Archives of “July 12, 2021” dayrss
Results of the $38B 10-year reopening
- Prior was 1.497%
- Stop through of 0.3 bps
That might bit a bit of downward pressure on Treasury yields. The appetite for bonds is remarkable. We’ve seen a bit of follow through in the cash market with 10s down to 1.3695%.
An OPEC+ policy meeting this week is less likely after the group failed to make progress on closing divisions with the UAE.
Russia is attempting to broker a deal between Saudis and the UAE, according to Reuters sources but a meeting this week was not expected.
WTI crude is down 97-cents to $73.59 today, giving back most of Friday’s gain.
CIBC sees more dollar strength
CIBC is out with its latest dollar forecasts and sees the dollar broadly higher in the next six months, with gains against EUR, JPY and CAD.
“The June FOMC meeting marked a turning point for the USD. Prior to the meeting, positioning and sentiment on the greenback was largely bearish,” analysts at CIBC write. “Going forward, we now envisage a higher floor for the USD against other currencies. The Fed’s pivot marks a transition away from the old reflation narrative towards a new one whereby real yields underperform relative to nominals. That should continue to push USD shorts to exit given the relatively higher yields in the US to other developed markets.”
In Q4, they see EUR/USD falling to 1.15, USD/CAD rising to 1.27 and USD/JPY climbing to 112.
Exceptions are in the antipodeans and sterling, which they see as moderately stronger against the dollar. They’re particularly constructive on NZD/USD, seeing it climb to 0.7200 in the near term and 0.7600 at the end of 2022.
“Support for NZD/USD is now apparent in the mid-0.6900 range, and should the RBNZ validate the hawkishness of market pricing at their meeting on July 14th, we expect to see NZD/USD regaining ground, potentially toward 0.7200,” they write.
GBP/USD down 50 pips to 1.3849 currently
The pair had a great showing on Friday, erasing the week’s losses altogether in a push to the week’s high of 1.3900 at the time. The opening levels today stuck there but there has been a steady retreat since – more so as European traders entered.
The technical picture shows a rejection of 1.3900 and the 61.8 retracement level @ 1.3898, but it also comes as the dollar is holding firmer across the board, extending gains. USD/CAD is up 0.5% to 1.2505 now while NZD/USD has dropped 0.6% to 0.6950.
Going back to cable, there isn’t much support until the confluence of the key hourly moving averages @ 1.3815-16 and then the 1.3731-50 region thereafter.
Or perhaps this is the pound suffering a bit of a post-Euros hangover after the penalty shootout defeat to Italy yesterday. ¯\_(ツ)_/¯
It would seem like it, no?
As much as vaccinations are providing a solid base for major economies to build the latest recovery trajectory, it isn’t really a given.
The virus mutation is still a major risk to contend with and there are still more questions than answers when it comes to the delta variant and how that is going to impact the global recovery, especially when you consider global travel reopening.
Australia is one of the big victims of this now but then again, the pace of vaccinations there has been rather lackluster as compared to the likes of the US, UK, and Europe.
Personally, I don’t believe the market is attaching a high risk or much concern to the spread of the delta variant but it is something worth keeping tabs on at least.
If anything else, it will definitely have a strong impact on damaging the recovery prospects in emerging economies since vaccinations in those regions are still moving slowly.
Adding to the fact that there is sort of a “chain effect” from the delta variant harming other economies is that this just means that supply bottlenecks are going to persist for much longer as we now look towards 2H 2021.
Major central banks are still going to brush said impact on inflation as ‘transitory’ but how long exactly that will be is still up for anyone’s guess at this point.
As disruptions to the supply chain persist and high cost inflation becomes more prevalent, that in turn will also place a dent on global recovery prospects in general.
As such, don’t discount the risk posed by the supposed rising price pressures.
I would argue as the market comes to terms with that and if the data starts to show some signs of a slowdown in the latest recovery patch, any major rise in bond yields may also be hard to come by as the conviction gets watered down.
While the current cycle of growth and inflation may be the highest for some time yet, it still isn’t going to change the outlook for rates in the long-term.
The key impediment here is that sustained growth is starting to become a thing of the past as debt continues to implode and the latest round of fiscal stimulus to deal with the pandemic is just exacerbating such negative conditions i.e. relying too much on debt.
The Fed returning to raising rates may spark a tailwind for yields in the years ahead but looking out ten years down the road, this is likely just a blip. The trend in yields is clear and the fundamentals tell us nothing is going to change that:
Experiencing a loss can no doubt discourage a trader and make them feel like they’re not good enough to trade successfully and get payouts. Thinking that all their efforts are in vain can be the greatest enemy to a person’s motivation, especially if they’re looking at other traders who are consistently successful on the market.
But as we pointed out earlier, it is not about comparing with others and rating your success against other traders’ successes. It is your progression that is important to track and sure, you may be experiencing the low time of your trading career right now but it is important to remember that you’ve also had good times.
Remembering the previous successes and payouts you’ve earned from past trades is a good answer on how to motivate yourself in financial trading. It can show you that while you may currently think otherwise, you are good enough to keep on trading. You have the potential to succeed and the past successes are nothing more than reminders of that.
One of the key lines from the FOMC minutes was that ‘various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchase to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data’.
This sounds hawkish, but the initial reaction from the FOMC minutes was dovish. Why?
This is because this much was already pretty much known from the June 16 meeting and Powell’s comments. What the USD bulls were looking for to take the USD higher straight out of the meeting was anything in the minutes that would indicate that tapering would be imminent. This was not the case. Theinitial dovish case can be made from the following.
In the minutes some participants noted that incoming data was creating a less clear signal about the underlying economic momentum and judged that the committee would have more information in the future to make a better decision. So, there were positives and negatives in the minutes, but more data needed to be more definitive is what the FOMC minutes say. This is from both a virus and economic perspective.
So, here is a fast run down of the latest data the Fed have had post June 16.
- NFP last Friday. It was mixed. Good headline at 850K, but unemployment moved higher to 5.9%.The Fed won’t like that. Why is it? Well companies have jobs that workers are not taking, According to ING the National Federation of Independent Businesses reported post NFP that 46% of small business owners had job openings they could not fill. This was down two points from May, but as the chart shows it is a remarkable figure that is way, way above the 48-year historical average of 22%.
However, this mixed NFP picture can quickly end up painting a bullish picture as companies are having to pay more too attract more staff. ING see that this will result in inflation remaining elevated and that the Fed will end up hiking in 2022.
2. The FOMC minutes showed that the Fed is still deeply committed to inflation remaining transitory and they repeat it multiple times during the minutes. They also take comfort from latest data suggesting that longer term inflation is not ringing alarm bells for them. The last PCE reading, the Fed’s preferred gauge for measuring inflation, showed a small drop from forecast 0.6% to 0.5%. That will help affirm the Fed’s position that inflation is transitory’
3. The latest vaccine data suggests that the double vaccinated are protected from serious illness. According to Bloomberg on July 05 the double jabbed with a Pfizer vaccine is effective in preventing hospitalisations in people by as much as 93%. That is good enough for the openings up in Israel and the UK to continue. This means we will move from ‘containing’ COVID-19 to ‘living with it’ if this continues,DXY
In the longer term this does not change things. The Fed are more optimistic about the recovery, but they need to see the labour market stabilise. It’s that unemployment data that the USD bulls want to see drop in the very short term alongside jobs growing too
The Dollar Index should keep finding buyers from any dips lower even if the near term speed of dollar strength will slow/pullback a little.
There is nothing to change the bottom line that the dot plots shift is right. The Fed will be hiking sooner than they previously thought.
One key characteristic of success, whether it’s in financial trading or any other field of activity, is that it is purely subjective. Everyone has their own definition of success: some want to achieve the highest career goals in life, some are focused on having an ideal family life, and still, others want to travel as much as possible and see success through that lens.
The point is, there is no point in chasing one universal value of success, not in trading and not anywhere else. Comparing with others can often have a toxic effect on a person’s psychology and motivation to continue what they’re doing.
It is easy to look at a successful trader and think that your current level of success is nowhere near that. But it’s not about how you are doing compared to others; it’s about how you are progressing through time and becoming better than you previously were. Your only reference point in trading is yourself and by focusing on that, you’ll soon realize that compared to what you were yesterday, you’re pretty good today and will keep yourself motivated in financial trading.