Daily Alert: For Friday 8th January 2016

Mark Nugent2016 H1, Daily Alert, January 2016

Today’s slides are HERE.

Today’s Economic News

China keeps us all entertained for another day…

  • Chinese circuit breaker hit again for the second time this week. Chinese securities regulator suspends the circuit breaker, saying it is not working as any small decline in the stock market is leading to panic selling while the opportunity remains to do so. It has been noted that if the circuit breaker had been in operation last year it would have been triggered 25 times. The Chinese regulator is coming out of this looking very bad. This is a volatile market populated by retail investors. The global reaction is far more extreme than warranted by the wider data, but that’s what markets do.
  • Vix > 20.
  • WTI oil moves lower during the day but currently sits at yesterday’s close.
  • All stock markets down (but interestingly showing large reversals from today’s lows).
  • AUD down; CAD down vs GBP but neutral vs USD. JPY still strengthening but reversing in last few hours.
  • Bond prices less volatile than earlier in the week.

We’re still risk off and I won’t be opening any positions on Friday. I am beginning to sense that there will be a return to risk-on next week.

Last night, the Fed minutes were seen as being slightly dovish, with the decision to increase rates being finely balanced due to remaining concerns on the lack of inflation. The famous blob diagram shows the median view of Fed members being that there will be four 25 basis point moves next year. The market has only priced in two of these.

Today’s calendar gave US unemployment claims slightly above forecast. Australian trade balance was essentially on forecast, both in terms of the total number (the actual balance), and the component parts of exports and imports.

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1. Strong + Emerging Markets

USDTRY is currently at the day’s opening price and remains outside the triangle. USDZAR continues to move up, not giving us the pullback we need. We will come back to these next week.

2. Swedish Central Bank Intervention?

USDSEK takes a move down towards the buying zone at the bottom trendline. EURSEK is flat on the day.

3. Reversal of JPY Safe Haven Flow

The JPY continues to appreciate so we wait. Although up on the day, the JPY has depreciated since the Chinese regulator announced the suspension of the circuit breaker. This is encouraging as the activation of the circuit breaker was clearly acting as a catalyst for global over-reaction.

4. New opportunities to consider for next week include trading a weakening Chinese Yuan.

Major Issues for tomorrow

Retail sales is always a biggy for any economy and we have Australia’s tomorrow. Then we have the US non-farm payroll and average hourly earnings, the latter being important as the Fed say they are worried about non-existent inflation. Then on Saturday we have Chinese CPI.

Let’s hope for a more sensible week next week.