12 Apr, 2017 - Story of the Week: The impact of Cyclone Debbie on Australia (GDP, AUD, Coking Coal, Agri, Tourism)

Cyclone Debbie hit north-east coast of Australia could have a significant impact on the countries’ GDP in the 2^nd quarter of this year. The most hit state, Queensland generate 19.5% of Australia GDP. The three most important sectors in the state are Agriculture, Tourism and Mining and all of them will feel the pain after Debbie, however shouln't have significant the impact on the Australian economy overall. 

Agriculture - Sugar Cane Production

Queensland add approximately AUD 10bil or 27% to the agriculture industry of Australia. The damage is currently assessed but the process seems to be difficult due to lost connection due to flooding. Approximately 95% of Australia’s sugar cane production comes from Queensland and the industry directly employs 16.000 people across the growing, harvesting, milling and transportation sector. The damage caused by Debbie will be in hundreds of millions.  According to USDA data Australia accounts for almost 3% of global sugar production with 80% exported.

Tourism 

The impact in tourism will be rather local, with main damage in Whitsunday region Queensland. There are however fears that the Great Coral Reef barrier could have suffer significant damage due to the extreme weather. However the impact on the reef could be also positive as the cyclone could cool down the waters around the coral reef which was significantly overheating the last year. According to the latest news the damages caused by Debbie on tourism should be less significant and the industry is already getting back on its feet.

Coking Coal Mining

Australia is a major global supplier of coking coal mining and related industry account for approximately 3-4% of Australia’s GDP. According to mining.com the worst hit area of the country, Queensland produces more than 50% of world coking coal production, mostly exported to China. Major producers like BHP Billiton and Peabody Energy already declared force majeure due to closed railways due to landslides and heavy rains and Australia’s coal exports may be disrupted for weeks. However material damage should be minimized as companies started preparation for the cyclone in time. The major damage will appear in the transportation infrastructure especially the railway lines.

Overall Queensland accounts for approximately 20% of Australian GDP and the Cyclones effect will be probably seen in the Q2 data. Debbie however didn’t reach the strength of the Cyclone Yashi in 2011 and relatively quickly calmed down. The impact should not be significant and we expect the more important will be the development in the construction industry and on the industrial metal market where iron ore and copper prices dropped the recent weeks. 

AUD is ahead of important support levels in several crosses but the break below these levels will also depend on the USD strength as this will largely affect commodity markets which the economy is largely dependent on. Follow the developments on Iron ore and copper front, also May housing data (Building approvals and Construction work done) for a hint how Q1 GDP growth could look like.

Good Luck and remember to watch your risk and be consistent

Mr. Tech Man

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. 

Contact: landoftradingATgmailDOTcom, Blog: landoftrading.blogspot.com

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Dec 21, 2016 - (Forex) AUDNZD and NZDUSD ahead of NZ GDP ( bulls see light in the tunnel...)

Hi,

As Mr Tech Man has mentioned in our Weekly Macro Overview here, the economic growth of New Zealand is the highest among developed countries but the main driver of it was the housing boom that could be fading.

Join Us - FREE LIVE TRADING ROOM - click here

How kiwi looks like from technical point of view ? 

In my opinion any positive number ( and I do expect it ) might be very good excuse to push NZD higher ( even as profit taking from short side ). So in that case long NZD via AUD ( even before the data with stop as a daily close above 1,0530 ) or USD ( here I would wait for a daily close ) could be the name of the game ( short term ;)  ):

NZDUSD daily chart:

AUDNZD daily chart:

Please let us know should you have any additional questions or you would like to discuss other crosses as well. We are here to help you, just contact us at: landoftradingATgmailDOTcom.

Happy Trading

Mr Price Action



DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: 

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Dec 05, 2016 - Story of the Week : Mixed outlook for Australian GDP

If we compare Australia with major economies of the world we see a very nice picture. The country has low unemployment rate, low inflation and low government spending accompanied with one of the fastest growing GDP. However, there could be a storm coming as we can already spot the dark clouds if we look closer at the main factors that moved the Aussie economy the last year…

The next release of GDP will available on 7th of December, the day after the rate decision. Altough we will get some hints from the RBA Rate Statement tonight, many traders are asking what to expect? So lets look at few details.

Despite generally bad outlook at the beginning of 2015 the Australian economy managed to perform well in 2015/2016 financial year although worrying signs are still in place. 

While the year on year GDP growth measured by comparing same quarters of 2 years grew to 3.3%, the growth slowed down in the second quarter from 1% (downward revision from 1.1%) to only 0.5% in the Q2. In order to be able to make an estimate or just to have a feeling about the upcoming GDP, we can look at the key sectors contributing the most to the growth of the economy. Mining and Construction both making up a significant part of the Gross Domestic Product trend.

In Q2 the growth was supported mainly the Mining sector which added 0.8% while Construction, a  0.2% while also financial and insurance services had a high 0.5% impact. 
The impact of mining could be positive this year as it came mostly from mineral exploration which was caused by the increase in Commodity prices this year which keep rising massively.

The overall mineral exploration activity was flat in the second quarter but gold and iron ore bounced from the first quarter bottom as you can see from the chart below. As the prices of these two continued rising  in the third quarter, this can have again large positive affect on the GDP growth. Also RBA expects the investmnets in the industry to pick up soon. 

However, before we get overoptimistic, let’s look at the Housing market too which is the key concern of the policy makers currently. The figures released in November shows that these concerns have a good base as all the housing components show negative or flat trend, except maybe Home Loans. 

One of the most followed housing indicator is the Construction output due to its complexity and as it covers a whole quarter of production. In the third quarter the finished construction works fell by 4.9%. To have an idea how serious it is, the construction output didn’t fell so much in a quarter the last 16 years...

What is worse, the future doesn’t look brighter either. While housing prices in major cities started to rise again in the second quarter, the demand for owner occupied housing is declining. This will likely cause further decline in construction output in the coming months if investment housing will not be able to compensate this outage in demand.

The change in the trend of demand is clearly visible in dwelling commitments. The dwellings commitments were falling rapidly in the summer. Despite the overall housing commitments rebounded in September 2.3% the problem is visible if we break down the numbers. The investment housing increased by 4.6% compared to the number of owner occupied dwelling which increased only by 0.9%.

The change in the number of commitments is showing us the story behind. One of the best value indicators are owner occupied house and apartments purchases. While the increase in the number of these dwellings was the same 0,9% as the percetual increase of value of this housing, the number of investment housing increased only by 2.0 % compared to the increase in the value at 4.6%. This indicates a shift in demand toward a more expensive or even luxurious housing investments.

Another great indicator is the mood among builders, which is definitely not optimistic either. While in September the Construction Index published by AIG rose above the key 50 points level, it fell again sharply in October. This indicates, that the construction companies already feel the pain and in this environment they will likely be reluctant to start new development projects. 

According to the AIG report one of the reason behind the worsening sentiment are the new orders. These were falling overall in the construction business but the demand for houses and appartments declined significantly the last few months. 

As we went quickly through two major GDP components, it seems that the very positive outlook in mining may be mostly offset by the problems in the Construction sector. This sector can also influence the Financial services in a negative way. This sector  is also a signifcant part of the country's GDP so the effect could be stronger. 

I expect a significant decline in the quarterly growth rate despite the supporting efect of rising commodity prices on mining activity. The reason for this decline is the fact that the two sectors will compensate each other hence the effect would be neutral, which is equal to no or minimum growth in the two sectors together. It seems that market is still not really priced in this possible change and therefore be prepared to sell the fact after the release.

Remember to watch your risk and be consistent

Mr. Tech Man

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. 

Contact: landoftradingATgmailDOTcom, Blog: landoftrading.blogspot.com

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Sept 20, 2016 - New Zealand and the next challenge for its Central bank

We are heading towards the super Wednesday which will be the rate decision day for BoJ, Fed and RBNZ. About the first two there were lots of analyses and opinions but RBNZ didn`t get that much of a spot light due to lower global impact. The story is however quite interesting…

The Success story

The Kiwi had a great year so far when following the failure of a double top formation in January the NZDUSD rallied more than 15%... this would be a nice gain even for a blue chip. The economy is in great conditions with above average growth rate at 3.6%, employment close to maximums with full time employment skyrocketing while part time employment also growing steadily. The government budget was in surplus equalling 0.2% of the GDP in the fiscal year 2014/2015.

The problems

The housing market is struggling with insufficient stocks of available houses and house prices are rising 6% p.a. based on seasonally adjusted data of REINZ. The Real Estate Institute of New Zealand (REINZ) spokesperson Bryan Thomson said recently, “The underlying trends indicate that the struggle for stock is the single biggest factor driving market behaviour and price expectations across the country, as we await Spring listings“. Simply the economy seems to be too strong to cut the rate. But then why did the RBNZ the cut the benchmark rate in August.

The problems to solve are the inflation which is stubbornly low and the deficit of the Current account which is more than 3% of GDP but well compensated by capital inflows. The Core CPI is below 2% since late 2011 however since 2015 it’s in a rising trend. Actually this rising trend of inflation is the main reason some analyst are saying there is no need for further rate cut even RBNZ said they will continue with the easing. The other reason is the competitiveness of the economy due to strong NZD. One of the key areas are dairy products which are one of the key export products of the country.  With a strong currency one of the key industries of the country can get into big trouble which may have long term negative consequences on the country.

Conclusion

However the economy seems to be simply too strong to cut the rates at this point without risking an overshooting of inflation targets and further inflating the housing bubble. There are other tools from fiscal policy to support key industries which could be used. However in the current sick policy environment on global level the politicians are reluctant to act as necessary.

We strongly believe there will be no cut this time but due to the strong dairy lobby we will see further cut later this year or at the beginning of next year. For comparison please find below some macro data by country. The red highlight means long term unsustainable, the yellow means OK short/medium term and the green means long term positive.

Don´t forget to watch you risk and be consistent

Mr. TechMan

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmail.com

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Sep 18, 2016 - FOMC meeting (Sep 20-21) – a discussion about exit strategy, really?

Now or in Dec? Data are ok, we are not all 100% sure yet but… should we wait until Dec? Hmm, Trump president, data might be worse, lots of international risks like Spanish elections, referendum in Italy or Brexit going wrong…our credibility…hmm…

Few words about current developments:

-          The market expectations for a rate hike in Sep are around 20% and 50% for Dec but we should more see it as either a dovish hike or hawkish no hike. Meaning Fed will either hike but will have dovish comments or will not hike and will refer to Dec with some wording about data dependency…etc.

-          Apart from present market risk related to uncertainty and very low predictability of Fed’s actions market is watching underlying data to get some hints about economic growth, inflation and employment. As the economy is getting closer to full employment, the GDP and CPI/PCE numbers are gaining importance.

-          Steepening of the yield curve at longer end – we may see it as market reshuffling over to shorter term maturities based on rate hike expectations

-          Division of the FOMC officials – of course as always is the case

Our expectations:

-          Our base view is one hike in Sep and eventually second one in Dec if data support. Please read more on:

Jackson Hole coming, but what about the rate hike…?  and  US job market - Full time vs. Part time employment

-          The GDP growth may not be at the level all Fed officials would like to see, eventually we may have a different picture after elections but the economy is overall growing and doing well

-          The question about full time employment is also off the table as almost all FOMC members share the same view that the economy is close to full employment with unemployment rate at 4.9% vs 4.8% (Fed’s full employment rate)

-          The only question is inflation - the headline PCE and core PCE. The Fed’s projections show expectations at 1.9% for 2017 and 2% for 2018. The last figures were at 0.8% and 1.6% y/y respectively.

-          As the inflation is lagging the economic growth and monetary actions, we see that the rise of prices is on the right track. Do not forget about still very low oil prices, that housing market is stabilizing and that the costs of medicare will not be a huge contributor to PCE due to administrative measures in place.

-          All in all – data is good enough to support the Sep hike, restore the credibility of the Fed, confirm its data dependency and independence ahead of US elections as well as avoid another round of confusion as we had witnessed last year

-          Fed officials will likely avoid facing the risks of no hike this year (as per risks described on top of the page) and vote for a 0.25% rate hike from almost a zero level what is from a historical perspective completely irrelevant level

-          By gradual hiking (starting in Sep) they will create a room for rate cuts if necessary, to face recession risks in the future. Doing that will also allow to push away discussion about negative rates in US. 

-         From a completely different perspective a rate hike would mean the beginning of the return to normal monetary policy, breaking the dependence on central bank funding, pushing for fiscal and structural reforms, and more innovation 

-         The reaction of the markets – let’s have a look at S&P 500. There is something strange going on as US stocks should be much lower to our taste before a rate hike. Is Fed cooking something for us?

-         The rate hike may be a confirmation for the markets that the US economy is doing well. Of course the initial reaction will be a small pullback that will be followed by a strong rally.

-        In case of no hike, we can see a stop hunting rally and a huge sell off after. Exactly the opposite to what markets are expecting at the moment.

Well, any questions just ask…

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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Sept 11, 2016 - Weekly Macro Outlook W37

The central banks last week have chosen a passive approach with no changed in their monetary policies. The surprise drop in oil inventories this week caused the return of oil bulls however the rally stalled at 47.50 and WTI closed around $46/barrel and Brent after testing $50 dollars returned to $48/barrel. In the stock market Eric Rosenberg caused a sell off on Friday by backing the rate hike later this year. Next week we have BoE and SNB rate decisions.

Last week’s summary:

The USD fell against most of its peers on Tuesday after disappointing ISM Non-Manufacturing PMI. The biggest blow to EURUSD however came from Draghi on Thursday when EURUSD tested 1.1325. Market expected at least some expansion of the monetary easing and the unchanged policy added momentum to the euro bulls. It seems that central banks are running out of ammunition and it may signal the end of the era of loose monetary policies. Cable had a good start to the week after strong services PMI confirming last week’s surprise in manufacturing PMI, the cross tested 1.3450 levels after US ISM figures but during the Asian session lost the momentum and  the disappointing UK Manufacturing production and the mixed mood after inflation hearing caused the GBPUSD gave up its early gains. The diary price index in New Zealand was positive again third month in a row and this gave further boost to the kiwi. USDJPY bounced back from the downtrend line and tested 101 after ISM. The Crude oil gained on supplies concerns as Oil inventories fell dramatically last week. The reason however had nothing to do with fundamentals rather with bad weather which slowed down the unloading of tankers in the gulf. We may see a sharp change to the upside in inventories soon. At the end of the week everything changed however as Rosenberg on Friday seemed to be very confident regarding rate hike this year. The result dollar up against all its peers and stocks, commodities down. The criticism of Greece from Eurogroup also added to the downside for EURUSD weakness. The country accomplished only 2 out of 15 goals set by creditors and even the finance ministers backed the country by saying there is still enough time… they stressed Greece needs to speed up reforms… well we all know all the goals will not be achieved. In response Tsipras hosted a ClubMed meeting of South European countries to unite them in response to the austerity pressures from Germany. Draghi also joined the meeting adding more importance to the event. After the Brexit vote in June it could be seen as an extremely destabilizing step and could mean further pressure on EUR at Monday open.

Next Week Macro Outlook / we will have a pretty busy week ahead

Monday:

As there won’t be any big data released the first day of the week, the markets will have some time to digest the events of the weekend regarding Greece. FOMC and RBA speakers will also take the stage later the day. Before midnight the Japanese manufacturing index may add some volatility to the jen crosses.

Tuesday:

We will start the day with Chinese data, especially industrial production may move the markets, watch AUD and NZD primarily after midnight. The GBPUSD traders will have some rock’n’roll caused by UK inflation which started to pick up this year. Just half an hour later Draghi speaks after the German and EZ ZEW index is published. Look for some hints about the Club Med meeting in Athens during the weekend. In the evening the API will release the US crude inventories which after the last week’s weak data will be more important than usually. The New Zealand Current account balance will be released as last data of the day, the CA was last month in the biggest surplus since Jun 2014.

Wednesday:

We start with the UK employment data and no big changes are expected in the job market given it’s close to maximum employment. Also the oil inventories will attract more attention as usually due to last weeks weak figures and slowing exports. There could be a dramatic change to the upside I oil inventories after the tropical storm passed. Later the GDP figures from New Zealand will be released, which seems to be trending down.

Thursday:

The day is packed with important data. After midnight the Australian employment figures will bring some action to the Aussie traders. With unemployment rate at 5.7% the market expects a little increase in number of employees as the spring/summer gold rally allowed to reopen some mines. The situation in the mining sector is however still very difficult due falling imports to China. In the morning the Swiss and followed by UK rate decision and Monetary policy statement will bring some vols to the market, even booth are expected to keep their MPs unchanged. In the afternoon we have a flood of US figures, Retail sales, PPI and Unemployment claims in the same time. However if one looking for a hint when the rate hike will happen, should keep an eye on Capacity Utilization Rate. Stanley Fisher, deputy head of Fed said two weeks ago that the efficiency of the US economy is the key problem which the Fed can’t really influence. When the rate hike cycle started under Greenspan, this indicator was above 76% (in august 75.9%), when they finished it was over 82%...

Friday:

After a busy Friday we will have the sales figures in the Canadian manufacturing sector and sae time US inflation data. While the Core CPI is already at 2.2% and we know the Fed is looking at Core PCE index (1.6%). A big surprise could be the factor that influences the sentiment in a visible way. Also keep an eye on preliminary University Michigan Consumer sentiment (already at pre crisis level) and inflation expectations (currently only half of the pre-crisis expectations around 5%). 

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice.

All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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Aug 28, 2016 - Weekly Macro 35W

In the coming week we will get plenty of PMI´s and also US employment data. First we will start however with US inflation, more accurately with the indicator mostly watched by the Fed – The Personal Consumption Expenditures. While year on year the Core CPI is already at 2.2% and would exceed the Feds inflation target justifying another rate hike, the Core PCE is only at 1.6% and couldn´t get any closer to the Fed’s target since April...

Last Week

After a boring Monday the European PMIs and New Home Sales from the US were supposed to bring some volatility into the lazy summer markets the next day. While the European PMI data came out mixed on Tuesday, the latest US New Home Sales caused a big surprise coming out at 654 tsd. as we haven`t seen such number since 2008. The construction sector is an important component of US GDP its share on the US GDP is declining and therefore any sign of revival is very important. However, on Wednesday the Existing Home Sales in the US came out worse than expected as failed to hold the 5.5 million level. The increasing Crude inventories surprised the market and caused a drop in WTI testing again the $46.5/barrel, USDCAD didn`t react much on the news despite the dependence of Canada on the oil industry. On Thursday the market focused almost purely on the awaited speech of Janet Yellen in Jackson Hole schedule for Friday and ignored the weak German Ifo Business Climate and the better than expected Durable Goods Orders which increased in the second fastest pace in the last 27 months. On Friday the kind of hypnotized trading mode continued. The GDP estimates from UK and US where in-line with expectations and the market reacted little. The rock`n`roll started after Yellen`s speech. While she said the case for rate hike strengthened in recent months at the end stressed the outlook is still uncertain, and rate hikes are not on pre-set course. The US labor market is close to maximum employment and the FOMC anticipates further strengthening. Regarding Fed Funds Rate, Fed anticipates gradual rate increase. According to Yellen the Board of Fed governors see inflation rising to 2% in the next few years (keep in mind that inflation is measured by Fed by Core PCE Price index) and they are not considering higher inflation or nominal GDP targets. After initial half an hour confusion finally the market translated the message (together with several Fed governor statements during the day) as hawkish. USD strengthened in the last few hours of the trading week 1.1% against EUR and GBP, more than 1.7% against JPY and AUD and 2.1% against NZD.

Next week

Monday (USD, JPY):

On the first day of the week Jackson Hole Symposium will probably resonate all over the marketplace. Also the Personal Consumption Expenditures will be released, which is the Feds inflation indicator. While year on year the Core CPI is already 2.2% the Core PCE is only at 1.6% and no change is expected for Monday but looking at the bullish mood on USD from Friday, any positive surprise can easily cause further dollar strengthening. Before midnight we will take a look at the spending of the Japanese households. The notoriously weak private spending is a key problem of reaching the BoJ`s inflation target.

Tuesday (AUD, GBP, EUR, USD, CAD):

Early morning AUD traders should be ready for some volatility as the Building Approvals missed estimates in the last 2 months. The data is a leading indicator to inflation and growth and will be watched closely. The RBA cut the cash rate on the 3^rd of August by 25 bps and while there is no expectation that the RBA will cut again on the next rate decision scheduled for the 6^th September. During the day plenty of European data will be announced, but early afternoon the Canadian Trade balance numbers will show us if there is any tendency to get into positive territory where the economy was last time in 2008. Later the Conference Board Consumer Sentiment survey will be released. As it´s a leading indicator to US economic activity this could be the data of the day.

Wednesday (NZD, EUR, USD, CAD):

Early morning the ANZ Business Confidence, the result of a survey of about 1500 companies will be released in New Zealand. Could be important as kiwi finished the week with a shooting star on the weekly chart confirming a kind of engulfing pattern (not clear) a few weeks ago however it couldn’t close below key support 0.7200. In the morning we will have important data from Europe, German Retail sales and Unemployment change first, and later the Eurozone flash Inflation could spur the EUR. In the afternoon we will focus on the US ADP employment and 1.5 hour later the Chicago PMI with Pending Home Sales. According to Yellen the US employment is close or at its maximum so there could be a lower reading in ADP but Pending home sales could surprise to the upside as last week´s Existing Home Sales were weaker than expected and the key could be in the number of the unfinished purchase contracts. The Monthly GDP from Canada is expected to be well in positive territory after a negative surprise last month. Later the EIA Crude inventories will affect the CAD as well.

Thursday: (CNY, AUD, EUR, GBP, USD):

It`s going to be a PMI day and even the market will be waiting for the NFP next day, there could be interesting moves. Especially the Chinese Manufacturing PMIs where the 50 point level is the threshold of recession. The official PMI dropped below 50 pts last time but the Markit PMI hold above. Between these two data the Australian Retail sales and Private Capital Expenditures will be released. As the last rate cut had practically zero effect on AUDUSD, this could give us a hint whether there is a chance for further rate cuts in the fall. We will continue the day with the Spanish, UK and US ISM manufacturing PMI, from these the later has the biggest potential to move the markets. The US jobless claims and US Non-Farm Productivity released in between the PMIs could give a hint if Yellen was right on Employment last Friday.

Friday (GBP, CAD, USD):

One of the most watched US number will be released in the afternoon, the US Non-Farm Payrolls. However, in the morning we will have first the UK Construction PMI. Very important if we think there is a bubble in the UK property market. Even though the last reading showed a slight improvement, the trend in the sectors PMI is not encouraging. While in the first half of 2014 the figure was above 55 points each months, in 2015 hardly could reach this number and the average was around 52.5 and this year only twice reach 52… The US NFP is expected to hold but as the economy is near full employment, there could be come negative surprise.

Have a successful week and don’t forget:

Watch you risk and be consistent in your trading!

Mr TechMan

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmail.com

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Aug 22, 2016 - Jackson Hole coming, but what about the rate hike…?

Jackson Hole coming, but what about the rate hike…?

As the ongoing trust in Fed is close to zero, we may eventually see a bit of nervousness before Friday. We may spot some unwinding of the big position and abrupt moves, as the market clearly doesn’t know what to think or expect from Yellen. All of that despite pretty hawkish comments from Dudley and Williams last week, supported by Fisher over the weekend. This provides a short-term strength for USD at the moment.

So what’s the bet?

Looking at 4 rate hikes? This one is off…

Dec hike, looking like…

Oct hike, Fed hurry up before US elections…

Sep hike, well, the credibility of the Fed and its officials may increase by an inch from zero…

Questions

When we look at the history, Fed is cutting the rates when stock market is really going down. But where it is now? Printing new historical highs…, so it is the time to raise rates, right?

What about housing market? Peaking again…A time to raise rates, right?

What about USD? For some reason it is still not clearly moving higher…Why?

Economy and job market getting better, GDP growth is accelerating and with inflation getting close to Fed targets…Hiking?

Investments to recover after US elections, the effects of stronger USD to fade away…

Productivity slowdown? As Fisher said, we don’t know to measure it properly…

Slowdown in China, Brexit aftermath, debt issues in Europe, US elections risks? Worth to consider…

All of these are good questions but very likely, Yellen will not provide us with any clear signal. Has she ever?

Our take

We see two hikes this year and the first one will likely come already in Sep, so there will be some time for dust to settle before US elections. For those who see the same, the long USD, underweight or short US 10yr or 30yr Treasuries, and short silver and gold, may be the right trade. The question of regaining a bit of trust of market participants in predictability and communication ability of Fed officials will be tested again.

The second hike in Dec will be really data dependent in the light of results of US presidential elections of course.

Risks

Data, data and again data. Yellen at Jackson Hole will again point to data dependency (US NFPs are on Sep 2 while FOMC on Sep 21).

From political perspective the Brexit vote shock aftermath or US elections risks are also taken into account but at the moment, the risks related to US elections, seem to be bit ignored by bond markets. But what about the Fed?

All in all, the Jackson Hole speech may be again a non-event as it was 9 times out of last 10 speeches, apart from the one in 2010, when Bernanke announced the QE2 preparation.

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmail.com

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Weekly Macro Overview 32W

This week’s Macro Overview is a little shorter due to holidays. We saw 2 rate cuts in the Commonwealth last week, both well expected. The first came from Royal Bank of Australia on Tuesday and the later from the Bank of England on Thursday. Traders were also watching the US employment data in the second half of the week, which were in general better than expected pushing the USD higher.

Monday:

It was a PMI day but the traders mostly didn’t get what they were expecting. The Chinese numbers were rather mixed and the Spanish, UK and US numbers were worse than expected.

Tuesday:

Tuesday early morning the RBA cut its benchmark rate by 25 bps. After the initial depreciation of AUD the traders reversed the direction as the wording of the Rate Statement suggested this could be the end of the easing. The AUDUSD rallied above 0.7600. Later in the morning the UK construction sector PMI was better than expected. In the afternoon the US PCE Price Index came out at 0.1% vs previous 0.2% and the unchanged Personal Spending couldn’t help the dollar which reached 1.1200.

Wednesday:

After the boring morning with only an unchanged UK services PMI we had ADP employment from the US. The improving data (also upward revision of the last figures) gave us a hint that the NFP Friday won’t be as low as expected. The dollar started the appreciation and this was probably the key moment of the week however, the Friday’s confirmation was still needed to let the dollar bulls run.

Thursday:

The worse than expected Australian Retail Sales didn’t really stop the bulls but managed to slow down the momentum after the Tuesday disappointing Rate Statement. The BoE cut the key rate as expected by 25 bps, also increasing the Asset purchase by GBP 60 bln, raising the questions whether this step wasn’t premature. The GBPUSD fell 200 bps in reaction to Carney’s speech half an hour later. In the afternoon, the US jobless claims came out more or less in-line with expectations and with muted reaction prior to US NFPs on Friday.

Friday:

After a sleepy morning the awaited job data caused the USD strengthening around 100 points against most of its peers despite the unchanged Unemployment Rate. The NFPs were worse than the previous (which was revised to the upside) but was much better than expected. Also the Average Earnings improved by 0.3% vs. forecasted 0.2% and previous 0.1%, what creates a better ground for an increase of the inflation.

Next week

Monday:

The only thing worth to watch is the Chinese trade balance, but not much of a change is expected. Maybe later the Canadian housing data could give some hint which direction the loonie will take.

Tuesday:

During Tokyo session, the Chinese inflation data can spur some volatility and later in the European session, the UK manufacturing will give us some hint, regarding the impact of the Brexit vote to the British economy. In the afternoon keep an eye on US job market data.

Wednesday:

The JOLTS job openings from the US will be released in the afternoon. They are expected to support the last week’s improvement in NFPs. The kiwi traders should be vigilant in the evening, as RBNZ may follow the RBA and cut the benchmark rate.

Thursday:

The regular US jobless claims and the New Zealand retail sales could be the only important data but don’t expect too much volatility around unless there is a huge surprise.

Friday:

Early in the morning, the Chinese Industrial production will be released with no change expected. We have also flash GDP from Europe later in the morning (Eurozone and Germany) which may have impact mainly on EUR crosses. In the afternoon, the Retail sales data and PPI are expected to be released in the US (expecting all worse than the previous set of data). However, given the rejection of the resistance in EURUSD (former support of the uptrend line) last week, a positive outcome could give a nice boost to the dollar bulls.

Have a successful week and don’t forget:

Watch you risk and be consistent in your trading!

Mr. TechMan

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmail.com

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