Macroeconomic & Geopolitical Analysis for June
Weekend Macroeconomic Report
The week was a bullish one. Looking at the weekly time-frame, we've surpassed the 61.8% fib from the march swing-high to the march swing-low. It also gets us about 10% off of the record highs, however the progress was mostly catalyzed by the vaccine news at the early of the week. The rally at the end of this Friday's close was systemic. It was the news that the U.S. president (after the markets were already in anticipation as he had tweeted there would be significant news). The press conference was not positive. The things that came out of it was both anticipated and expected, which is what the markets are operating on right now. They anticipated that the U.S. would begin to win back exceptions from Hong Kong as a semi-autonomous trading partner because of Chinas move to consolidate power under grounds of national security. There was also mention of delisting Chinese companies on the American stock exchanges, which would be huge for companies such as BIDU.
Even the Hong Kong dollar after the news--not far--but remarkable. It's surprising and something I’ve never seen in my life. The most troubling aspect was the anticipation of how bad the second quarter GDP number will be for not just the world but the world. The feds estimate for Q2 is -35%, however not even close to the Atlanta Fed which they expect a -51.2% contracting (annualized). This is extraordinary activity for financial activity, and goes without saying is a lateral move.
Is it appropriate to expect that the markets can really price in a -51% decrease in GDP? Even with the guides of central banks, the low assumptions of risk and low recharging of growth fails to reinforce the longevity of investment in the long run. The cost of the SPY for example (a cash ETF, proxy of the SP500) is at a record high with expectations of return extremely low according to C.O.T. (traders sentiment) and hedge fund position.
As long as central banks prioritize the headlines, I will be following what the markets are projecting regardless of how irrational the price action. FOMO and momentum can be used to drive sentiment as we se it, and could be a good explanation. Another theme keeping things buoyant will be vaccine headlines over the weekend and also the possibility of the second wave here in the U.S. I suspect if this came to happen in a few weeks.
The key themes going into next week will be stimulus. The update from the federal reserve this week they showed they are purchasing high quality corporate ETF's (a new asset class for them) and amongst the ETF's being purchased was LQD. As you can see, it clearly benefited. For some that have been in the game for a while, front running the FED has never been our cup of tea, but the purchases of corporate bonds could be something that could be emulated successfully. The interest will be there, but I doubt that it's NOT already counted in.
The other two key events coming up will be the Royal Bank of Australia Central Bank docket. AUD/USD and AUD/JPY will be of watch next week, and also AUD/CAD should have volatility. These are unusual crosses that will be worth paying attention to, because volatility will be high between these crosses.
The other central bank is Canada. The USD/CAD could gain traction if the bank announces a surprise in monetary policy. Expectations are accommodation for forward guidance, however there are some pretty steep measures that could be used and this would surely play into our advantage.
The USD will have the ser ices PMI next week which will be very important to keep in mind as, as it accounts for 3/4ths of the output of the largest economy in the U.S. This is the indicator that will shake things lose, with N.F.P. will have on Friday but I suspect it to have a lesser impact.
Tay FX
The week was a bullish one. Looking at the weekly time-frame, we've surpassed the 61.8% fib from the march swing-high to the march swing-low. It also gets us about 10% off of the record highs, however the progress was mostly catalyzed by the vaccine news at the early of the week. The rally at the end of this Friday's close was systemic. It was the news that the U.S. president (after the markets were already in anticipation as he had tweeted there would be significant news). The press conference was not positive. The things that came out of it was both anticipated and expected, which is what the markets are operating on right now. They anticipated that the U.S. would begin to win back exceptions from Hong Kong as a semi-autonomous trading partner because of Chinas move to consolidate power under grounds of national security. There was also mention of delisting Chinese companies on the American stock exchanges, which would be huge for companies such as BIDU.
Even the Hong Kong dollar after the news--not far--but remarkable. It's surprising and something I’ve never seen in my life. The most troubling aspect was the anticipation of how bad the second quarter GDP number will be for not just the world but the world. The feds estimate for Q2 is -35%, however not even close to the Atlanta Fed which they expect a -51.2% contracting (annualized). This is extraordinary activity for financial activity, and goes without saying is a lateral move.
Is it appropriate to expect that the markets can really price in a -51% decrease in GDP? Even with the guides of central banks, the low assumptions of risk and low recharging of growth fails to reinforce the longevity of investment in the long run. The cost of the SPY for example (a cash ETF, proxy of the SP500) is at a record high with expectations of return extremely low according to C.O.T. (traders sentiment) and hedge fund position.
As long as central banks prioritize the headlines, I will be following what the markets are projecting regardless of how irrational the price action. FOMO and momentum can be used to drive sentiment as we se it, and could be a good explanation. Another theme keeping things buoyant will be vaccine headlines over the weekend and also the possibility of the second wave here in the U.S. I suspect if this came to happen in a few weeks.
The key themes going into next week will be stimulus. The update from the federal reserve this week they showed they are purchasing high quality corporate ETF's (a new asset class for them) and amongst the ETF's being purchased was LQD. As you can see, it clearly benefited. For some that have been in the game for a while, front running the FED has never been our cup of tea, but the purchases of corporate bonds could be something that could be emulated successfully. The interest will be there, but I doubt that it's NOT already counted in.
The other two key events coming up will be the Royal Bank of Australia Central Bank docket. AUD/USD and AUD/JPY will be of watch next week, and also AUD/CAD should have volatility. These are unusual crosses that will be worth paying attention to, because volatility will be high between these crosses.
The other central bank is Canada. The USD/CAD could gain traction if the bank announces a surprise in monetary policy. Expectations are accommodation for forward guidance, however there are some pretty steep measures that could be used and this would surely play into our advantage.
The USD will have the ser ices PMI next week which will be very important to keep in mind as, as it accounts for 3/4ths of the output of the largest economy in the U.S. This is the indicator that will shake things lose, with N.F.P. will have on Friday but I suspect it to have a lesser impact.
Tay FX
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