-producing area in the country. Just this week Petrobras discovered commercial oil in a whole new pre-salt area known as the Marlim Sul Field in the Campos Basin, located about 71 miles off the shore of Rio de Janeiro.

    Pre-salt layers are deep underground, they are costly and difficult to drill in but holds massive potential for production. Brazil just announced a fantastic first half, with pre-tax profits reaching $4.4 billion in 2017, a significant increase from $395 million a year ago. This is thanks in huge part to falling production and exploration costs, which dropped by 68 percent.

    In June Brazilian oil output rose nearly a full percent from May to a daily average of 2.675 million barrels. Production in the pre-salt areas alone skyrocketed to an average of 1.353 million bpd, a growth of 6.4 percent from May. In July, for the first-time output from the pre-salt wells surpassed the rest of the country’s fields combined. According to Petroleo Brasileiro SA, oil is being extracted from the pre-salt offshore wells at the cost of just $8 per barrel. This is an investment opportunity that has not gone unnoticed, attracting domestic as well as foreign interests to invest heavily in exploration in the previously stagnant market.

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  • JoshWinter
    JoshWinter
    Posts: 442

    21st August 2017 NY Summary

    Notable Moves:

    A quiet Monday to kick-off the week as investors await the main event risk of the week on Friday, Jackson Hole Symposium where Yellen and Draghi will take center stage as markets seeks some direction on monetary policy . The Euro was up 0.45% at $1.1809. The ECB has already stated that Draghi will not reveal any new policy paths, indicating that any official communication on taper will not come until October at least. Although the ECB notes that it does not follow the exchange rate fluctuations, European monetary authorities no doubt are becoming concerned its recent strength. The Euro has risen more than 5% on a trade-weighted basis this year.

    Oil prices fell nearly 2% on Monday, pulling back from last week's rally built on signs the global market is starting to rebalance from chronic oversupply. Brent Oil was down 1.9% at $51.72. U.S. West Texas Intermediate crude fell 2.32% at $47.59.

    Takeaways:

    1. Central Bankers head to Jackson Hole amid unease about low inflation. Draghi has good reason to talk down Euro :

    U.S. inflation fell to 1.4 percent in June, based on the Fed’s preferred gauge, and consumer prices in the euro area is currently at 1.3%. Both central banks shoot for 2% inflation, although the ECB formally aims below, but close to, that level.

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  • flashsolver
    flashsolver
    Posts: 61

    Thanks for sharing

  • JoshWinter
    JoshWinter
    Posts: 442

    Anytime, Nick is great!

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  • JoshWinter
    JoshWinter
    Posts: 442

    22nd August 2017 NY Summary

    Notable Moves:

    The Dollar is up on Tuesday. USDJPY rose 0.65% at $109.69. USDCHF up 0.69% at $0.9684. Eurozone data missed expectations, the Mannheim-based ZEW research institute said its monthly survey showed its economic sentiment index fell to 10.0 from 17.5 in July. The Euro slid 0.45% to $1.1763. Sterling fell 0.62% at $1.2821. Although Canadian retail sales growth slowed to 0.1% excluding auto sales, Core Retail Sales rose 0.7%, which was significantly stronger than the market’s 0% forecast. The data seems good enough to support another rate hike from the Bank of Canada this year. CADJPY was up 0.55% at $87.26.

    Oil prices were mostly unchanged on Tuesday. Brent Oil was down 0.02% at $51.65. U.S. West Texas Intermediate crude was 0.7% higher at $47.7.

    Takeaways:

    1. Swiss Franc continues to be a good funding currency :

    The Swiss trade balance has increased in July to 3.51 billion from 2.81 billion in June. Watch exports is one of the major exports driver with a growth of 3.6% y/y. The summer is quiet for Switzerland and upside pressures on the EURCHF should continue till the ECB meets on 7th September. One week later the September 14th, the SNB is likely to keep rates unchanged.

    1. World's largest sovereign wealth fund has been ordered to boost stock holdings to 70% - Bloomberg:

    Norway’s $970 billion wealth fund has been ordered to raise its stock holdings to 70 percent from 60 percent in an effort to boost returns and safeguard the country’s oil riches for future generations. 

    The fund held 65.1 percent in stocks in the quarter, 32.4 percent in bonds and 2.5 percent in properties. Its mandate is now to keep about 70 percent in stocks, 30 percent in bonds, with about 7 percent in real estate that’s now separate from the main portfolio. The Finance Ministry is currently working on a plan on how to move the portfolio to 70 percent and the fund will stick to that.

    The fund also indicated it can withstand pressure on its balance sheet from government withdrawals. Norway started taking money out of the fund last year for the first time to cover budget shortfalls after oil revenue slumped. The government withdrew 16 billion kroner in the second quarter, reaching about 36 billion kroner so far. It has flagged it will take out just a little bit above 70 billion kroner.

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  • JoshWinter
    JoshWinter
    Posts: 442
    23rd August 2017 NY Summary

    Notable Moves:

    Dollar fell on Wednesday in a generally risk-averse market after U.S. President Donald Trump's threat of a government shutdown and comments about the possible termination of a North American trade agreement. The decline in new home sales also contributed to the Dollar's weakness. Purchases of new homes dropped 9.4% in July. USDJPY was down 0.57% at $108.94.
    Manufacturing and service sector activity in Germany accelerated this month, pushing the country’s composite PMI index to 55.7 from 54.7.
    ECB member Weidmann said he sees no acute need to extend QE into 2018 as inflation is on the path to reaching their target. EURUSD traded 0.46% higher at $1.1816. New Zealand's latest economic update expects growth for the year to June to be 2.6%, down from a previous estimate of 3.2% and for fiscal year 2018, to be 3.5% instead of 3.7%. Kiwi fell 0.60% at $0.7235.

    Oil prices were up on Wednesday. U.S. commercial crude inventories fell by 3.3 million barrels in the week to Aug. 18, just below the forecast for a decline of 3.7 million barrels by analysts surveyed by S&P Global Platts. Gasoline inventories were down 1.2 million barrels, more than analyst expectations in a Reuters poll for a 643,000-barrel decline. Brent Oil was up 1.25% at $52.52. U.S. West Texas Intermediate crude was 1.53% higher at $48.37.

    Takeaways:

    1. Shutdown threat grows as Trump digs in on wall - POLITICO:

    President Donald Trump’s vow Tuesday to close down the government if he doesn’t get money for the border wall mirrors private comments he has made to advisers in recent days — and could cause significant rifts within his own party if he follows through.

    The fight over the wall is likely to explode in September as the administration wrangles over a new budget, an increase in the debt ceiling, the beginning of a tax reform package and a possible resuscitation of health care legislation.
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  • JoshWinter
    JoshWinter
    Posts: 442
    24th August 2017 NY Summary

    Notable Moves:

    The event that investors waited all week for is here. Central bankers from around the world are gathering at Jackson Hole over the next few days for the Federal Reserve’s economic symposium. The topic is “fostering a dynamic global economy,” but the focus will be on Janet Yellen and Mario Draghi’s plans for monetary policy. USDJPY was up 0.5% at $109.58.

    Oil prices fell on Thursday amid concerns over demand as U.S. Gulf Coast refineries shut operations as Tropical Storm Harvey was forecast to turn into a major hurricane. Brent Oil was down 0.80% at $52.15. U.S. West Texas Intermediate crude was 1.40% higher at $47.73.

    Takeaways:

    1. Eyes On Jackson Hole:

    Yellen might argue that an increase in short-term interest rates will help support financial stability even if inflation outlook remains subdued. The markets might be under-pricing Fed rate path due to recent softness in economic data and further concerns over trumps administration ability to achieve policy goals. Fed rate hikes market are pricing in a merger 40% probability of 25bp for 2017. A repricing will send short term yields higher (US 2-yr yields at 1.31%) and likely catch the markets flatfooted. In regards to Draghi he will probably let Yellen steer the conversations since hints on ECB monetary policy drives Euro bulls. ECB July meeting minutes revealed that members are worried about the risk of exchange rate overshoot.

    2. The Cost Of Market Crash Insurance Just Hit A Record High - BofA :

    In a report, BofA's equity strategists pointed out that the S&P 500 forward P/E expanded in July and hit its loftiest level since the Tech Bubble. Even at these elevated levels, equities look attractive relative to bonds whose risk premium is more than 50% above its long-term average. This is a concern for portfolios that invest in both classes (risk parity). A significant risk for multi-asset managers going forward is a breakdown in the diversification between stocks and bonds in which we see simultaneous declines in both asset classes similar to the ‘Taper Tantrum’ in May/Jun-13 or to a slightly lesser extent the risk-off event from Aug-15 two years ago. These two declines were the largest since 2008 and equal to 50% of the drawdowns from the GFC. With multi-asset vol so low, for those managers who use leverage, the leverage levels may be high and therefore their portfolios may be more sensitive to a breakdown in correlation. As a result, the S&P put skew is now at the highest level on record, making the relative price of tail hedges the highest in 13 years as traders are bracing for a sharp market correction.

    On 8-Aug-17, the total number of VIX call options (including all strikes and all expiration dates) was 1,994,418, an all-time high, as investors piled into long call options amid the rising tensions with North Korea. The amount of options traded surpassed other notable highs on 3-Feb-2014 and 13-July-2015, when 1.85mn and 1.93mn call options were traded, respectively.
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  • JoshWinter
    JoshWinter
    Posts: 442

    25th August 2017 NY Summary

    Notable Moves:

    The Dollar fell on Friday amid a decrease in investor expectations of a third rate hike later this year, after Yellen avoided talking about monetary policy in her speech at Jackson Hole. She said substantial progress has been made in their twin goals of hitting 2% inflation and full employment and also felt that excessive optimism could return sooner or later. She did not mention balance sheet normalization and did not touch on future rate hikes. Investors were disappointed as she failed to provide stronger policy guidance.USDCHF was down 0.94% at $0.9563. At the same conference, Draghi said that the global recovery is firming up, but warned that without stronger potential growth, the cyclical recovery seen globally will ultimately converge downwards. No comment on monetary policy or the exchange rate was enough to give send the Euro 1.08% higher at $1.1926, the psychologically crucial 1.20 level is now in sight.

    Oil prices rose on Friday as U.S. petroleum industry braced for Hurricane Harvey, which could become the biggest storm to hit the U.S. mainland in more than a decade. Brent Oil was up 0.65% at $52.38. U.S. West Texas Intermediate Crude was 0.93% higher at $47.87.

    Takeaways:

    Things That Might Have Mattered - Politico:

    1. Amazon-Whole Foods merger sails through

    The Federal Trade Commission released a short statement saying it had completed its investigation into the $13.7 billion deal, which was announced in June, and isn’t going to challenge it. The quick approval also assuaged concerns that Trump would attempt to interfere in the regulatory review for political reasons.

    Amazon promptly announced that it will cut prices on a wide array of Whole Foods products, from avocados to tilapia, on Monday and intends to introduce benefits at Whole Foods stores for its Prime members.

    As a result on 24th August after Amazon announced its acquisition of Whole Foods will close on Monday. Shares of Kroger Co (KR.N), the biggest U.S. supermarket operator, closed down 8%, while Wal-Mart Stores Inc (WMT.N), the biggest U.S. food seller, closed down 2%. The S&P 500 Food Retail index closed down almost 5% as more than $10 billion was wiped off the market value of big food sellers.

    1. Trump ratchets up sanctions

    Last week, the administration took another unilateral step to stop Pyongyang’s nuclear ambitions when the Treasury Department imposed sanctions on Chinese and Russian individuals and entities, an effort to reduce North Korea’s exports, which it uses to finance its nuclear program, and to choke off its access to the global financial system. The move is the second time in two months that Trump has sanctioned Chinese entities over North Korea. In addition, on Friday, the White House also announced new sanctions on Venezuela that attempt to cut financing to the country and its state-owned oil company.

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  • JoshWinter
    JoshWinter
    Posts: 442

    28th August 2017 NY Summary

    Notable Moves:

    The Dollar traded lower on Monday and extended its losses after North Korea fired a missile over Japan. U.S. data fell short of expectations with the trade deficit widening to -65.1B from -64B in the month of July. USDJPY fell 0.46% at $108.84.

    Oil prices fell on Monday as "Hurricane Harvey" continued to wreak havoc on Texas, knocking major Gulf Coast refineries out of action. While the storm is expected to curtail offshore crude oil production in the Gulf of Mexico, the reduced inputs to those Gulf refineries will result in an increase in crude inventories that outweighs the outages in crude oil production from the storm. Brent Oil was down 1.64% at $51.55. U.S. West Texas Intermediate Crude was 1.99% lower at $46.77.

    Takeaways:

    1. Impact of hurricane Harvey - Goldman :

    The impacts will likely lead to crude accumulating in the US, and more specifically in Cushing as pipe flows to the USGC are set to decline. This could weigh further on the WTI-Brent differential by weakening the US leg (long oil now) and strengthening the offshore market (with stronger refinery runs there). Gasoline and distillate cracks are likely to strengthen.

    Overall, the impact of hurricane Harvey on the oil market (total demand vs. total supply) is likely be of higher oil inventories over the next couple of months. First, onshore US production typically normalizes in the month after a hurricane (as most wells are preventatively shut-in) while historically the impact on demand lasts several months. Second, the historical declines in demand observed during strong hurricanes Rita-Katrina (-1.0 mb/d the first month) and Ike-Gustav (-1.4 mb/d) are larger than the onshore (and currently observed) declines in oil production. Two caveats to this historical template: the proximity of these pairs of hurricanes overstates the demand impact while the magnitude of the onshore production impact of Harvey is unprecedented

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  • JoshWinter
    JoshWinter
    Posts: 442
    29th August 2017 NY Summary

    Notable Moves:

    The Dollar traded higher on Tuesday. US Case Schiller home price data inched up to 5.65% y/y from 5.6% last. US consumer confidence was strong, rising to 122.9 from 120.7. USDJPY made a strong comeback, trading to the lows of 108.27, to eventually close 0.46% higher at $109.75. Euro rejected the crucial 1.2 level, trading to a high of 1.2069 to close the day at $1.1970. The fall erased most gains for the day and the pair closed virtually unchanged.

    Oil prices continue to fall on Tuesday as traders fear crude oil inventories will rise as Hurricane Harvey takes offline refining capacity in the United States, potentially for weeks until refineries are back running at full capacity. Over the last ten weeks, according to the API, crude oil inventories in the United States have shed more than 46 million barrels. Brent Oil was down 0.56% at $51.6. U.S. West Texas Intermediate Crude was 0.64% lower at $46.27.

    Takeaways:

    1. Liquidity situation in the IG bond market- BofA:

    In recent years, yields have dropped so much that investors have been forced to enhance yields by reaching into normally illiquid off-the-run names and maturities, which naturally compresses the off-the-run/on-the-run liquidity measures. That means liquidity is OK because dealers are happy to use their lean balance sheets to not only buy liquid on-the-runs that turn over quickly, but also normally illiquid off-the-runs because there is an army of investors waiting to buy them in short order. BofA finds that while regulation may have tried to limit the liquidity of various risky markets, the record balance sheets of the world's central banks have offset this regulatory endeavour. The unprecedented reach for yield engineered by global central banks has likely mitigated the unintended consequence of financial regulation, which is diminished liquidity in the corporate bond market.
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  • JoshWinter
    JoshWinter
    Posts: 442

    30th August 2017 NY Summary

    Notable Moves:

    The Dollar traded higher on Wednesday. U.S. ADP reported the largest private payroll growth in 5 months, rising 237K vs 185K forecast. Second quarter GDP was also revised up more than expected to 3% from 2.6% on the back of healthier personal consumption. Risk aversion sentiments was faded as USDJPY bounced to trade above the psychological 110 level, closing 0.58% higher at $110.39. USDCHF was up 0.83% at $0.9634. USDCAD up 0.89% at $1.2622. Euro retraces from the psychological 1.20 level, down 0.67% at $1.1892. Kiwi dived on the back of dovish comments from the RBNZ. Governor Wheeler said “a lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth.” Kiwi closed 0.70% lower at $0.7206.

    Oil prices fell on Wednesday even though crude inventories fell by 5.4 million barrels in the latest week, far more than the decrease of 1.9 million barrels analysts had expected. Brent Oil was down 2.60% at $50.65. U.S. West Texas Intermediate Crude was 1.44% lower at $45.77.

    Takeaways:

    1. Brent/WTI Spread:

    The widening gap between WTI and Brent continues to create opportunities for traders. A spread this wide hasn’t occurred since early 2015. Brent/WTI Spread is at a year's high of 547bps.

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  • JoshWinter
    JoshWinter
    Posts: 442

    31st August 2017 NY Summary

    Notable Moves:

    The Dollar traded lower on Thursday. Today's non-farm payroll will be the last release before the FED meets next month. Expectations stand at a gain of 180K jobs after 209K jobs in July. The unemployment rate is expected to remain at 4.3%. Wages carry expectations for an increase of 0.2% m/m and 2.5% y/y. USDJPY ended the day unchanged at $110.13. USDCHF was down 0.42% at $0.9596. German retail sales fell, coming in at -1.2% vs expected-0.5%. German unemployment data was pretty much unchanged from the previous month, the Eurozone’s August inflation estimate jumped to 1.5% vs 1.3% in July. Euro was up 0.22% at $1.909. Canada’s economy expanded by 0.3% in June, lifting the annualised quarterly GDP growth rate to 4.5% from 3.7%, the strongest pace of growth since 2011. USDCAD traded 1.16% lower at $1.2475. Australia's Private Capital Expenditure was much stronger than expected in the second quarter, 0.8% vs expected 0.2%. Aussie rose 0.46% on the day to close at $0.7941.

    Oil prices rose on Thursday. The U.S. government will release 1 million barrels of oil from the Strategic Petroleum Reserve to a Gulf Coast refinery, the first emergency discharge in five years, after Hurricane Harvey halted foreign-crude deliveries to the heart of the nation’s refining industry. Brent Oil was up 3.83% at $52.81. U.S. West Texas Intermediate Crude was 2.33% lower at $47.03.

    Takeaways:

    1. BofAML on Euro:

    BofAML recommends shorting Euro. Thinks markets expect too little from Fed, too much from ECB. The key conclusion for BofAML is that the market may be underappreciating the concerns of major central banks, and particularly the Fed, for being responsible for the next asset price bubble and a possible crisis after it bursts.

    BofAML's Rates and FX Sentiment survey shows that most investors expect ECB QE to be over by mid-2018. Moreover, the market is pricing faster hikes by the ECB than by the Fed for the next three years. Given what the market is pricing today for the Fed and the ECB and by how much the Euro has appreciated this year, the risks are asymmetric for a hawkish Fed surprise and a dovish ECB surprise this fall, leading to weaker EUR/USD by the end of the year.

    Always a Student. B)
  • JoshWinter
    JoshWinter
    Posts: 442

    1st Sept 2017 NY Summary

    Notable Moves:

    The Dollar traded higher on Friday despite weak jobs numbers. NFP came in at 156K vs expectation of 186K and Average hourly earnings at 0.1% vs expectation of 0.2%. After an initial dip to a low of 109.56, dollar bulls came back to take USD/JPY 0.27% higher on the day to close at $110.27. Euro spiked to 1.981 on the back of weak U.S. jobs numbers, but failed to hold onto gains and closed the day 0.43% lower at $1.1859. USDCHF was up 0.63% at $0.9647. Canada’s economy is roaring despite threats of U.S. leaving NAFTA and the recent dip in oil prices. It is experiencing the fastest pace of growth of all the G7 nations which fuels expectations for another rate hike. In the month of June, Canada’s economy expanded by 0.3%, driving the quarterly GDP growth rate to 4.5% from 3.7% yoy, the strongest pace since 2011. The Canadian Dollar should continue to perform until BoC starts expressing concerns about the currency. USDCAD was down 0.69% at $1.2396.

    Oil prices inched higher on Thursday. Brent Oil was up 0.71% at $52.75. U.S. West Texas Intermediate Crude was 0.13% higher at $47.29.

    Takeaways:

    Things That Might Have Mattered -

    1. BOJ governor pledges to maintain highly accommodative policy:

    At the Kansas City Federal Reserve’s conference in Jackson Hole, Wyoming, Bank of Japan (BoJ) Governor Haruhiko Kuroda said Japan’s recent pickup in growth is likely unsustainable and pledged to maintain highly accommodative monetary policy “for some time.” Kuroda also noted that he anticipates less need for the central bank to purchase Japanese government bonds to maintain its 0% yield target for the 10-year note.

    1. Investors eye legal options for end of NAFTA:

    Investors and business groups in the U.S. and Mexico are looking at legal options in case Trump decides to quit the North American Free Trade Agreement (NAFTA). The second round of negotiations began in Mexico City last Friday, with questions mounting about whether Trump can pull the U.S. out of NAFTA without the consent of the U.S. Congress. A clause in NAFTA allows any of the three countries to withdraw from the deal after giving 180 days’ notice. Mexico’s Foreign Secretary Luis Videgaray Caso told reporters that his country will exit negotiations if Trump starts the process of a unilateral withdrawal.

    Always a Student. B)
  • JoshWinter
    JoshWinter
    Posts: 442

    4th Sept 2017 NY Summary

    Notable Moves:

    The Dollar traded lower against safe-haven currencies as geopolitical tensions escalated over the weekend. North Korea announced it conducted sixth nuclear test on Sunday. USDJPY was down 0.48% at $109.74. USDCHF traded 0.63% lower at $0.9586.

    Oil prices were mixed on Thursday. Brent Oil was down 1% at $52.22. U.S. West Texas Intermediate Crude was inched 0.15% higher at $47.39.

    Takeaways:

    1. RBA :

    The RBA is expected to hold rates at a record low of 1.5% later today, with wage growth and housing market among the focus areas

    Governor Philip Lowe last month said the RBA expects to keep the cash rate steady for a while as consumers adjust to an extended period of low wage growth that will cap inflation. The central bank has also continued to maintain expectations for economic growth at an annual 3% rate for the next few years but is worried a higher Aussie dollar could impact that forecast.

    1. Trump has decided to end Deferred Action for Childhood Arrivals (DACA) - POLITICO:

    President Donald Trump has decided to end the Obama-era program that grants work permits to undocumented immigrants who arrived in the country as children. Senior White House aides discussed the rollout of a decision likely to ignite a political firestorm — and fulfill one of the president’s core campaign promises.

    Trump is expected to formally make that announcement on Tuesday, and the White House informed House Speaker Paul Ryan of the president’s decision on Sunday morning.

    Always a Student. B)
  • JoshWinter
    JoshWinter
    Posts: 442

    5th Sept 2017 NY Summary

    Notable Moves:

    The Dollar fell on Tuesday. USDJPY fell 1.03% at $108.61. Sterling rose 0.84% at $1.3041. RBA said the higher Aussie is weighing on the outlook for output and employment and while inflation is expected to pick up gradually, growth may be slower than forecast if Aussie rises further. At the same time, they believe that recent data is consistent with their forecast for a gradual pickup in growth. Aussie traded 0.79% higher to close above the psychological 0.8000 level at $0.8007. Kiwi rallied 1.34% at $0.7258 on the back of a 0.3% increase in dairy prices, the strongest increase in 3 months.

    Oil prices rose on Tuesday as the gradual restart of refineries in the Gulf of Mexico that were shut by Hurricane Harvey raised demand for crude and eased fears of a fuel supply crunch. Brent Oil was up 1.64% at $53.20. U.S. West Texas Intermediate Crude traded 2.49% higher at $48.59.

    U.S. Treasury yields fell on Tuesday as worries about further nuclear tests from North Korea spurred safe-haven demand for U.S. government debt. U.S. benchmark 10-year Treasury notes fell 10.8bps to yield 2.058%.

    Takeaways:

    1. BoC:

    Given the solid pick up in the Canadian economy, the likelihood that the BoC raises interest rates by 25bps later today has increased. With a strong 2Q GDP report which indicated a 4.5% growth rate, the economy has expanded past the BoC's projections. Improvement in the labor markets and housing suggest that inflation should further build. The Canadian economy has been expanding at an accelerating pace, committee members might overlook current subdued inflation reading and adjust monetary policy later in the day, rather then getting caught behind the curve.

    Risk in CAD is now asymmetrical as a no change but upbeat communication will support CAD downside (keeping rate hike by year-end intact). However, a hike will indicate the BoC commitment, raising the markets expectations for additional BoC tightening. BoC interest rate expectations and yields spreads favoring Canada has been the driver of CAD pricing rather than crude prices.

    Always a Student. B)
  • JoshWinter
    JoshWinter
    Posts: 442
    6th Sept 2017 NY Summary

    Notable Moves:

    The Dollar Index was almost unchanged on Wednesday (-0.05%). U.S. ISM Non-Manufscturing PMI came in at 55.3 vs 55.8 forecast. Fed Vice Chairman Stanley Fischer submitted his resignation hours before Trump and congressional leaders agreed to raise the debt ceiling for 3 months. USD/JPY tumbled to a low of 108.45 on the back of Fischer's resignation, but came back to close 0.38% higher at $109.22 after the debt deal. The BoC raised interest rates by 25bps to 1% after a hike in July, putting Canada ahead of the curve in returning borrowing costs to more normal levels. BoC also notes in the monetary policy statement, future decisions are not predetermined and they have to pay close attention to the economy’s sensitivity to higher rates. USDCAD fell 1.11% at $1.2235. Kiwi fell 0.50% at $0.7199.

    Oil prices rose on Wednesday as strong global refining margins and the reopening of U.S. Gulf Coast refineries provided a more bullish outlook after the sharp decrease due to Hurricane Harvey. Brent Oil was up 1.46% at $54.16. U.S. West Texas Intermediate Crude traded 1.05% higher at $49.17.

    Takeaways:

    1. ECB:

    There might not be any discussions on the ECB's QE programme as Mario Draghi has emphasised that it will take place in the autumn of this year (October). Focus is likely to be on the Euro appreciation as it poses a rising problem for the ECB. Draghi might mention this as a worry again especially as the stronger Euro is likely to result in a lower inflation projection from the ECB, which is due to be released at the meeting.

    Excerpt from Bloomberg:

    The ECB currently forecasts price growth at 1.3% in 2018 and 1.6% in 2019, based on the assumption that the euro will average $1.09 in 2018 and 2019 – it hovered around $1.19 on Monday after briefly breaching $1.20 on August 29.

    Ahead of the new projections coming this Thursday, economists at several major banks have estimated the euro’s appreciation will shave 20 to 40 basis points from inflation in 2018-2019. Here’s a break down and excerpts from their notes:

    UBS: "In our interactive inflation model, we laid out that historically a 1% appreciation in the nominal effective exchange rate reduces headline inflation by 0.1pp in the first year and another 0.1pp over the next two years with Euro accounting for around 50% of the inflation impact. However, we think that the ECB revisions will be less pronounced."


    BAML: : "The EUR appreciation would justify a cut to inflation forecasts by 30-40bp in 2018 and 2019, and to growth forecasts by 20-30bps."

    Unicredit: "Outright cancellation of tapering plans remains a risk scenario related to further material currency appreciation, probably if the trade-weighted euro rises by a further 3-4%. A stronger currency and lower assumptions for euro-denominated oil prices suggest downward pressure on the numbers for 2018 and 2019, currently at 1.3% and 1.6%. We expect both projections to be lowered by 0.1pp."
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  • JoshWinter
    JoshWinter
    Posts: 442

    7th Sept 2017 NY Summary

    Notable Moves:

    The Dollar Index was down on Thursday (-0.87%). U.S. Jobless Claims came in at 298k vs expectation of 245k. USDJPY traded 0.86% lower at $108.29. USDCHF 0.71% lower at $0.9497.
    ECB signaled that a QE decision is coming in October. The ECB also raised its 2017 GDP forecast from 1.9% to 2.2%. They reduced their 2018 inflation forecast from 1.3% to 1.2%, and left their forecast for 2017 unchanged at 1.5%. Euro was up 0.93% to close above the psychological 1.2000 at $1.2028. USDCAD continues its downward trajectory, down 0.93% at $1.2111. Aussie was up 0.70% to close above the key 0.8000 level at $0.8056. Kiwi traded 0.67% higher at $0.7248.

    Oil prices were mixed on Thursday. There was a slightly bigger-than expected U.S. crude inventory build as the restart of U.S. refiners after Hurricane Harvey was being countered by the threat of Hurricane Irma. The U.S. Energy Information Administration said U.S. weekly crude stocks increased 4.6 million barrels last week, topping analysts forecast of a 4.0-million barrel. Brent Oil was up 0.57% at $54.51 U.S. West Texas Intermediate Crude was almost unchanged (-0.08%) at $49.12.

    Takeaways:

    1. Riksbank

    Sweden's central bank left its ultra-loose monetary policy unchanged on Thursday, bypassing signs that the economy is overheating in favour of keeping the crown weak to support an upturn in inflation. Sweden central banks is likely to prefer to let the ECB to move first on normalization. Sweden’s above trend in growth and inflations indicates that policy needs to tighten. The most logical path for the Riksbank are slow and steady removal of emergence measures and a stronger SEK.

    Always a Student. B)
  • JoshWinter
    JoshWinter
    Posts: 442
    8th Sept 2017 NY Summary

    Notable Moves:

    The Dollar Index fell on Friday (-0.34%). Safe-haven currencies received bids before the weekend as Hurricane Irma is set to wreck havoc on Southern states in the U.S. and risk of North Korea firing another missile on its founder's day (9th September, Saturday). USDJPY was down 0.56% at $107.84. USDCHF sold off 0.64% at $0.9445. Euro managed to close above the psychological 1.20 level, inching 0.10% higher at $1.2035. U.K. Manufacturing Production m/m came in at 0.5% vs 0.3% expected, Sterling rose 0.74% at $1.3198.

    Oil prices fell on Friday as Hurricane Irma, one of the most powerful storms in a century, drove toward Florida and the U.S. Southeast after destroying islands in the Caribbean. Brent Oil was down 1.30% at $53.78. U.S. West Texas Intermediate Crude tanked 3.28% at $47.48.

    Takeaways:

    Things That Might Have Mattered Last Week -

    1. Major Issues unresolved in NAFTA’s 2nd round:

    The second round of talks to revise the North American Free Trade Agreement (NAFTA) failed to produce significant breakthroughs on the major sticking points, which include rules of origin, competition, and labor rights. The talks are expected to last through the end of the year with locations rotating among Canada, the U.S., and Mexico. The third round will be in Ottawa on September 23–25. This stage should be the critical bar, as this is when the U.S. has promised to bring negotiating text for some of its more problematic proposals, such as rules of origin and dispute resolution.

    2. Trump’s trade fights with Canada continue - POLITICO:

    During his presidential campaign, Trump railed against China’s trade practices—but he hasn’t done much to improve them since taking office, breaking his promise to name Beijing a currency manipulator and delaying investigations into steel imports from China. Instead, he has targeted a friendly country much closer to home: Canada. He has, for example, reopened NAFTA negotiations with Canada and Mexico and imposed duties on certain Canadian products, including lumber.

    Last week, the trade fight with Canada took a bit of a surprising turn when the Commerce Department delayed preliminary antidumping duties on certain Canadian lumber companies to give the two countries additional time to negotiate a settlement. In effect, the delay temporarily lifts the 7 percent to 8 percent duties that Commerce had imposed earlier this summer. The agency must make a final determination on the duties by November 14. In less surprising news, on Thursday, Commerce opened an investigation into certain types of Canadian paper, the first step toward imposing penalties for unfair trade practices.

    Neither of these trade moves is especially important to the economy, but they are additional evidence that Trump’s trade agenda, so far, is far softer than the bombastic threats he leveled on the campaign trail. Together with his limited actions against Chinese trade policy, his agenda appears almost … conventional.
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  • JoshWinter
    JoshWinter
    Posts: 442
    11th Sept 2017 NY Summary

    Notable Moves:

    The Dollar Index rose on Monday (0.47%). Risk appetite returned as investors were relieved that Hurricane Irma did not cause as much damage compared to Harvey on Texas. North Korea also refrained from launching another missile over the weekend. USDJPY was up 0.96% at $109.29. USDCHF traded 0.83% higher at $0.9555. Euro retraced 0.46% to close below the psychological 1.2000 at $1.1962. Canadian Housing Starts came in at 223K vs expected 216K. USDCAD was down 0.40% at $1.2103.

    Oil prices inched higher on Monday. Brent Oil closed 0.26% higher at $53.92. U.S. West Texas Intermediate Crude rose 0.88% at $48.09.

    Takeaways:

    1. Fed Blackout -

    The Fed’s blackout period ahead of the FOMC meeting on 20 September begins this week and three of the voting FOMC members (Brainard, Kashkari and Kaplan) took the opportunity last week to express concerns about inflation, as it continues to run below the 2% target. While the Fed will most likely announce “quantitative tightening” at the upcoming meeting, the dovish speeches reiterates that it's not a given the Fed will hike in December, although it remains a base case for many institutions.
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  • JoshWinter
    JoshWinter
    Posts: 442
    12th Sept 2017 NY Summary

    Notable Moves:

    The Dollar Index was almost unchanged on Tuesday (0.04%) due to mixed performance against the G7 currencies. USDJPY rose 0.75% to close above the psychological 110 level at $110.23. UK's inflation gauge accelerated further in August. CPI y/y came in at 2.9% vs expected 2.8%. PPI input m/m at 1.6% vs expected 1.2%. Sterling rose 0.93% at $1.3286. Kiwi traded higher on the back of polls that show momentum for the conservative National Party led by Prime Minister Bill English. Kiwi was up 0.48% to close at $0.7290.

    Oil prices rose on Tuesday after OPEC said its output fell in August and forecast higher demand in 2018, indicating its production-cutting deal with non-member countries is helping to tackle a supply glut. Brent Oil closed 0.80% higher at $54.27. U.S. West Texas Intermediate Crude rose 0.48% at $48.30.

    Takeaways:

    1. Small victory for Theresa May:

    Theresa May’s Brexit bill made an advance yesterday as lawmakers approved her bill, which is aiming at repealing the 1972 European Communities Act. This is the beginning of May’s long journey to take Britain out of the EU.

    2. U.N. security council approves new North Korean sanctions - POLITICO:

    The resolution, responding to Pyongyang's sixth and strongest nuclear test explosion on Sept. 3, does ban North Korea from importing all natural gas liquids and condensates. It also bans all textile exports and prohibits any country from authorizing new work permits for North Korean workers - two key sources of hard currency for the northeast Asian nation.

    Specifically, this resolution will result in a 30% decrease in total oil imports by cutting off over 55% of refined petroleum products going to North Korea. It will also ban the export of all textiles. The North Korean regime earned $760 million through those sales, making it the largest economic sector that UN Security Council had not yet touched.
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  • JoshWinter
    JoshWinter
    Posts: 442
    13th Sept 2017 NY Summary

    Notable Moves:

    The Dollar Index rose on Wednesday (0.57%). Speaker Paul Ryan said their goal is for tax reform to become law by the end of the year. An outline of the Republican tax reform plan will be released the week of Sept. 25. U.S. PPI m/m came in at 0.2% vs expected 0.3%. Core PPI m/m 0.1% vs expected 0.2%. Euro was 0.62% lower at $1.1893.
    U.K. Average Earnings Index 3m/y came in at 2.1% vs expected 2.3%. Claimant Count Change at -2.8k vs expected 0.8k. Unemployment rate at 4.3% vs expected 4.4%. Sterling traded 0.53% lower at $1.3213. Aussie was 0.44% lower to close below the psychological 0.8000 level at $0.7984.

    Oil prices rose on Wednesday after the International Energy Agency said a global surplus of crude was starting to shrink, even though U.S. data showed another big increase in crude inventories due to the ongoing effects of Hurricane Harvey and Irma. The U.S. EIA's weekly data showed a build of 5.9 million barrels of crude vs expected 4.1 million. Brent Oil closed 1.49%% higher at $55.08. U.S. West Texas Intermediate Crude rose 2.18% at $49.28.

    Takeaways:

    1. House GOP leaders outline game plan for tax reform - POLITICO:

    House Ways and Means Chairman Kevin Brady (R-Texas) outlined a way forward for Republicans' tax reform plans yesterday, starting with the release of more details on Sept. 25, completing a budget that will carry tax language by mid-October and then having the committee take up legislation. Brady laid out the plan to House Republicans to assuage concerns from rank-and-file lawmakers over a lack of visible progress on an issue that GOP leaders see as their best hope for a major legislative accomplishment before the 2018 midterm elections. 

    Republicans want to avoid a repeat of their failed effort to repeal and replace Obamacare. GOP congressional leaders and top Trump administration officials — collectively known as the Big Six — have been meeting for months to try to hammer out a consensus on cutting corporate and individual tax rates and making other changes to the tax code. But consensus on major top-line goals remains elusive, as does a budget that will serve as a vehicle to move tax reform.

    Brady told members he would incorporate their feedback into a bill he would introduce in October, after completing the budget process and establishing an expected amount of money for the government to collect as part of tax reform.
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  • JoshWinter
    JoshWinter
    Posts: 442
    14th Sept 2017 NY Summary

    Notable Moves:

    The Dollar Index fell on Thursday (0.54%). U.S. CPI m/m came in at 0.4% vs expected 0.3%. Core CPI m/m in line at 0.2%. Unemployment Claims at 284k vs expected 303k. USDJPY traded to a high of 111.03 on the back of stronger U.S. data only to reverse later on reports that North Korea is preparing for another missile test. In early asian trading North Korea reportedly did fire a missile over northern Japan for the second time in less than a month. Risk-aversion eventually took USDJPY below the psychological 110 level to close 0.49% lower at $109.94. The BoE maintained the Bank Rate at 0.25% and kept the targets for the government bond purchases and corporate bond purchases at 435bn and 10bn, respectively. The vote count for the Bank Rate was 7-2, but warned of a possible forthcoming rate hike ‘over coming months’ if underlying inflation moves higher and the unemployment rate moves lower. Sterling rallied 1.42% at $1.3398.

    Oil prices inched up on Thursday. Brent Oil closed 0.22% higher at $55.28. U.S. West Texas Intermediate Crude rose 0.93% at $49.76.

    Takeaways:

    1. BoE

    BoE expects growth to remain around 0.3% q/q in the short term, it now expects CPI inflation to rise above 3% in October and the unemployment rate to decline further.
    The central bank believes the market is underpricing the chance of a rate hike. The tone of the BoE statement was unambiguously hawkish with BoE Governor Carney confirming that the odds of a hike have increased and he is among the majority on the MPC who see the need to change stimulus. The incoming labour market and inflation data until the November meeting are going to be very important for BoE’s decision.
    Always a Student. B)
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