Silver / U.S. DollarShort
Silver front of mind as we look at trades that compel
We close out a miserable first half for equity investors, and there will be many hoping for better times in the second half. I am not convinced they get them just yet, although those long of Chinese equity markets have been generating some good returns, with the China CN50 index trending like a dream – I guess this comes when the economy is starting to open up and you have the most supportive central bank out there. However, if you’re looking for some pockets for equity strength throughout June then you have to head East to China/HK.
EU equities look awful and while the GER40 comes up on the radar as one of the most traded markets, it doesn’t feel like this is the time to buy, at least for anything longer than a day trade – there has been some buying pressure seen on the daily, but rallies are to be sold and we look at the EU Stoxx and see a probability the 3400 support gets taken out.
The US500 closed out the worst first half of a year since 1970, with energy getting thumped as crude trades heavy – month-end flows likely a factor, so we look forward to the refresh today and cleaner flow, but bad news is bad news for now and today's US ISM manufacturing looms large (due 00:00 AEST) – one suspects the risks for a big move in markets come on a miss to consensus of 54.5, and while I will refrain from making a prediction, if the economists are well off the mark, a read sub-50 would rattle markets and suggest anyone still thinking a ‘soft landing’ is probable may change their call fairly rapidly.
The fact the Atlanta Fed Q2 GDP nowcast model is running at -1% is a worry, and if Q2 GDP was to be released today (it's not, it comes out on 28 July) then the chances are the US would be in a technical recession – I’m not sure we’re too worried about a technical recession, it’s when consumption pulls back for a sustained period that we see a reaction in weekly jobless claims and from there a rise in layoffs. At this point, the US labour market is still in rude health with nearly 2 job openings for every person looking for work.
If we look at the moves on the day in commodities, we could argue the commodity story is moving to something more prolonged. Copper has a big move lower into the bottom of the recent consolidation range – a downside break through $3.65 may get some more attention, but this is one the CTAs would already be short in. Nat Gas has been savaged, with a move of 14% and while trading NG is one for the brave, the trend is absolutely your friend here and rallies are to be sold. SpotCrude eyes the 103.66 swing and shorts are preferred in this backdrop.
Precious metals always get attention from clients, but it is silver that jumps out to me with the breakdown that is clearly evident on the 4hr or daily – hard to be long this market, and feel the risk is the market builds on this weakness to take out the 20-handle. A horrible set-up that could start to trend.
In FX we’ve seen the USD offered universally on the day – not sure how much I read into that given it's likely driven by month-end flows, but good buying in US bond markets (yields lower) may have contributed to a universally weaker USD. I certainly don’t buy the AUD move higher, especially when copper is looking weak and Dalian iron ore futures are down 5%, and the move to the 8-day EMA has met supply. I would be short in small size here, as we approach big support into 0.6850, where a break would suggest building on that position. Happy to cut above 0.6950.
Let’s hope it’s a good 2H22, my macro head says there is more pain to come but if the rates market is indeed correct then at some stage, maybe September, the Fed will open the door to a chunky old rally in risk – this is where crypto, gold, growth should see a far better tone. As always, keeping an open mind will pay dividends.
EU equities look awful and while the GER40 comes up on the radar as one of the most traded markets, it doesn’t feel like this is the time to buy, at least for anything longer than a day trade – there has been some buying pressure seen on the daily, but rallies are to be sold and we look at the EU Stoxx and see a probability the 3400 support gets taken out.
The US500 closed out the worst first half of a year since 1970, with energy getting thumped as crude trades heavy – month-end flows likely a factor, so we look forward to the refresh today and cleaner flow, but bad news is bad news for now and today's US ISM manufacturing looms large (due 00:00 AEST) – one suspects the risks for a big move in markets come on a miss to consensus of 54.5, and while I will refrain from making a prediction, if the economists are well off the mark, a read sub-50 would rattle markets and suggest anyone still thinking a ‘soft landing’ is probable may change their call fairly rapidly.
The fact the Atlanta Fed Q2 GDP nowcast model is running at -1% is a worry, and if Q2 GDP was to be released today (it's not, it comes out on 28 July) then the chances are the US would be in a technical recession – I’m not sure we’re too worried about a technical recession, it’s when consumption pulls back for a sustained period that we see a reaction in weekly jobless claims and from there a rise in layoffs. At this point, the US labour market is still in rude health with nearly 2 job openings for every person looking for work.
If we look at the moves on the day in commodities, we could argue the commodity story is moving to something more prolonged. Copper has a big move lower into the bottom of the recent consolidation range – a downside break through $3.65 may get some more attention, but this is one the CTAs would already be short in. Nat Gas has been savaged, with a move of 14% and while trading NG is one for the brave, the trend is absolutely your friend here and rallies are to be sold. SpotCrude eyes the 103.66 swing and shorts are preferred in this backdrop.
Precious metals always get attention from clients, but it is silver that jumps out to me with the breakdown that is clearly evident on the 4hr or daily – hard to be long this market, and feel the risk is the market builds on this weakness to take out the 20-handle. A horrible set-up that could start to trend.
In FX we’ve seen the USD offered universally on the day – not sure how much I read into that given it's likely driven by month-end flows, but good buying in US bond markets (yields lower) may have contributed to a universally weaker USD. I certainly don’t buy the AUD move higher, especially when copper is looking weak and Dalian iron ore futures are down 5%, and the move to the 8-day EMA has met supply. I would be short in small size here, as we approach big support into 0.6850, where a break would suggest building on that position. Happy to cut above 0.6950.
Let’s hope it’s a good 2H22, my macro head says there is more pain to come but if the rates market is indeed correct then at some stage, maybe September, the Fed will open the door to a chunky old rally in risk – this is where crypto, gold, growth should see a far better tone. As always, keeping an open mind will pay dividends.
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