Fed Officials Continue To Hint On Taper Timing

Okay, very good morning to you. It is Tuesday the 10th of August and quite a bit more quiet than the mini gold flash crash that we were talking about yesterday, but nonetheless quite a few things for me to update you on, predominantly based around, as you can see here, some Fed comments. So Bostic, Barkin, Rosengren were all speaking in the last 12 hours or so. We're just going to talk a little bit about the latest COVID situation in the US. I'm going to talk about the infrastructure bill, some slight progression there and things to be aware of on Capitol Hill. And then a storm watch as well according to National Hurricane Center with a potential disruption being seen at the weekend for the Gulf of Mexico, something you should just put on your radar as well for any energy traders. But let's just have a look at what is going on at the moment this morning, and it's pretty quiet. The dollar index is largely unchanged. However, keeping a close eye on it at the moment as it's continued to kind of add to gains that were seen after the firm payrolls report we had on Friday. So in terms of the major pairs at the moment, EURUSD and Cable, they're trading around the lower bound of their Asia-Pac lows at the moment, but as I said, roughly unchanged on the session. Um, equity index futures, US stateside, again, it was a pretty even finish really overall on the US indices in the cash market. On the NYSE yesterday, the S&P was basically unchanged. The Dow was down marginally, 0.3%, the Nasdaq up 0.2%. So at the moment, it seems like equity is just happy and content to just hold a bit of a consolidation pattern for the time being. Obviously, the US CPI report tomorrow will be quite key. It's kind of the week's main event. In the commodity market, after gold had that episode yesterday, it obviously fully recovered by the point we got into really the European morning. But did fade then through the bulk of yesterday's session. Remains, um, still lower post the flash crash, but it's up having just retraced a little bit in the Asia-Pac session, trading up about $9 at $17.35 at the moment. And then as far as WTI crude is concerned, again similar in the commodity space, it had been coming under some considerable pressure, um, yesterday in a continuation. But as you can see here, a bit of a breakout from the Asia-Pac highs which was also an area of resistance that was seen in the prior overnight session. And so just seeing a bit of moderate upside, up about $1 now in WTI crude. And on the daily chart, you can see we had that trendline break and horizontal break yesterday around that $66, $60.70 mark. Did create a bit of a spillover in oil at the time, but as you can see, technically just finding support at this first rectangle level and bouncing back and trading back above that level for the time being. So Pretty decent recovery there from, from the lows. Having a quick look then at the news headlines and going to talk about the Fed comments and I can wrap in a little discussion about the dollar where we're trading in the Dixie and also yields at the moment. And so largely repetition more than anything, I would say, in regards to what's been said from a number of these characters. So Fed's Bostic, who is a voting member on the FOMC at the moment, He said the central bank should move to taper its asset purchases after another strong month or two of employment gains and proceed with the scaling back process faster than in past episodes. You also had Barkin, who's a voter, said high inflation this year may have satisfied one of the Fed's benchmarks for raising rates, but there is still room for the job market to heal before rates should rise. Again, that might sound a little bit more passive than Bostic, but he's talking about rates. And rates aren't going to rise for a considerable period of time anyway. So again, fairly aligned. And Fed's Rosengren, who's a non-voter, said the central bank should announce in September that it will start reducing its $120 billion in purchases of Treasury and mortgage-backed securities this fall. And so fairly in fitting Rosengren there with what other officials have said of late. So first things first, a quick look on the board here on who these members are. So the ones we've been hearing from in these recent comments, Bostic is down here, slightly leaning on the hawkish side, as too is Barkin. If you take Rosengren, perhaps one more notch, but still on the center leaning hawk side. So all of those three speakers and comments I've just covered are not a great deal of surprise. But it does mean that this is a look at the dollar index on a daily chart at the moment. And here's the uptick that we saw on the back of the payrolls report on Friday, continuation yesterday, and where we're trading at the moment. Sitting at 93, um, currently into the European Open. So we're right back up there towards the late July highs, which were seen at around these levels. And then the next obvious target would be up around more 93.40 to 50, which was the peak that we had going back into the April period, which then if broken above would take us back to levels we've not seen since really going back to October, November time of last year. So Yeah, definitely the, the Dixie has resumed its upward trend after what had been declining through the back end of July, with the kind of catalyst being some of that latest data and persistency in the, the more hawkish sounding commentary we've had of late. From a yield perspective as well, we have seen they've continued to edge higher, and so T-notes this morning pretty much unchanged, but continuation of the general descent that we've seen. Remember, we hit that peak when ADP missed. That was what that high print was up here. But then if you remember Clarida, who's obviously the vice chair, closely aligned with Powell, talking hawkishly with that really strong services PMI, um, the ISM reading that we had. And from that point on, we've just continued to move lower at this point in time. So for sure, I'd still be quite mindful of of keeping an eye on these continuation trends. Um, it'd be interesting to see on the daily specifically how the dollar reacts up at these levels because these are quite key now from a technical perspective. We just need to see if this provides a bit of a floor then subsequently in an inverse way for EURUSD and cable at these lower bound levels. And for me, these comments, as I said, aren't particularly new that these Fed members are saying, so I feel like we do need a bit of a trigger or a catalyst whether or not that's something from a potential upcoming Fed speaker. There are a couple which we'll talk about speaking later today, but I think realistically tomorrow's CPI number is going to be quite key with the markets trading at these levels for the time being, and as well with equities largely consolidating, if anything, at this point in time, up close to still record levels elsewhere. On the news sphere, what else is going on? Well, you probably read a few headlines. The US Senate is set to vote today on the passage of a $1 trillion bipartisan infrastructure bill, and that will then immediately begin to be debated, um, around a far greater-reaching $3.5 trillion bill. So Senate Majority Leader Chuck Schumer announced late yesterday that a week-long debate on the, the bipartisan bill will conclude in London timing at around 4 PM this afternoon. So just so you're aware of The Democrats are aiming to debate and pass a non-binding $3.5 trillion resolution as well in the coming days, which would serve as a framework for more detailed binding legislation for later on this year. Republicans have strenuously objected to the size and cost of the follow-up package, so they're a lot more warm to this new addition of the $1 trillion bipartisan agreement. This bigger, broader package. Republicans are quite against in terms of the size, which Democrats though are looking to aim to pass through something we talked about a few months ago, which is the process called the budget reconciliation procedure, which is basically an instrument for the Senate majority to push through legislation priorities over minority opposition. So that's probably got a long way to run yet. The first thing we're looking out for is the, the passage of that first section, if you like, of what includes that new roughly $500 billion worth of spending on the infrastructure side. But, you know, how important is all that to markets? To be honest, I don't really think a great deal at this point in time. It's been talked about so much and it's been around for such a long time, I don't really think it has too much of a meaningful impact, but its passage at least in that first, first stage at this point in time, but just to be aware of. Elsewhere on the COVID side, we did talk about this briefly yesterday, but I guess a little bit more context around the subsequent hospitalizations with the case rates as we discussed hitting a 6-month high in the US presently nationwide, with cases having averaged 100,000 now for 3 days in a row in the States. Up 35% over the past week. Hospitalizations are up 40%, and that— deaths, the lagging indicator, registered an 18% uptick in the last week. So again, COVID cases, context here, up 35% over the past week, and hospitalizations are up 40% in the past week. So when we talk about oil and the sell-off that we were seeing yesterday, for example, I think hitting a multi-month low. Then the point being there is about the idea of not just China slowing down perhaps, and there was some commentary overnight that perhaps they might, the PBOC, lean towards doing another RRR cut. But there's also the situation that's happening in the US as well, and implications that that could have in terms of people's belief about the strength of the economic period going further forward in terms of activity if this COVID situation continues to develop in the way that it has been, and that at some point might require the re-initiation of some of those restriction measures. So yeah, there's definitely part of that oil picture, but as far as oil is today, it's just, just bouncing back with a bit of profit taking from those shorts from that extension on the run lower that we've seen yesterday. Talking of oil, one thing to be aware of is on the National Hurricane Center there is a tropical disturbance that is happening at the moment, and it's called Sikhs. And if I click on it, you can see here it's a fairly crude map, but in terms of where it is at the moment, gusty winds and heavy rain across the Leeward Islands have meant that a new tropical storm warning has been issued. The trajectory shows landfall hitting Florida on Saturday, but obviously does put us as well in toward the direction of the Gulf of Mexico, which could potentially threaten exports from the surrounding area. So worth keeping an eye on any further developments on that as we go further forward as well. In terms of the calendar for today, um, it's pretty quiet overall. We've got the German ZEW numbers coming out later on this morning at 10 AM. You can see here the headline economic sentiment expected at 56.7 And to put that in context, 56.7 would put us back down here, which would be the lowest reading since really December of 2020. So again, this COVID situation still being a bit of a drag at the moment on European nations' ability to really reopen completely. And so we've been seeing economists and analysts' kind of expectation about current conditions in the future deteriorate pretty consistently. And so we're looking for the third continued step down in this figure, um, going forward later on this morning. How surprising that would be? I don't really think too surprising. I guess just keep an eye on the range there. The lower bound at 45 would be down here and would put us down to one of the lowest readings we would have seen in the last 12 months if that were the case. So perhaps with EURUSD trading around that lower band of where we've been in the last few sessions amid some of the overall dollar strength could be a catalyst short term for a bit of a break on the downside that could help the, that dollar continue to move up as we have been seeing. Otherwise, in the US afternoon, um, you've got labor costs, productivity, Q2 figures out of the US. I think two major there. Order entry numbers coming out as per usual later on in the evening at 9:30. Uh, speaker-wise, Fed's Mester, non-voter, but is speaking on inflation risks and is a well-known hawk. So keeping an eye on that at 3:30. Fed's Evans, who is a voter, speaking on the economy, is going to be speaking at 7:30 this evening. And Evans, much more on the dovish side. So with Mester, definitely going to sound much more like those, uh, 3 that we've heard from, uh, that I covered. So Bostic, Barkin, and Rosengren. Evans. It'll be interesting to see what he has to say, um, given the context and the contrast of his general view, um, is typically on the dovish side. Fixed income supply out of the UK, $58 billion of 3-year note auction coming out of the US as well. And that pretty much concludes what's happening today. So yeah, pretty quiet overall. Um, I'd say today needs to be approached then with that in mind, with the CPI looming tomorrow. Um, so technically speaking, having gone through the charts this morning, there's nothing really standout that looks particularly, um, appetizing from a trade setup point of view. So I think a lot today is a lot about just being kind of pragmatic to a certain extent and keeping perhaps your, your powder dry for tomorrow. But obviously we'll continue to keep you posted if anything else does change, and you'll be the first to know. Alright, have a good day, guys. Take care.