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Thursday, January 10, 2019

Fed Chairman Powell Getting Cold Feet on Aggressive Policies

The Federal Reserve released minutes from the December Federal Open Market Committee meeting on Wednesday and it looks like the “Powell Put” might be in.

The minutes revealed a much more dovish sounding Fed as we move into 2019. Members of the FOMC indicated they could be “patient” with future rate hikes and said the future path of the central bank’s monetary policy is “less clear.”
What is clear is that Powell and company seem to be getting cold feet when it comes to continuing on an aggressive tightening policy. The question is why?
According to Reuters, the minutes revealed that “a number of” policymakers said that before raising interest rates again, it was important for the central to take stock of risks that had become “more pronounced in recent months.” In fact, a few FOMC members were apparently arguing for a pause in rate increases.
On the other hand, Fed members still seem optimistic about the US economy. The minutes indicated members generally think “the economy had been evolving about as they had anticipated.” They view the labor market as “strong.” FOMC members project continued economic growth and say inflation remains relatively “muted.”
Yet, the central bank appears to be waffling when it comes to normalizing rates. What gives?
A recent talk by Federal Reserve Chair Jerome Powell in Atlanta reflected the sudden dovish turn. Peter called the comments “tailor-made” for the stock market — and this may well reveal why the Fed has gone wobbly on rate hikes.
It’s almost as if he brushed up his script, somebody took him behind the barn and got his mind right, and he came out as an uber-dove. All he talked about was why the Fed is going to be patient. Patient now is back – patient in raising rates. The Fed is not worried about inflation. The Fed is not worried specifically about rising wages, about the low unemployment rate. None of this stuff, which would have concerned the Fed a few months ago, all of a sudden the Fed is not worried at all about any inflationary pressures in the market, about wage growth. Everything is fine.”
Powell also walked back statements he made last month about quantitative tightening being on “autopilot,” saying the Federal Reserve would not “hesitate to make a change” to its balance-sheet reduction plan if data showed that it was harming economic growth.
Basically, that’s what the market wanted to hear and that is what caused a rally to move into a higher gear and you saw the big rise in the stock market.”
I think Peter hit the nail on the head. Powell and company are telling the markets what they want to hear. The Powell Put is in. He wants to rescue the stock market. The hope is that a little dovish talk will ease investors’ concern and stabilize the markets.
Peter was actually talking about this last summer. Even before the stock market started to tank, Peter was saying that eventually, the Fed was going to have to give. This was back in August when everybody was focused on problems in emerging markets.
And the main reason that everybody believes the US dollar is going to continue to strengthen is because they believe the Fed is going to keep raising rates and shrinking its balance sheet. So, the longer the Fed is going to keep up the pretense that it’s going to raise rates and shrink its balance sheet, then it continues to put pressure on emerging markets and it continues to put pressure on the housing markets. So, ultimately, the Federal Reserve is going to have to give, and what the markets are going to have to start anticipating is the end of the cycle. Because even though the Fed is still talking about removing the monetary combination, there’s not much left that they can remove without the whole thing comes toppling down. In fact, the evidence is already there that the economy is weak, despite the refusal of the markets to acknowledge that. And clearly, Donald Trump wants to continue to pretend that the economy is strong.”
Fast forward to today. The stock market bubble has popped. There is even more pressure on the Fed to ease up on rate hikes. In fact, President Trump has been verballing hammering the Fed for months. The central bankers can talk about their political independence until they’re blue in the face. We all know that’s a myth. Powell has to feel that pressure. It would certainly account for the sudden dovish turn we see at the Fed.
Here’s the bottom line: even though Powell and company still think the economy is strong (It isn’t) and that should support continued monetary tightening, they believe propping up the stock market is a bigger priority. This paragraph from the minutes makes that pretty clear:
After taking into account incoming economic data, information from business contacts, and the tightening of financial conditions, participants generally revised down their individual assessments of the appropriate path for monetary policy and indicated either no material change or only a modest downward revision in their assessment of the economic outlook.”
The only thing that’s actually changed in the minds of FOMC members is conditions on Wall Street. But that matters.
So, the Powell Put is in.

Now, what’s going to happen when the central bankers actually figure out that the economy is about to follow the stock market into the valley?

Source: Here

Wednesday, July 25, 2018

4 or 5% ? Excitement builds for GDP on Friday Drudge Teases Excellent POTUS Economic Report

Media mogul Matt Drudge spread optimistic speculation on Tuesday, as The Department of Commerce is set to release its latest GDP report.
While he might have a source inside the White House (he’s frequently met with POTUS), the proprietor of DrudgeReport.com could have been clued-in by a Tuesday Trump tweet, in which the president alluded to the “best financial numbers on the Planet.”
Last week, the president even suggested the economy could be “better than it’s ever been.”
“If GDP does surpass 4% on a quarterly basis it will be the first time it has done so since the third quarter of 2014, when it registered 5.2% during Obama’s second term in office,” reports Fox Business.
A recent NBC News/Wall Street Journal poll found 50 percent of registered voters agree with the president’s handling of the economy.

 Source: Here

Friday, July 20, 2018

The SP500 is up 31% since Trump’s win, it gives him the opportunity to be more aggressive in his trade wars.We’re playing with the bank's money'

 President Donald Trump said the stock market rally since his election victory gives him the opportunity to be more aggressive in his trade war with China and other countries.

“This is the time. You know the expression we’re playing with the bank’s money,” he told CNBC’s Joe Kernen in a “Squawk Box” interview aired Friday.

The president has a big cushion. The S&P 500 is up 31 percent since Trump’s win on Election Day, Nov. 8, 2016, through Thursday. The market’s gain has slowed this year as the administration has implemented new tariffs on countries, with the benchmark index up 4.9 percent for 2018 through Thursday.

Trump added the market would likely be much higher if he didn’t escalate the trade issues with China and the rest of the world.

“We are being taking advantage of and I don’t like it,” he said. “I would have a higher stock market right now. … It could be 80 percent [since the election] if I didn’t want to do this.”
The president also said he is willing to slap tariffs on every Chinese good imported to the U.S. should the need arise.

"I'm ready to go to 500," Trump added.

The reference is to the dollar amount of Chinese imports the U.S. accepted in 2017 — $505.5 billion to be exact, compared with the $129.9 billion the U.S. exported to China, according to Census Bureau data.

So far in the trade war between the two largest economic powers in the world, the U.S. has slapped tariffs on just $34 billion of Chinese products, which China met with retaliatory duties.

Source: here

Thursday, June 7, 2018

Trump's "Trade War" Is Working: US Trade Deficit Collapses

One month after the biggest plunge in the US trade deficit since the financial crisis - good news for Trump who has engaged in "trade war" with the rest of the world to boost US trader and exports - the good news continued in April, when according to the Census Bureau, the US deficit shrank again, down 2.1% from a revised $47.2BN to $46.2BN - the lowest since September 2017, and beating not only the $49BN consensus estimate, but also also the lowest Wall Street estimate of $46.2BN.

Incidentally, with today's revision, the March plunge in the US trade deficit has now risen to $10BN, the highest since 2008, and the second biggest improvement in the US deficit on record.
According to the census bureau, the deficit decreased from a revised $47.2 billion in March to $46.2 billion in April, amid a perfect trade environment as exports rose and imports declined for the second month in a row, or as Trump would say, "his policies to boost US trade worked."

Broken down by category, the goods deficit decreased $1.0 billion in April to $68.3 billion. The services surplus decreased less than $0.1 billion in April to $22.1 billion.
The good news: exports of goods and services increased $0.6 billion, or 0.3%, in April to $211.2 billion. Exports of goods increased $0.3 billion and exports of services increased $0.3 billion.
  • The increase in exports of goods mostly reflected increases in industrial supplies and materials ($1.3 billion) and in foods, feeds, and beverages ($0.7 billion). A decrease in capital goods ($1.4 billion) partly offset the increases.
  • The increase in exports of services mostly reflected increases in other business services ($0.1 billion), which includes research and development services; professional and management services; and technical, trade-related, and other services, in financial services ($0.1 billion), and in charges for the use of intellectual property ($0.1 billion).
Also good news, if only for GDP bean-counters: imports declined, decreasing by $0.4 billion, or 0.2%, in April to $257.4 billion. Imports of goods decreased $0.7 billion and imports of services decreased $0.3 billion.
  • The decrease in imports of goods mostly reflected decreases in consumer goods ($2.8 billion) and in automotive vehicles, parts, and engines ($0.9 billion). Increases in other goods ($1.3 billion) and in industrial supplies and materials ($1.2 billion) partly offset the decreases.
  • The increase in imports of services mostly reflected increases in transport ($0.1 billion), in other business services ($0.1 billion), and in charges for the use of intellectual property ($0.1 billion)
Broken down by trading partner, the March figures showed surpluses with South and Central America ($4.1), Hong Kong ($2.2), United Kingdom ($0.9), Singapore ($0.7), and Brazil ($0.6
Meanwhile, the countries that should be worried that they may fall in Trump's trade war sights, and recorded deficit with the US in March, included China, of course, with a $30.8 billion deficit, down sharply from $34.2 billion a month earlier, but also the European Union ($13.2), Mexico ($6.0), Japan ($5.9), Germany ($5.6), OPEC ($3.3), Italy ($2.4), India ($2.0), Canada ($1.7), France ($1.6), South Korea ($1.3), Taiwan ($1.1), and Saudi Arabia ($0.9).
Finally, to help Trump make his economic case even stronger, the US deficit excluding petroleum products: after hitting a record in February, continued its dramatic improvement in April, suggesting that whatever Trump is doing to boost overall trade (we already know US petroleum exports are soaring), may be working, as it shrank from over $50BN in February to just $41BN in April.

And now, we expect even more upward revisions to Q2 GDP, which according to the Atlanta Fed will now likely print above 5.0%
Source here

Friday, May 25, 2018

Fed Reserve Loved Obama, Now Purposely Hurting Trump

Rep. Louie Gohmert called out the Federal Reserve Thursday, pointing out how they kept interest rates low for Obama and have been raising the rates on President Trump.

Appearing on Fox Business, Gohmert said, “The Fed loved the Obama administration, loved Obama, they kept the rates just so low and lower than that was appropriate for one reason, to keep Obama from looking like the worst president in history.”
“Trump comes in, the economy turns around because of the things that he’s doing and so what does the Fed do as Obama’s best friend and not being a friend of Trump? They immediately start raising rates as things start going well,” he continued.
The Federal Reserve’s Janet Yellen announced a Fed Fund rate increase in December 2017, which was the fourth increase since Trump’s election.
In contrast, the Fed only raised interest rates on Obama one time in eight years.
While Trump continues delivering on campaign promises, the globalists are attempting to economically sabotage his administration at the expense of the American people.

HISTORIC: President Trump Will Audit The Fed 

Source InfoWars

Tuesday, July 25, 2017

OPEC Remains Committed to Cutting Output; Oil Rises; Loonie Receives a Boost

Oil prices maintained their positive momentum, rising for a second straight day after OPEC countries called on several of the organization's members to adhere to the deal to reduce output. Adding to momentum for the commodity and further boosting prices was the commitment by Saudi Arabia - the world's number one oil exporter - to cut exports starting next month. The oil-linked loonie gained on the back of these developments, rising to a fresh multi-month high relative to the dollar. Unlike the Canadian dollar, the Russian ruble, another currency closely-related to oil, didn't manage to advance relative to the US currency.
OPEC, as well as non-OPEC producers led by Russia, discussed extending their deal to cut oil supply by 1.8 million barrels per day (bpd) during yesterday's meeting in the Russian city of St. Petersburg. The initial deal which was agreed last year and went into effect in January of this year, was originally expected to last up to the first half of 2017. As the boost it provided to oil prices was temporary, it was extended until March, 2018.
The initial deal's effectiveness to raise prices was in part dented by rising output from US shale producers who attempted to benefit from the increase in prices, placing a ceiling on the stronger upward movement in oil prices that was hoped for by the deal participants. The latest discussions are opening the way for a continuation of the deal beyond March of next year, in an effort to deplete global crude inventories.
Another significant development from yesterday's meeting, is that Nigeria, a major oil producer which was excluded from the initial deal to cut output, has voluntarily agreed to eventually (depending on Nigerian production patterns) join efforts to reduce production. A recent increase in production by Nigeria and Libya, another nation exempted from the initial deal, led to oil prices tumbling recently. Specifically, in late June, WTI and Brent crude both fell to more than eight-month lows of $42.05 and $44.35 a barrel respectively.
Moreover, Khalid al-Falih, the Saudi Energy Minister, stated that his country would reduce its exports to 6.6m bpd in August, by roughly one million barrels per day compared to a year ago. He added that global stockpiles have fallen by 90m barrels during the first six months of the year, though they currently exceed the five-year average for industrialized nations by about 250m barrels. Falih expects global oil demand to grow next year at a magnitude that outpaces the increase in US output. China is anticipated to record a double-digit increase in oil imports in the coming year.
Saudi Arabia and Kuwait have so far cut production by more than agreed, but compliance by Iraq and the United Arab Emirates has not been as strong. This is a consideration that must be addressed according to Saudi Arabia's Falih, who avoided naming specific countries and added that the committee monitoring compliance raised the issue with lagging nations. Alexander Novak, the Russian Energy Minister, said that full compliance would result to an additional 0.2m barrels being removed from the market on a daily basis.
Concluding with market movements, oil prices are posting considerable gains for a second day in a row. WTI and Brent crude oil were trading at $47.26 and $49.51 a barrel in late European trading hours, up 2.0% and 1.9% on the day respectively. In forex markets, dollar/loonie fell to a fresh 15-month low of 1.2480 in today's trading as the oil-linked Canadian dollar is benefitting from higher oil prices (Canada is a major exporter of the commodity). The Russian ruble is not experiencing similar gains as dollar/ruble is looking set for its third consecutive day of advances. The pair last traded at 59.890.

(Source ActionForex.com)

Friday, May 22, 2015

Rigging of Forex Makes Felons of Top Banks

4 large global banks Citi, JPMorgan, Barclays & Royal Bank Scotland.

For the world’s biggest banks, what seemed like the perfect business turned out to be the perfect breeding ground for crime.
The trading of foreign currencies promised substantial revenues and relatively low risk. It was the kind of activity that banks were supposed to expand after the 2008 financial crisis.
But like so many other seemingly good ideas on Wall Street, the foreign exchange business was vulnerable to manipulation, so much so that traders created online chat rooms called “the cartel” and “the mafia.”
No one government agency is responsible for policing the currency market, leaving it up to committees, some run by the banks themselves, to set guidelines. And even when federal authorities adopted rules to rein in Wall Street a few years ago, they exempted certain foreign exchange transactions, a little-noticed concession to banks.

Now, the regulatory void has spawned another round of criminal accusations and multibillion-dollar penalties — enough to wipe out nearly all the revenue that major investment banks generated from their foreign exchange businesses last year.

On Wednesday, four large global banks — Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland — pleaded guilty to a series of federal crimes over a scheme to manipulate the value of the world’s currencies. The Justice Department accused the banks of collusion in one of the largest and yet least regulated markets, noting that at one bank one trader remarked “the less competition the better.”
That lack of oversight, coupled with the pressure to squeeze profits from a relatively middling business, set the stage for this scandal, one that unfolded nearly every day for five years. The crimes described on Wednesday also painted the portrait of something more systemic: a Wall Street culture that enabled many big banks to break the law even after years of regulatory black marks after the crisis.
“If you aint cheating, you aint trying,” one trader at Barclays wrote in an online chat room where prosecutors say the price-fixing scheme was hatched.
In announcing the cases, the Justice Department emphasized that the banks’ parent companies entered the guilty pleas rather than a subsidiary, representing a new frontier in efforts to punish Wall Street misdeeds. At a news conference, Loretta E. Lynch showed that she had taken on the mantle as top Wall Street cop, less than a month after she was confirmed to replace Eric H. Holder Jr. as attorney general.
“Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes,” Ms. Lynch said on Wednesday.
For the banks, though, life as a felon is likely to carry more symbolic shame than practical problems. Although they could be barred by American regulators from certain activities, the banks scrambled behind the scenes to persuade those regulators to grant exemptions. That process, which delayed the Justice Department’s announcement by a week, already led to the Securities and Exchange Commission providing a number of waivers that allow the banks to conduct business as usual.
And at least for now, the Justice Department did not indict any employees whose errant instant messages underpin the cases against the banks. The banks long ago dismissed most of the employees suspected of wrongdoing, though New York State’s financial regulator, Benjamin M. Lawsky, forced Barclays to dismiss eight additional employees.

A fifth bank, UBS, was also accused of foreign currency manipulation. Although it was not criminally charged for that misconduct, the accusations cost the bank an earlier nonprosecution agreement related to the manipulation of another financial benchmark, the London Interbank Offered Rate, or Libor, which underpins the cost of trillions of dollars in credit cards and other loans. The Justice Department voided that nonprosecution agreement, prompting UBS to plead guilty to Libor manipulation, a rare stand against corporate recidivism.
In private negotiations, lawyers for UBS argued that the punishment was “unfair,” and had the bank’s chief executive make an in-person entreaty to prosecutors. But even after appealing to the deputy attorney general, their request was denied, a person briefed on the negotiations said.
“UBS has a ‘rap sheet’ that cannot be ignored,” said Leslie Caldwell, head of the Justice Department’s criminal division.
The five banks — which also struck civil settlements with the Federal Reserve, the Commodity Futures Trading Commission, a British regulator and Mr. Lawsky — agreed to pay about $5.6 billion in penalties. That sum comes in addition to the $4.25 billion that some of these banks agreed pay in November to many regulators.

“There is very little that is more damaging to the public’s faith in the integrity of our markets than a cabal of international banks working together to manipulate a widely used benchmark in furtherance of their own narrow interests,” said Aitan Goelman, the trading commission’s head of enforcement.
The foreign exchange business may have been particularly susceptible to manipulation, analysts say, because it can be less profitable than other forms of trading. That dynamic may have increased the incentives for the traders to break the rules.
And unlike the stock market, where regulators can monitor every trade, federal regulators lack a formal mandate to watch the currency market. In fact, in the aftermath of the financial crisis, Congress opened the door to regulating the market, but the Treasury Department exempted portions of it from certain new rules.

That regulatory gap has started to narrow. Banking regulators, which have the authority to root out unsafe practices, are increasingly scrutinizing currency trading desks in light of the scandal.
“It has come under even higher levels of scrutiny than certain other fixed businesses went through after 2008 financial crisis,” said George Kuznetsov, head of research and analytics at Coalition, a financial analytics provider.
Facing that scrutiny, the trading desks have lost some of their swagger. Some senior traders now spend less time trading and more time retraining their teams and meeting with clients to reassure them that their business practices are sound, people close to the business say. Many banks have reined in chat rooms, which were at the heart of the fixing scheme but were also a home for trading desk banter and camaraderie. And even those not implicated in the scheme bowed out in the last year, with Citigroup and Goldman Sachs traders leaving for hedge funds.

The recent turmoil surrounding the foreign exchange business reflects broader struggles over the role of Wall Street’s trading operations.
Regulatory headaches and unpredictable trading results in currencies, commodities and interest rates have prompted many banks to evaluate whether some of these businesses are more trouble than they are worth.
“The behavior that resulted in the settlements was an embarrassment to our firm,” Citigroup’s chief executive, Michael L. Corbat, said in a memo to employees on Wednesday. As part of its plea deal, Citigroup will pay a record $925 million antitrust penalty, the largest single fine ever imposed for a violation of the Sherman Act.
Foreign exchange revenue totaled $11.6 billion at 10 of the world’s largest banks last year, according to Coalition analysis. That revenue had declined nearly every year since 2008, when it reached an estimated $21.7 billion.

The decline came as central banks around the globe worked to keep interest rates low, and the value of some world currencies remained relatively steady. Investors tend to place fewer trades been when prices are moving largely in one direction.
The foreign exchange market did brighten a bit in the first quarter, as the banks said their results were buoyed by diverging monetary policies around the world and increased volatility.

Despite the headaches, most large banks remain committed to foreign exchange because valuable clients like hedge funds and big companies demand it. For banks desperate to advise big companies on mergers and acquisitions, they see foreign exchange as a “gateway” toward attracting their more profitable business.
“Foreign exchange is not a complete loss leader for the banks,” said Fred Cannon, a banking analyst with the investment bank Keefe Bruyette & Woods. “But it is not a profitable stand-alone business either.”
Because so many buyers and sellers flood the foreign exchange market — more than $5 trillion changes hands every day — the money banks can charge for brokering trades tends to be lower than for products like derivatives.
To get an edge, prosecutors say, traders at the five banks colluded to pad their returns from at least 2007 and 2013. To carry out the scheme, one trader would typically build a huge position in a currency, then unload it at a crucial moment, hoping to move prices. Traders at the other banks would play along, coordinating their actions in online chat rooms.

The banks also misled their clients about the price of currencies, the federal and state authorities said, imposing “hard markups,” which one Barclays employee described as the “worst price I can put on this where the customer’s decision to trade with me or give me future business doesn’t change.”
In the invitation-only chat room known as “the cartel,” the stakes were high. “Mess this up,” one newcomer was warned, “and sleep with one eye open.”

Attorney General Announces Bank Fines
View Video Here 

Source here

Monday, February 9, 2015

Oil Could Plunge to $20 Before Recovering

With its significant fall from grace, speculators are busy betting on a bottom in crude and related oil & gas stocks. However, all those bottom calls may be in vain, according to a new report from Citi - which is getting a lot of attention on Wall Street Monday. Citi's commodities strategists Edward Morse wrote that the recent rally in crude prices looks more like a head-fake than a sustainable turning point and he sees oil heading to as low a $20 per barrel.

Morse said the recent rally was driven by drop in US rig count, continuing cuts in upstream capex, the reading of technical charts, and investor short position-covering. However, short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond.
"Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops," he wrote. "As on-land storage fills and covers the carry of the monthly spreads at ~$0.75/bbl, the forward curve has to steepen to accommodate a monthly carry closer to $1.20, putting downward pressure on prompt prices. As floating storage reaches its limits, there should be downward price pressure to shut in production."

The analyst doesn't see oil hitting a bottom until sometime between the end of Q1 and beginning of Q2 at a significantly lower price level in the $40 range. This, he said, is when markets should start to balance, first with an end to inventory builds and later on with a period of sustained inventory draws. While he said it's impossible to call a bottom point, oversupply and the economics of storage could push prices of WTI well below $40 and perhaps as low as the $20 range for a while.

Morse said it's highly unlikely that oil prices will follow an L-shaped future. "Prices are already too low to be sustainable," he said. "Now in a $45-55 range (whether Brent or WTI) they’re at a level that would result in disinvestment from oil. Capex would focus on cash generating activities, monetizing past spending – developing delineated discoveries, completing wells, but would avoid new acreage acquisition, seismic studies, exploratory drilling, and expensive marginal well drilling. Depletion rates would rise, supply growth would slow and then fall under a long, cold supply sweat."
He said a U-shaped recovery looks superficially more plausible, with prices falling to around $45 Brent, $35 WTI and lingering therefore before recovering. "But this likely underestimates the demand response and overestimates the robustness of supply to sustain production below operating costs for a significant portion of global output," he said.

While Big Oil and smaller E&Ps are focusing on a V-shaped price response this year and next, Citi believes a W-shaped path most likely, with the “Call on Shale” replacing the traditional “Call on OPEC” as a new barometer. - on Shale” replacing the traditional “Call on OPEC” as a new barometer — with low prices squeezing shale oil output growth and a price recovery resulting in a robust US supply response creating another price dip and a recovery to a new equilibrium level.
The firm reduced their WTI base case to $54 for 2015.

Related ETFs: iPath Dow Jones-Goldman Sachs Crude Oil Fund (NYSE: OIL), United States Oil Fund (NYSE: USO), Energy Select Sector SPDR ETF (NYSE: XLE).

(Source StreetInsider)

Wednesday, January 28, 2015

Swiss Central Bank Takes Another Swipe at the EUR

As most of the east coast of the U.S. focuses on the “historic” snowstorm of all proportions, rumored Swiss National Bank (SNB) action during the European session this morning has taken a swipe at the EUR bear.
Investors quickly priced in last Sunday’s Greek parliamentary results. In turn, the single unit sunk to a new 11-year record low outright (€1.1098). Once completed, the most vulnerable side for the EUR bear was always going to be the weaker short-EUR positions. The longer that the market was unable to break through key EUR support levels (€1.1000), the more vulnerable the EUR topside was going to become.
Of late, capital markets have not seen too much asset class price consolidation. The various asset price moves have been mostly fueled by fundamental data and event risk, accumulating in one directional and overcrowded positions. Currency pairs like the EUR/USD, GBP/USD, and AUD/CAD seem to be treading water. Not helping the EUR bear is the combination of stabilizing equity markets and U.S. and German bond yields holding above recent lows — they’ve managed to lift market risk appetite and weigh on the USD, for a short period at least.

Pros Happy to Recycle EURs
A large percentage of pro traders would have taken yesterday’s EUR fall as an opportunity to lighten up on their EUR short positions. Many have been hoping to recycle EURs at higher levels to improve their portfolio average while maintaining their core short views. The mention of the SNB rumors this morning has helped their cause. Despite the SNB’s credibility in policy setting having been tarnished after the franc flash crash, the central bank’s reputation in aggressively acting on FX and interest rates will always be feared by the market. The very fact that intervention was even uttered had the Swiss franc on the immediate move this morning. The key is whether it’s sustainable.

he CHF weakened ($1.0340) throughout most of the European session after SNB’s Vice President Jean-Pierre Danthine noted that the bank is prepared to intervene in FX markets as they have yet to stabilize. Dealers have been suggesting that the weak rise in sight deposits could be seen as an indication that the SNB has been in the market already this week after its de-pegging announcement two weeks ago. As the market heads stateside where trading is expected to be lighter, the CHF was well off its worst levels.

Commodity Price Divergence
The CAD, or loonie as the Canadian dollar is known, is trying to bounce off its six-year lows as crude oil prices reverse some of this year’s recent losses. The temporary rise in crude prices have been supported by a report that the Organization of the Petroleum Exporting Countries’ (OPEC) top officials believe that they may have hit a bottom. In other words, the oil cartel is trying to walk the commodity’s prices higher. The problem is that the officials’ argument does not trump the reality of a product glut.
Oil prices have been the loonie’s biggest driver year-to-date. If crude prices do happen to stabilize (down -55% over the past six months) then the CAD is expected to find some much needed help. Last week, the Bank of Canada’s Governor Stephen Poloz tried to play catch up with weaker commodity prices by slashing overnight interest rates (-0.25bps to +0.75%), citing his actions as an insurance policy against a collapse in crude prices.
With Canada being a commodity-sensitive exporter, any negative longer-term fluctuations in commodity prices will have a massive impact on Canadian growth and inflation, and so too do yield spreads. Wider U.S.-CAD bond yield spreads will always hurt the loonie. Technically, the USD has found resistance at the key $1.25 level. Nevertheless, the majority of investors remain better buyers of USDs on pullbacks, believing that the USD bull market and weaker commodity trend remains intact. Through $1.25, the CAD bear will hone in on the next major CAD support level at $1.30 rather quickly.

Gold Bugs Seek Consistent Momentum
Crude is not the only commodity making waves, yesterday gold futures fell the most this year on speculation that Greece’s anti-austerity party victory would not result in the country leaving the euro currency bloc, pressing demand for the safe-haven asset. The EUR rebounded from its 11-year low (€1.1098) in Asian trading on Monday, after new Greek Prime Minister Alexis Tsipras pledged to keep his country in the eurozone. In January, the yellow metal’s rise was supported by investors as Europe’s flagging economy drove demand for a store-of-value. The commodity is finding it difficult to hold a trend intact. Gold is at the big dollar’s mercy and the market’s whim toward risk or not.

Debt Auction No Match for East Coast Weather Bomb
Investors who want to buy new U.S. two-year paper will have to wait until tomorrow. The U.S. Treasury has rescheduled this week’s debt offerings due the current east coast weather conditions. The $26B 2’s and $15B floating rate maturities will take place at the same time tomorrow. The five-year $35B auction gets pushed to Thursday, ahead of the on-schedule $29B seven-year note sale.


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