Shortusdjpy
FED YELLEN SPEECH HIGHLIGHTS - USDJPY DXY SHORTSFed Yellen Speech:
Yellen: Current Policy Should Help Economy Move Toward Goals
Yellen: Welcome Development That More People Seeking Jobs, Unemployment Measures Steady
Yellen: Household Spending Key Source Of Economic Growth
Yellen: Fully Committed To Achieving 2% Inflation Objective
Yellen: Recent Pickup In Growth, Labor Market Strengthen Case For Rate Increase
Yellen: Decision Does Not Reflect Lack of Confidence in Economy
Yellen: Chose to Wait for Further Evidence of Progress Toward Objectives
Yellen: Cautious Approach to Paring Back Monetary Policy Support Is Appropriate
Yellen: Expects Only Gradual Increases In Fed Funds Rate
Yellen: Generally Pleased With How The U.S. Economy Is Doing
Yellen: The Economy Has A Little More Room To Run Than Previously Thought
Yellen: Expect Labor Market Conditions To Continue Strengthening
Yellen: We Don't See The Economy As Overheating Now
Yellen: Most Officials Judged Case for Immediate Increase 'Stronger,' But Sensible to Wait
Yellen: Expects To See One Rate Increase This Year If Economy Stays On Course
Yellen: 180k Jobs a Month is Faster Than Sustainable in the Longer Run
Yellen: Don't Want to 'Significantly Overshoot' 2% Inflation Objective
Yellen: Economy Has Shown More People Being Attracted Back Into Labor Force
Yellen: Meeting Focused on Timing of Rate Increases
Yellen: Less Disagreement Among FOMC Participants Than Speeches Suggest
Yellen: Officials Struggling With 'What is the New Normal' DJ News
Yellen: FOMC Not a Body That Suffers From 'Group Think' DJ News
Yellen: FOMC Debating, Discussing Issues Related To Timing of Rate Increase
Yellen: Partisan Politics Plays No Role in Our Decisions
Yellen: We Do Not Discuss Politics At Our Meetings, Take Politics Into Account
Yellen: Decision Not To Raise Rates Today Largely Based On Judgement Not Seeing Economy Overheating
Yellen: Decision to Wait Based on Economic Factors, Not Political
Yellen: November Is A Live Meeting, Will Assess Incoming Evidence
Yellen: Highly Accommodative Policies Seem Necessary In Most Advanced Economies
Yellen: Aware Of Financial Stability Risks Caused By Low Rates
Yellen: Investment Spending Has Been Quite Weak For Some Time, Not Certain Of Causes
Yellen: Not Aware Of Evidence Political Uncertainty Weakening Investment Spending
Yellen: Concerns About Scope For Monetary Policy, Balance Sheet Large
Yellen: 'Worthwhile' for Fiscal Policy Makers to Prepare for Future Economic Shocks
YELLEN: THE ECONOMIC OUTLOOK IS INHERENTLY UNCERTAIN
FED'S YELLEN: MONPOL NOT ON A PRESET COURSE
FED'S YELLEN: CURRENT MONPOL STANCE SHOULD BE CONSIDERED "MODERATELY ACCOMMODATIVE"
FED'S YELLEN: NEUTRAL FFR RATE QUITE LOW BY HISTORICAL STANDARDS
FED'S YELLEN: LBR MKT SLACK BEING TAKEN UP AT SLOWER PACE, SOFT INFLATION, WE CHOSE TO WAIT FOR FURTHER EVIDENCE
FED'S YELLEN: DECISION TO NOT HIKE NOT A REFLECTION OF LACK OF CONFIDENCE IN THE ECONOMY
FED'S YELLEN: RISKS TO THE OUTLOOK ARE ROUGHLY BALANCED
FED'S YELLEN NOTES INFLATION STILL SHORT OF OBJECTIVE GIVEN BASE EFFECTS
FED'S YELLEN: LBR MKT CONDITIONS WILL STRENGTHEN FURTHER OVER TIME
FED'S YELLEN: MORE PEOPLE ARE SEEKING AND FINDING JOBS - A WELCOME DEVELOPMENT
FED'S YELLEN: SLACK LITTLE CHANGED THIS YEAR
FED'S YELLEN: BIZ INVESTMENT REMAINS SOFT
FED'S YELLEN: GROWTH HAS PICKED UP DRIVEN BY HOUSEHOLD SPENDING
FED'S YELLEN: CASE FOR HIKES HAS STRENGTHENED, BUT DECIDED TO WAIT FOR EVIDENCE OF FURTHER PROGRESS
USDJPY - EDGY BOJ TURNS YEN TURBULENT; KURODA SPEECH *USDJPY:
1. Price action immediately following BOJ this september was more than erratic but at the same time showed some consistency for those of you who can remember back to Julys performance - we moved instantly lower on the decision to 101 flat, before ripping 180pips higher to 102.8 to then lose most of the bids and trade back to the 101 base.
2. The BOJ decision itself, imo, was less than clear compared to July though and almost warranted this kind of whipsaw behaviour - especially given the anticipation (or not so much) of the Fed later today which is likely to mingle with risk sentiment and dollar leg of USDJPY the like at some point.
- The unclearness regarding whether the policy decision was net hawkish or dovish was given that there was no changes to the main policy tools (Depo, LSP, JGB, ETF), it would leave one thinking neutral-hawkish on expecttions - especially given a 5bps cut was the median BBG forecast. However, on the other hand, you had statements from BOJ including, "BOJ expanding its monetary base until it reaches its 2% inflation target" which is somewhat dovish given it puts never ending monthly JGB 80-100trn yen on the table for the next few years (unless the BOJ is delusional that less time is required). But at the same time this dovish statement was met by a bid from the BOJ to "increase yields for 10y JGB to 0%" and steepen the curve - which in itself is highly contradiction of ANY further expansion to the monetary base (given increases in money supply reduces rates). The BOJ knowing this then went on to cover saying "pace of purchases may fluctuate as to meet 0% target". Thus all in all the above, for me at least, left the overall decision uncertain at best. Given we are only 0.2% down it would be fair to say the outcome was infact neutral.
Neutral BOJ and No hike Hawkish Fed was my prediction before (see attached) and i stand behind the 100 level being reached as USD demand is likely to be flushed at some level when the 10-20% priced into USD fed funds is flushed out.
BOJ Decision:
JAPAN BOJ RATE DECISION STAYS FLAT AT -0.1 % (FCAST -0.1 %) VS PREV -0.1 %
BOJ DECIDES TO SET TARGET FOR LONG TERM INTEREST RATES
JAPAN BOJ BASE MONEY TARGET STAYS FLAT AT 80 TLN JPY (FCAST 80.00 TLN JPY) VS PREV 80.00 TLN JPY
BOJ: ADOPTS QQE WITH YIELD CURVE CONTROL
BOJ: TO ABANDON MONETARY BASE TARGET
BOJ SAYS NO OFFICIAL BASE MONEY TARGET, BUT MAINTAINS ANNUAL PACE OF JGB BUYING AT 80 TRLN YEN
BOJ: TO KEEP BUYING JGBS SO BALANCE OF ITS HOLDINGS INCREASES AT ANNUAL PACE OF 80 TRLN YEN
BOJ: INTRODUCES NEW MARKET OPS FOR YIELD CURVE CONTROL
BOJ: TO BUY JGBS SO 10 YR YIELD HOVERS AROUND 0 PCT
BOJ: PURCHASING YIELDS WILL BE SET PER AUCTION BY INDICATING THE SPREAD FROM THE BENCHMARK YIELD WHICH BOJ DETERMINES SEPARATELY
BOJ: DEPENDING ON MARKET CONDITIONS MAY SET JGB PURCHASE SIZE PER AUCTION TO FIXED AMOUNT OR UNLIMITED AMOUNT
BOJ: SCRAPS RANGE FOR DURATION OF JGBS THAT BOJ BUYS
BOJ: BOJ TO CONTINUE EXPANDING MONETARY BASE UNTIL CPI EXCEEDS 2 PCT AND STAYS ABOVE TARGET IN STABLE MANNER
BOJ: ADOPTS COMMITMENT TO LET INFLATION OVERSHOOT ABOVE 2 PCT
BOJ: BOJ CAN CUT SHORT TERM POLICY RATE, TARGET LEVEL OF LONG TERM RATES IN FUTURE EASING
BOJ: BOJ TO CONTINUE EXPANDING MONETARY BASE UNTIL CPI EXCEEDS 2 PCT AND STAYS ABOVE TARGET IN STABLE MANNER
BOJ: BOJ MAY ACCELERATE EXPANSION OF MONETARY BASE AS FUTURE POLICY OPTION
BOJ: PACE OF MONETARY BASE INCREASE MAY FLUCTUATE IN SHORT RUN UNDER MARKET OP THAT AIMS TO CONTROL YIELD CURVE
BOJ: MAINTAINS COMMITMENT TO ACHIEVE 2 PCT INFLATION AT EARLIEST DATE POSSIBLE
BOJ Kuroda:
USDJPY - EDGY BOJ TURNS YEN TURBULENT; KURODA SPEECHUSDJPY:
1. Price action immediately following BOJ this september was more than erratic but at the same time showed some consistency for those of you who can remember back to Julys performance - we moved instantly lower on the decision to 101 flat, before ripping 180pips higher to 102.8 to then lose most of the bids and trade back to the 101 base.
2. The BOJ decision itself, imo, was less than clear compared to July though and almost warranted this kind of whipsaw behaviour - especially given the anticipation (or not so much) of the Fed later today which is likely to mingle with risk sentiment and dollar leg of USDJPY the like at some point.
- The unclearness regarding whether the policy decision was net hawkish or dovish was given that there was no changes to the main policy tools (Depo, LSP, JGB, ETF), it would leave one thinking neutral-hawkish on expecttions - especially given a 5bps cut was the median BBG forecast. However, on the other hand, you had statements from BOJ including, "BOJ expanding its monetary base until it reaches its 2% inflation target" which is somewhat dovish given it puts never ending monthly JGB 80-100trn yen on the table for the next few years (unless the BOJ is delusional that less time is required). But at the same time this dovish statement was met by a bid from the BOJ to "increase yields for 10y JGB to 0%" and steepen the curve - which in itself is highly contradiction of ANY further expansion to the monetary base (given increases in money supply reduces rates). The BOJ knowing this then went on to cover saying "pace of purchases may fluctuate as to meet 0% target". Thus all in all the above, for me at least, left the overall decision uncertain at best. Given we are only 0.2% down it would be fair to say the outcome was infact neutral.
Neutral BOJ and No hike Hawkish Fed was my prediction before (see attached) and i stand behind the 100 level being reached as USD demand is likely to be flushed at some level when the 10-20% priced into USD fed funds is flushed out.
BOJ Decision:
JAPAN BOJ RATE DECISION STAYS FLAT AT -0.1 % (FCAST -0.1 %) VS PREV -0.1 %
BOJ DECIDES TO SET TARGET FOR LONG TERM INTEREST RATES
JAPAN BOJ BASE MONEY TARGET STAYS FLAT AT 80 TLN JPY (FCAST 80.00 TLN JPY) VS PREV 80.00 TLN JPY
BOJ: ADOPTS QQE WITH YIELD CURVE CONTROL
BOJ: TO ABANDON MONETARY BASE TARGET
BOJ SAYS NO OFFICIAL BASE MONEY TARGET, BUT MAINTAINS ANNUAL PACE OF JGB BUYING AT 80 TRLN YEN
BOJ: TO KEEP BUYING JGBS SO BALANCE OF ITS HOLDINGS INCREASES AT ANNUAL PACE OF 80 TRLN YEN
BOJ: INTRODUCES NEW MARKET OPS FOR YIELD CURVE CONTROL
BOJ: TO BUY JGBS SO 10 YR YIELD HOVERS AROUND 0 PCT
BOJ: PURCHASING YIELDS WILL BE SET PER AUCTION BY INDICATING THE SPREAD FROM THE BENCHMARK YIELD WHICH BOJ DETERMINES SEPARATELY
BOJ: DEPENDING ON MARKET CONDITIONS MAY SET JGB PURCHASE SIZE PER AUCTION TO FIXED AMOUNT OR UNLIMITED AMOUNT
BOJ: SCRAPS RANGE FOR DURATION OF JGBS THAT BOJ BUYS
BOJ: BOJ TO CONTINUE EXPANDING MONETARY BASE UNTIL CPI EXCEEDS 2 PCT AND STAYS ABOVE TARGET IN STABLE MANNER
BOJ: ADOPTS COMMITMENT TO LET INFLATION OVERSHOOT ABOVE 2 PCT
BOJ: BOJ CAN CUT SHORT TERM POLICY RATE, TARGET LEVEL OF LONG TERM RATES IN FUTURE EASING
BOJ: BOJ TO CONTINUE EXPANDING MONETARY BASE UNTIL CPI EXCEEDS 2 PCT AND STAYS ABOVE TARGET IN STABLE MANNER
BOJ: BOJ MAY ACCELERATE EXPANSION OF MONETARY BASE AS FUTURE POLICY OPTION
BOJ: PACE OF MONETARY BASE INCREASE MAY FLUCTUATE IN SHORT RUN UNDER MARKET OP THAT AIMS TO CONTROL YIELD CURVE
BOJ: MAINTAINS COMMITMENT TO ACHIEVE 2 PCT INFLATION AT EARLIEST DATE POSSIBLE
BOJ Kuroda:
USD STIR RALLY PUTS USD BACK ON BID: FED ROSENGREN SPEECHFed Funds Rallied up from 18% to 33% on the day with Fed rosengrens hawkish comments the only likely impetus.
Imo DXY here at 95 mid has an easy 50bps of topside left in it if rates can hold here at 33%, UST also seen higher across the board with the bench mark 10y yield breaking pre-brexit levels.
Long DXY, and shorting $yen on rallies is the way I intend on playing this, yen from a risk-off perspective imo is still cheap whilst USD been heavily offer for the past week.. rates need to hold up though so this is tactical positioning rather than a structural 21st Sept Fed bet. SPX likely to remain underpressure too whilst rates trade here so short positioning is paying off though i still like SPX lower to 2000s and will be holding for this.
Fed Rosengren Speech Highlights:
Fed's Rosengren: Gradual Interest Rate Increases 'Appropriate'
Rosengren: U.S. Economy Resilient Despite Drag From Overseas
Rosengren: Could Reach or Exceed Full Employment 'Over the Course of the Next Year'
Rosengren: 'Reasonable Case' for Gradual Interest Rate Increases
Rosengren: Weakness in Recent GDP Readings Reflects Inventory Adjustments
Rosengren: Expects Growth to Exceed 2% Next Two Quarters
Rosengren: 80,000 to 100,000 Jobs a Month Needed to Keep Unemployment Rate Constant
Rosengren: Stock Prices, Volatility Gauge Show U.S. Resilience
Rosengren: Commercial Real Estate Prices Have Risen Rapidly
Rosengren: Risks to Forecast 'Increasingly Two-Sided'
Rosengren: Waiting Too Long to Raise Rates Could Lead to 'More Pronounced' Slowdown in Growth
USDJPY: FADE SHORT ON RALLIES; BUY 104.1 BREAKOUT$Yen
- There is little impetus for this pair this week, with this recent rally likely part of the NFP report flushing out.
- Nonetheless from here I maintain my bearish bias given the BOJ and JPN govts massive let downs I think USDJPY topside will struggle and we will move through 100 once the risk-off tone returns (which is likely once the equities rally/ excitement fades... and still waiting); thus, short on rallies into key resistance levels e.g. 102.5, 103.3 is advised.
- However, between the 103.3 and 104.1 level there seems to be an area of "No mans land" which is filled with contradictory bullish/ bearish signals thus i advise not trading the pair between this range.
- Furthermore a break above 104 and close on the daily and my view turns to bullish - citing the relative lows e.g. $yen already 20% down so struggling to fall more or a medium term risk-on shift maintaining thus driving the pair higher through weaker yen demand.
Trading strategy:
1. Sell $yen at 102.5 resistance, 101.6tp1 101tp2.
2. PotentiallY buy $yen on a 104.1 break-out but I will advise on this if it becomes the case.
USDJPY: BOJ DEPT GOV IWATA - MORE WORDS, NO ACTION; SELL 101/2.5BOJ dept Gov Iwata was the most recent in what seems to be a slew of attempts by JPY officials, whether it be Govt or BOJ to try and weaken the Yen with yet again more dovish/ promising rhetoric. Statements such as "prepared to loosen policy further without hesitation" where in my mind no doubt undermined by the BOJ's seemingly blind assesment of future expectations - with Iwata claiming inflation should hit 2% by the end of 2017, even though policy is relatively unchanged since January where inflation has gotten worse so i dont know how JPN is going to pull off what would be the fastest increase in inflation in history. Further, comments such as "BOJ increased ETF purchases to prevent worsening of corporate and public sentiment" were naive at best.. 30bn of etf purchases in a year amounts to that of an average sized hedgefund OR a very small asset manager, so how he thinks such action will uplift the worlds largest economy with increased measures of less than 1% of its GDP more than baffles me. BOJ/ Govt seem deluded to the greatest extent, or more realistically - holding $yen shorts from the start of the year, no poilcy but strong rhetoric certainly supports this view (humorous).
More seriously though, BOJ et als inability to take real responsibility for printed targets, and make policy = words to me makes the future clear for $yen trading. Lower is the only direction that is clear from here - in what was the most pressured BOJ meeting, from both markets and govt perspective, the BOJ performance was dismal so it leads the question, if not now why would it ever change? And Iwatas comments back this up, from the dept govs view, JPN is on firm track to hit its targets in amazing fashion.. so with such strong/ positive views (even if no data supporting), why will BOJ ease drastically more? they wont, as if most share his sentiment (which they do with most not voting to change the rate or JGB purchases which make up the bulk of the easing programme).
So all in all, Iwata's and previous speakers comments firmly in mind short $yen is now my view - after being a strong $yen bull on the basis of big easing with risk-on spill overs. Fading rallies seems appropriate and the 101.5 level today held unfazed which looks like a good level to add shorts for the imminent 100 level break. On the way down 101.5 was an intermediate level, 102 was the key so I am surprised it held and would prefer to short from the 102 nonetheless (much more likely to hold and 50 more easy pips of downside).
BOJ IWATA SPEECH HIGHLIGHTS
USDJPY RTRS FORECAST: BOJ/ MOF - COMMENTS ABE, KURODA, ASAKAWAInterestingly the RTRS poll for Aug has a bullish near-term bias for $yen vs in July - my opinion is contrary to their poll as the BOJ and JPY MOF failed to deliver the hype expected/ promised this past week - i think 101/2 is much more likely for the next 3 months vs their 103.8.
Comments from PM Abe, MOF and BOJ minutes that we observed in the Asia session were much of the same but once again markets digest the information as "actionless" as we have heard one too many times about the JPY govt/ BOJ's willingness to intervene in FX markets "if need be" yet their policy fails to back up such claims. Further in all honesty the BOJ has only ever intervened in the $yen price in recent times (post 2008) when it has been less than 90, and closer to 80 - so in reality imo we have until atleast 94 before we have to worry about any potential intervention spikes.
My view on $Yen remains bearish, with broad USD strength today helping $yen rise into the 101.5 pivot level which it has failed to break so far - i expect $yen to test this level several more times today - failure to break and i will short OR i am happy to short at the 102 level which is likely to be very restrictive anyway. Targets to the downside are 100.5 and 100, then 99.
Through 99 we look towards the 94 level. a Push here will require the risk-off tone of 2016 to continue to dominate this half of the year too, whihc seems somewhat likely as gold continues to rally close to yearly highs yesterday and US presidential elections, FOMC hike projections and brexit uncertainty still linger. A close below 98.5 and the clear selling target is 94 - this is my terminal forecast for $yne before any bull trend can emerge - with failiure from BOJ to diverge their policy more in the highly pressured july meeting, im struggling to see what drivers there are to move $yen higher and through the 104 key level going forward - imo a 20-30bps depo rate and LSP cut, combined with a 10-20trn JGB extension is what is require to see $Yen maintain the 110 level and be able to fight the risk-off pressures. Until BOJ policy is adapted in such a way, selling remains the bias.
REUTERS POLL -
1. YEN TO WEAKEN TO 103.8 TO THE DOLLAR IN THREE MONTHS, 105.0 IN SIX MONTHS, AND 107.7 IN A YEAR (VS 103.0, 105.0, 108.0 IN JULY)
JPY PM Abe highlights:
-JAPAN PM ABE: EXTRA BUDGET TO BE SUBMITTED TO DIET IN AUTUMN
-JAPAN PM ABE: ECONOMY IS TOP POLICY PRIORITY FOR NEW CABINET
-ABE: TO STRENGTHEN TIES WITH NEIGHBOURS LIKE CHINA, S KOREA
-ABE: NOT THINKING ABOUT SEEKING TO EXTEND TERM AS LDP PRESIDENT Economy
-ABE: I TRUST KURODA'S ABILITY AS BOJ GOVERNOR
-ABE: SPECIFIC MONETARY POLICY STEPS UP TO BOJ TO DECIDE
-ABE: KURODA HAS SAID THERE'S NO LIMIT TO BOJ'S MONETARY POLICY
JPY MOF's Asakawa Highlights
-JAPAN MOF'S ASAKAWA: IF NEEDED, READY TO ACT ON JPY IN LINE WITH G-7 AGREEMENT
-JAPAN MOF ASAKAWA: INTEREST RATES, CURRENCY MARKET ARE VOLATILE
-JAPAN MOF ASAKAWA: CLOSELY WATCHING FOREX MARKET MOVES
-JAPAN MOF ASAKAWA: CLOSELY WATCHING FX MARKET TO PREVENT SPECULATIVE MOVES FROM BECOMING ACTIVE
-JAPAN MOF ASAKAWA: FOREX MARKET SHOWING ONE-SIDED AND SPECULATIVE MOVES
-JAPAN MOF ASAKAWA: WILL RESPOND TO CURRENCY MOVES IF NEEDED IN LINE WITH G7, G20 AGREEMENT
-JAPAN MOF ASAKAWA: Recent Rise In JPY Is 'Quite Biased, One-Sided, Speculator-Driven'
-JAPAN MOF ASAKAWA: JGB Yield Volatility, JPY FX Rate Is 'Very High'
BUY USD DIPS VS GBP/ NZD: DOVISH FED W. DUDLEY SPEECH HIGHLIGHTSFed Dudley was speaking At A joint New York Fed, Indonesian Central Bank Seminar On Sunday evening when he left a mixed impression for the markets to digest - saying "it is premature to rule out an interest-rate increase this year" but then on the contrary saying "Raising Rates Prematurely Would Be Riskier Than Moving Slightly Too Late" and following up that sentiment with "Investor Expectations For Flatter Path Of U.S. Interest Rates Seems 'Broadly Appropriate'" and pointing out the medium-term risks are seen skewed to the downside - all of which somewhat contradictory expecting a 2016 rate hike.
IMO these comments are more less positive news for the greenback, given the hawkish July Minutes should take precedent (despite the market weirdly selling the september hike being officially put on the table) and after the DXY lost every day last week I think it will struggle to continue this trend into this week as the drop in rate hike expectations/ fed funds rates should flatten out - Likely seeing the bulk of the dovish expectations price last week - september 25bps hike expectations fell from 25% at the beginning of the week to 12% on Friday following the miss GDP report - will likely bottom out around here to 8%min.
That said, given the BOJ's miss we could easily see further pressure on US rates this week as imo the failed big stimulus hopes are likely to fade the risk-on environment of late, and move us back into the safe haven trend that has dominated 2016 - so dont be surprised to see some more risk-off rate expectation USD selling/ bond buying - look out for consecutive moves higher in UST or moves lower in tnx.
In the medium term this still hasnt changed my view of bullish USD and at present IMO this selling wave has opened up the opp for some good USD buying entry points e.g. kiwi above 0.72, stelring at 1.33, and eur at 1.115 - kiwi and sterling the best trades as we move into RBA, BOE and RBNZ within the next 10 days which should realise considerable downside for kiwi and cable (and for those trading aussie too, tho i prefer the kiwi proxy).
Fed Dudley Speech Highlights:
-Fed's Dudley Warns It Is Premature To Rule Out an Interest-Rate Increase This Year
-Dudley Says Fed-Funds Futures Prices Seem 'Too Complacent'
-Dudley Says There Is 'Room For Improvement' in Fed Communications, But They Are Growing More Transparent
-Dudley Says His Baseline Outlook For U.S. Growth, Inflation 'Has Not Changed Much In Recent Months'
-Dudley Expects 2% Annualized U.S. Growth Over Next 18 Months
-Fed's Dudley Says Medium-Term Risks To Economy Are 'Somewhat Skewed To The Down Side'
-Dudley Says Brexit Impact Has Been Short Lived, But Longer Term Potential Fallout 'Hard To Gauge'
-Dudley Says Fed Takes Dollar Appreciation Into Consideration, But Not Targeting Any Set Exchange Value
-Dudley Says Evidence Accumulating The Crisis-Era Headwinds 'Are Likely To Prove More Persistent'
-Fed's Dudley Warns it is Premature to Rule out an Interest-Rate Increase This Year
-Dudley: Investor Expectations For Flatter Path Of U.S. Interest Rates Seems 'Broadly Appropriate'
-Dudley Says Raising Rates Prematurely Would Be Riskier Than Moving Slightly Too Late
SPX: BOJ MISS = BULL RUN END +2% + 2016 SAFE HAVEN TREND RESUMESEnd of the bull run
Global Equity Indexes:
1. SPX/ Global Equity indexes in the past 2/3wks saw a post-brexit central bank easing induced rally, as many CB released dovish statements following the vote which spurred investor confidence in fresh easing.
- IMO much of the bull run was based on BOJ easing hopes, given the size of the economy (4th largest) stimulus from the BOJ had risk sentiment increasing affects - though now in light of no new easing from the BOJ and many CBs shrugging off/ UK internalising the brexit impacts I believe this bull run is over.
2. Technically speaking we may see another week or two of sideways or +1% as the market awaits easing policy information from the BOE (6th largest economy), but past this and regardless of what the BOE does i think the upside bias will cease. BOE is only likely to inject 50bn over probably 6m+ which is a drop in the ocean relatively as the BOJ does 100bn+ in one month, so by mid august latest I expect risk-markets to turn sour and a 10% correction is likely.
Confirmation the risk-rally is over:
- During this bull run we have seen risk markets/ SPX make gains rather frigidly, one day up one day down has been the trend - rather than the usual breakout green green green rallies of the past - this to me indicated that the topside was cautious and reinforced my view that it was central bank driven (not equity market performance driven). Thus, Confirmation of the trend turning to risk-off will be consecutive days of risk markets falling (SPX/ global indexes) OR consecutive safe haven markets rising (Gold, UST, Yen) and the emergence of a strong negative correlation between the two assets will be a solid second indicator that the 2016 risk-off trend is back.
Trading Strategy - a number of ways to play this one:
1. Short FTSE100 @6700 or 7000 (wait for BOE) - this is my favourite trade but has a few conditions. We have built some resistance at the 6700-800 level so here isn't a bad place to sell however i think we will get a better selling vantage point next week, assuming the BOE cut the bank rate 25bps.
- The BOE easing should move FTSE100 up 3-4% in a few days into the 7000 ATH key level as easing boosts business conditions and a lower GBP increases FTSE company international competitiveness. The 7000 level is where I am aiming for FTSE shorts with sell-limit orders as 1) its all time high levels; 2) I like to fade central bank action since it is artifical; 3) the broader risk-run is over so FTSE will suffer with the rest of the market
2. Short US Indexes @Market - SPX is perhaps the best short ATM given it trades right at its newly set all time high levels and on the backdrop of the BOJ miss we should see some downside soon.
3. Long Yen @mrkt - in the immediate term my favourite trade I like long Yen (for 200-400pips) against USD and GBP, given the BOJ backdrop is most related to JPY markets. We have already we seen the risk-off transmission taking place in here as Nikkei sold off 2% after the result and JPY grew 3% but i still think in the immediate term e.g. 1wk we can see more JPY topside and Nikkei weakness - me prefering to trade the FX strength over the equity as the equity often follows as a function of FX strength.
4. Long Bonds or Gold @mrkt - for the medium/ longer term I like buying govt debt, particularly UK gilts (BOE QE increases demand) or Gold - Gold we saw move higher on Friday in reaction to the BOJ so it will be interesting to see if we can get risk-off confirmation run from this next week (look for 3/4 green days).
Risks to the view:
1. US Earnings have outperformed imo on average this Q, so the risk-run may be sustained for longer than the 2wk window that I expect. Nonetheless, i think even this is capped at 4wks e.g. we should be in full bear mode by the start of September - look out for the confirmation, a run of 3/4+ days of consecutive safe haven gains is often all the markets have to signal to show
USDJPY - BOJ MISS; FISCAL STIM PACKAGE & TRADING YEN FROM HEREBOJ - 3trn increase in annual ETF Purchases + $24bn increase in USD funding for banks
1. The BOJ on Friday delivered a shockingly poor package, imo they changed the snallest part of their current QQE programme.
2. What was interesting though was the markets reaction - immediately after the decision $Yen spiked higher then lower to 103 level but from then and into and through the London Open $Yen was being brought/ held up around the 103 level - it wasnt until NY came in at 1430GMT that $Yen broke lower.
- But even then it was surprisingly a laboured move lower, taking almost the full NY session to find its lowes.
- Some of the UJ weakness was down to a big GDP miss of 1.2% vs 2.6%exp, which sold the rates market off now implying only a 12% chance of a hike in September vs 18% the previous day and 25% earlier in the week, so i t would have been interesting to see what would of happened with out this dollar downside impetus.
USDJPY from here:
1. Personally from 102.00 i see $Yen lower in the near term e.g. we could easily open 50pips lower on sunday into the key level at 101.5 as the asia session adds to shorts that they missed during their own session post-BOJ.
- There is the possibility that we see some upside in $Yen as the MOF releases their fiscal package - the more actual govt spending the package includes and the shorter the timeframe, the greater the impact of the fiscal package on giving UJ some relief - but still i advise shorting rallies as i beliveve we move into the 100s from here.
- That said in reality the impact of the fiscal package is likely to be limited if not completely muted as 1) the market already knows the extent and some of the details of the package and has done for the past week+ e.g. 28trn of which the market baring piece, the govt spending, is rumoured to be around 13trn - so this information is likely already baked into the price and imo was the driver of the support we saw on friday at the 103 level (asia/ ldn sellers wary of shorting in anticipation of the fiscal package). Thus any topside is only likely to come if MOF changes this dramatically to say 20trn govt spending (anything less is already pre-priced imo) OR even increases the package (but this is also unlikely as Japan has the highest govt debt:gdp ratio as it is) - but imo it is unlikely they would do either anyway.
- In-fact, i actually believe the MOF stimulus package has asymmetrical risks to the downside/ disappointing markets - as several MOF officials have commented that the 28trn package is such a large package that it is likely to be over several years - thus the longer the MOF stretch the package over more disappointment the market will price and this could actually end up being a driver for more Yen appreciation given some expected the whole 28trn in one year - which isnt impossible given the size of the Japanese economy (20x bigger than the package + not all of it is in fresh govt spending).
UJ View/ Trading strategy - Sell USDJPY asap @mrkt 102 - 100TP1 99TP2 - or wait for the 30/40% chance of a bounce and sell from 103/4 on Tuesday:
1. So I see UJ moving lower from here to the 100's, until Tuesday where i see there being a risk of the market gaining some topside MOF stimulus surprise (which nonetheless is capped at 103.5-104 tops - in which i would sell) but more likely MOF disappointment (e.g. 5y package, less than expected actual spending) which will give UJ seller more ammo and could push us through the 100 level, assuming UJ has traded on the offer since Sunday open (which is likely imo)..
LONG USDJPY: ANOTHER BOJ OUTPERFORM CASE - 28TRN GOVT STIMULUSAnother argument for the BOJ outperform case - Post BOJ Buy $Yen @MRKT 111tp:
1. We know BOJ and JPY Govt Abe/ Aso have had many meetings post-brexit and as it follows the JPY Govt have announced today that they will deliver a fiscal stimulus package of 28trn - which was to the very right of the curve (10-30 was talked about).
- This in mind, imo it is rational to extrapolate that 1) surely if the JPY govt are choosing a tail end stimulus package (aggressive), BOJ will be inclined to do also? Given that it is the BOJ remit for economic targets like inflation, not the governments - BOJ wouldnt want to be seen as dropping the egg would they e.g. govt does as much as it can but BOJ only midly eases - doesnt make sense? Especially given the relationship between kuroda/ aso/ abe it would almost be impossible.
- 2) The BOJ will know/ see that the JPY Govt are taking the "extreme" side of measures, so once again this puts the BOJ under-pressure to do the same as they dont want to be seen as "letting the side down" especially as it is the BOJ who really has the power to change things - the Fiscal package is rather an indicative/ nice gesture of the govts willingness to help - rather than any real hard easing when you consider the Govt package is likely to be 28trn a year but the BOJ purchases/ injects 80trn A MONTH to its monetary based in JGBs - thats 960trn a year. So 27trn govt vs 960trn BOJ - is the govt really making an impact or are they instead signalling their commitment/ putting pressure on the BOJ? I think so.
Under-performance case:
1. Perhaps less meaty, but nonetheless a valid point - Japan, JPY Govt and BOJ have lived with low inflation/ deflation for the past several decades and no "extreme" action has been taken to resolve it (well not enough to fix the problem anyway) so this pressure on the BOJ we talk about above - is it real? or is it a theoretical pressure that they "Must" hit their targets?
- If history predicts the future then yes, it is a theoretical economic pressure - they haven't hit the target for 20yrs so why would they do measures to hit it now? There's no public pressure, im sure theyre happy consuming at lower prices - unlike with high unemployment.
- Off topic but it would be interesting to see a Japan with high Unemployment - an economic indicator that causes civil unrest (Greece riots) and is a necessity to be solved for the wellbeing of any nation - thus my bets are if unemployment was at 15-20% (similar comparison to deflation) for the past 15yrs something drastic WOULD have been done a long time ago, or be done on Friday to fix it. After all, theres no driver to fix something that doesnt really need fixing is there? Think about the last time you went to extreme measures to fix something that wasn't much of an issue...
USD/JPY Farm Roll PreviewYen long positions on the futures market are at record highs and historically any high risk event to the dollar supports the Yen as investors seek to protect themselves from uncertainty.
Price rejecting the 50% fib level and an interesting candle formation lead to a reasonable conclusion that further downside gains are to be made this week.
Poor US news will open up a re-test of last weeks highs where as a good non farm and positive US news have scope to break the current range towards the 100% fib level.
Beware that price can break up on the several pieces of high impact US news if they are positive however the fact that it's an 'if' means that a short position which is backed by price action and investor sentiment in the futures market is likely to yield a high probability of profits.