Archives of “money” tag

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The jump from trend to bubble is faster than ever

  
Analysis, Education
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What’s the rush?

What's the rush?
I love this quote from George Soros because it is more true every day. He said it in his book on the crash of 2008 but he might be talking about fake meat, marijuana or electric cars today.
We can all see trends towards environmentalism, renewables, e-commerce, the internet, eating out and TV streaming along with a dozen other things. The reaction function of the market is to identify a trend and throw money at it in a virtual gold rush, hoping that one day the claims will pay.
Last year we saw it in WeWork. Co-working was undoubtedly a trend and WeWork was the biggest and best-known name in the space. SoftBank and others drove the company valuation into the stratosphere but it all came crashing down when the collective conscience of the world realized the business model could easily be replicated.
The big macro trend of the generation is low and falling inflation. We’re at the point now where every bond investor — voluntarily or not — is betting on low inflation. The perception (or perhaps misconception) is that inflation will stay low forever. If the market is wrong, it would be the mother of all financial busts. The bond market is worth more than $100 trillion with a myriad of derivatives layered on combined with endless knock-on effects, like mortgage rates.

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Alcoa reports Q4 revenues at $2.44B vs $2.47B estimate

  
  Analysis
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Alcoa earnings

  • Revenues estimates ranged from $2.45B to $2.52B
  • EBITDA $346M vs $334.3m expected
  • Loss per share of 33-cents vs 21-cent estimate (31-cents ex-items)
  • Alcoa sees 2020 global aluminum demand +1.4-2.4%
  • Final 2019 aluminum demand -0.4% to -0.2% vs -0.4 to -0.6% AA estimate
  • Expects 2020 global aluminum surplus between 600K to 1m metric tons
  • Full year 2019 net loss of $1.125 billion or $6.07 per share
  • Full year adjusted loss of $184m
In October, the CEO said he expected a big rebound in aluminum demand this year. At the time he said the global economy “will come roaring back once this uncertainty is behind us.” I wouldn’t say 1.4-2.4% will cut it. At some point global growth will have to pickup or there will be more plant closures and factory layoffs.
Shares are down to $19.73 from $20.18 in the after-market.

US Treasury says real dollar is 8% above its 20 year average

  
  Analysis
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Treasury’s semi-annual report does not list China as a currency manipulator

US Treasury:
  • says currency practices of 10 countries require close attention, but no major US trade partner met criteria for currency manipulation
  • Says China made ‘enforceable commitments to refrain from competitive devaluation’ in phase 1 trade deal withUS
  • says China should ‘no longer be designated as a currency manipulator’ in semi-annual currency report
  • China needs to take necessary steps to avoid a persistently weak currency
  • China also agreed in trade deal to publish relevant data on exchange rates and external balances
  • Says improved economic fundamentals and structural policy reforms would underpin stronger Chinese yuan over time
  • Says continuing to monitor currency practices of China, Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, Vietnam and Switzerland
  • China must take decisive steps to further rebalance economy, allow greater market openness to strengthen long-term growth prospects
  • Switzerland should use ample fiscal space to more forcefully support domestic activity – treasury
  • Japan should enact bolder structural reforms to strengthen domestic demand
  • Germany’s current account surplus remains largest in world, sees urgent need for Germany to cut taxes, boost domestic investment
  • Ireland only meets one of three criteria to be on monitoring list, would be removed in next report if that remains the case
  • Taiwan, Thailand close to triggering thresholds to be added to currency monitoring list
  • continued dollar strength is “concerning” given INF’s judgment that dollar is overvalued on a real effective basis
  • Says real dollar remains about 8% above its 20-year average; sustained dollar strength would likely exacerbate persistent trade, current account imbalances

I wonder if politics played a role in removing the currency manipulator label from China? LOL, I’m kidding. I am not wondering at all.

Treasury's semi-annual report does not list China as a currency manipulator 

Bitcoin off to a weak start in 2020

  
Analysis, BITCOIN
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Bitcoin on Coinbase is down $-265 and back down below $7000

The price of bitcoin is off to a weak start in 2020. The price on Coinbase is trading down $265 at $6951.83.  The hi reached $7217. The low reached $6903.
Bitcoin on Coinbase is down $-265 and back down below $7000
In addition to breaking back below the natural level of $7000, the price is moving further away from its 100 and 200 hour moving averages. Those moving averages currently come in at $7219.51 and $7231.48 respectively.
Over the last 7 or so trading days the price has been fluctuating below and then above those moving averages. The high last week extended up to $7531 after breaking above the moving averages at $7239 on December 28.
The price move back below the moving averages on December 30. They were retested on December 31 and again on January 1 before rotating back to the downside yesterday. Bearish
In addition to the fall below the moving averages, the price today also fell below the 50% retracement of the move up from the December 18 low at $7059.50. Bearish.
That break targeted the 61.8% retracement at $6910.93 next. Buyers have leaned near that retracement level. We are currently seeing a modest bounce. It will likely take a move back above the 50% retracement level at $7059.50 to solicit more buying.
Should the price break below the 61.8% retracement, however, I would expect further downside momentum. The low price in December reached down to $6430. That would be a target on increased selling pressure.

It’s PMI day in Europe to kick start the new year

  
  Analysis
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But markets are still plagued by poor liquidity conditions for the most part

2020

Happy New Year, everyone! Hope that all of you had a great celebration or time off and that you’re refreshed for another new trading year ahead.
Markets are still largely affected by thin conditions with liquidity still rather lacking and I would expect things to stay that way until tomorrow or next week at least.
In the major currencies space, things are a little mixed with the pound finding itself on the back foot while the aussie and franc are also mildly weaker on the day so far.
Looking ahead, we’ll have manufacturing PMI releases in the European morning but these will be final readings for December, so they won’t really matter all too much.
0815 GMT – Spain December manufacturing PMI
0845 GMT – Italy December manufacturing PMI
0850 GMT – France December final manufacturing PMI
0855 GMT – Germany December final manufacturing PMI
0900 GMT – Eurozone December final manufacturing PMI

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Currencies 2019: “The Year of Low Volatility”

  
Analysis, Forex
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Record low ranges for many of the major currency pairs

If I were to name the currency year, it would be “The Year of Low Volatility”.
Three of the currency pairs had low to high trading ranges that were the lowest since 1980. Even the GBPUSD which had alll the Brexit goings on, had a relatively low range year (the 5th lowest since 2000).
If the low ranges are indicative of non-trending, the good news is non-trending transitions to trending. As a result, I would expect a more volatile/larger trading range for 2020 for many of the currency pairs. Keep that thought in mind in 2020.

Below are the graphical historical ranges for the major currency pairs versus the dollar along with comments about each. .

EURUSD.

The EURUSDh had the lowest trading range going back to 1980
The low to high trading range for the EURUSD in 2019 could only extend to 691 pips.  That was the lowest range going back to 1980. The prior low was 883 pips back in 1996.  In 1997, the range rose to 2280 pips.

The low for the year reached 1.0879. The high for the year was up at 1.1570. The pair is 347 pips or so off the low price and 344 pips off the high price. That puts the pairs price smack dab in the middle of the trading range for the year.  Which way do we tilt in 2020?
GBPUSD

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Asian markets return today, but holiday mode will persist – here is what’s on the calendar

  
  Analysis
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Coming up today on what will be a lower than usual liquidity session:

2330 GMT Tokyo inflation data for December – Tokyo area CPI (national level CPI for the month follows in three weeks). The y/y rate has received a wee boost from the October 1 sales tax hike. But not much.

  • Tokyo CPI y/y, expected 0.9%, prior was 0.8%
  • Tokyo CPI y/y excluding Fresh Food, expected 0.6%, prior was 0.6%
  • Tokyo CPI excluding Food, Energy y/y, expected 0.7%, prior was 0.7%

Also at 2330 GMT Japan Jobless (Unemployment) rate for November

  • expected 2.4 %, prior 2.4%

and Job to applicant ratio for November

  • expected 1.57, prior 1.57

2350 GMT Bank of Japan monetary policy meeting ‘Summary of Opinions’ of the December meeting

  • this precedes the minutes of that meeting by many, many weeks.

2350 GMT Japan Retail sales for November

expected 5.0% m/m, prior -14.2% (the huge drop was helped along by that sales tax hike I mentioned above)

  • expected -1.7% y/y, prior -7.0%

2350 GMT Japan Industrial Production for November (preliminary)

  • expected -1.0% m/m, prior -4.5%
  • expected -8.1% y/y, prior -7.7% (trade wars have weighed on exports which in turn have impacted IP)

0130 GMT China Industrial Profits for November % y/y

  • prior -9.9% (trade war and negative PPI big factors in this)

US auctions off $38 billion of 3 year notes at 1.632%

  
  Analysis
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That is below the WI level of 1.634%

  • high yield of 1.632%. That is below the WI of 1.634%
  • bid to cover 2.56x vs six-month average of 2.48x
  • Directs 23.8% vs six-month average of 16.8%
  • Indirects 49.1% vs six-month average of 49.5%
  • Dealers take 27.1% versus six-month average of 33.7%
Overall, decent demand. The yield stopped through the WI level by a touch. The bid to cover was higher than the six-month average. Dealers took down a relatively small amount suggesting decent demand.

Ray Dalio debunks WSJ story about his bearish position

  
  Analysis
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Ray Dalio from Bridgewater Associates responsed to WSJ article

It was reported by the Wall Street Journal earlier today that Ray Dalio from Bridgewater Associates had a 1.5 billion bearish option position on the S&P and Eurostoxx 600 index.
Dalio is out with a tweet debunking the story. He tweets:
 Ray Dalio from Bridgewater Associates responsed to WSJ article
Even if he did, or does,  have a 1.5 billion option position (it is not clear), it would dwarf the money under management (and likely long position).

Wilbur Ross: US-China trade deal will be done ‘in all likelihood’

  
Analysis, Economy
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Comments by US commerce secretary, Wilbur Ross

  • There is a very high probability that a deal will be reached
  • Chinese agricultural purchases and execution of those are an issue
  • Huawei not an appropriate player in the US 5G space
  • US will have deal with China or keep tariffs
Rinse and repeat, rinse and repeat. Yet, markets continue to lap it all up. USD/JPY touches a new day high of 108.78 and looks to challenge the 100-hour moving average now.
Looks like risk trades just got a shot in the arm ahead of US trading.
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