Sean Callow’s Post

Leveraged funds on CME extended Aussie dollar net shorts for the first time since end-April, to -17.2k contracts from -11.4k over the week to 11 June (AUD spot 0.6606, -43 pips w/w). Their Aussie positions remain modest in historical context. Real money accounts also extended net shorts, to -74.1k from -70.7k. The combined position face value widened to -A$9.1bn from -A$8.2bn. The extension of Aussie shorts seems logical in a week that included Australia’s soft Q1 GDP report (0.1%qtr, 1.1%yr, the slowest annual growth pace ex-pandemic since 1992) and the A$ slide in response to the strong US May non-farm payrolls data. The latter helped produce USD gains against all G10 currencies over the week, but of course on 12 June the dollar tumbled in response to the soft US May CPI data, which will be captured in the next CFTC report.   The Aussie’s big picture remains consistent with a persistent lack of confidence in its upside potential. The combined position of these accounts has not been net long A$ since June 2021. Along with the RBA’s slow tightening pace post-pandemic, the background A$ theme remains global investor unease over China’s outlook, with a clear expansion of short Aussie positions in early 2023 when China’s post-lockdown reopening disappointed. If this gloom persists in H2 2024 as I expect, then any substantive AUD/USD revival is likely to be heavily reliant on the Fed commencing its easing cycle. As discussed a few days ago, near term, I’d prefer selling rallies with the 0.6700 region particularly challenging, but the support band of the 100-day moving average at 0.6564 and 200dma at 0.6546 will probably hold for now unless the RBA delivers a dovish surprise. Tuesday should be the key day for the Aussie this week, featuring the RBA decision and US May retail sales.

Real money accounts on CME extended Aussie dollar net shorts to -34.8k contracts (-AUD3.4bn) from -21.1k over the week to 10 December, according to the CFTC’s Commitments of Traders report. This is their most bearish stance since 20 August. Leveraged funds remained close to neutral AUD, trimming net shorts to -4.4k contracts from -6.4k. Asset managers increased Aussie shorts and trimmed longs, their adjustment fitting AUDUSD price action on the week, the pair falling from 0.6486 to 0.6377. Australia’s calendar provided a couple of key reasons to be more bearish Aussie. Australian Q3 GDP was even weaker than expected, just 0.8% YoY, with household consumption and business investment contributing nothing to growth. The report injected some life into pricing for an RBA rate cut in early 2025, a move that turned out to be justified by the RBA’s meeting at the end of the reporting week. The RBA statement didn’t try to sugarcoat the “weak” GDP data, twice mentioned that the Board was “gaining some confidence” on the inflation outlook and thankfully dropped the “not ruling anything in or out” warning. In the media conference, Governor Bullock said there were scenarios that could prompt a February rate cut, a prospect several forecasters recently moved away from.   Outside Australia’s busy calendar, AUDUSD emerged softer from US NFP day on 6 December, amid sustained USD gains, but squeezed higher on 9 December as China’s Politburo announced looser monetary and fiscal policy. 

Aussie short-covering continued on CME over the week to 3 September according to the CFTC’s Commitments of Traders report. Hedge funds trimmed A$ net shorts to -17.3k contracts from -20.1k the week prior.   Real money accounts reduced A$ net shorts to -7.7k from -18.1k contracts, a notable weekly move that took the unwinding of Aussie net shorts to the closest to balance since February 2023. The face value of the combined position is just -A$2.5bn, having extended beyond -A$13bn in March 2024.   The less bearish positions on the Aussie came despite spot AUD/USD actually pulling back over the week of the CFTC report, falling from 0.6792 to 0.6709. The US calendar was somewhat low key but locally, the week included Australia’s keenly awaited July CPI indicator. This showed inflation easing to 3.5%yr from 3.8%yr but still a touch above consensus.   The data sparked a bounce from 0.6785 to 0.6812, AUD’s first trade above 0.6800 since 2 January 2024, but it was unable to close with a 0.68 handle on the day (28 August) and has not been able to do so since then. Also on the calendar were various inputs to Australia’s Q2 GDP, though the cutoff was just ahead of the actual report, which was sluggish as expected.   The Aussie’s softness since the squeeze on the CPI data broadly aligns with risk sentiment, with the S&P 500 only posting one daily gain since the report. Equity sentiment is likely to remain important for AUD in the week ahead, with the US data calendar low key until August CPI (and the presidential debate will be hard to ignore). Australia’s next market-sensitive release is the August labour force survey on 19 September.

Leveraged accounts on CME trimmed Aussie dollar net shorts to -24.0k contracts from -31.1k (their most bearish stance since December 2022) in the week to 2 April (spot 0.6518). Real money accounts in contrast extended A$ net shorts to -103.5k from -99.6k, leaving the combined total at a heavily bearish -A$12.75bn. The week included Australia February retail sales, firmer China March PMIs, improved US March manufacturing ISM survey but not booming US payrolls. Again it seems that this cohort of investors will need a much brighter outlook for China's economy before substantially changing their views on the Aussie (at least versus a resilient US dollar).

The TLT ETF found support exactly where I projected (in my last TLT post) that this may happen. Whether this is a bottom or just a temporary halt in the escalator's movement further down remains to be seen. The following trigger will be the PCE numbers in late April. Equally important will be the following quarterly refunding announcement that will take place on Wednesday, May 1, 2024. In the summer of 2023, quarterly refunding effectively "killed" a bull leg. The last two announcements sparked quite sharp bull moves. While we can see that the final leg down completed the necessary 3-wave structure, the overall pattern looks incomplete. My base case is another leg down - up to the gap around 86.30 or filling the gap that formed in November 2023. Ed Yardeni thinks the Federal Open Market Committee can take off the rest of the year. He projects one or none - no interest rate cut or just one in the year's final months and sees both - the 2-year and 10-year Treasury yields at around 5 % by year-end. While the 2-year currently trades around that level, the 10-year yield is around 4.6 %. Given this scenario, there is no hurry to enter long-term long positions; a short-term trading bounce may unfold. The Israeli response was not as severe as feared, and Iran may not retaliate any further. Oil is trading down, moving closer to the 80 USD level, and gold prices have failed to take out the highs above 2400 USD. For the TLT, there is resistance at the 91.20 USD level. I would also not be surprised to see a reversal of the stock market pattern that we have seen in the past few weeks. Instead of the usual Friday sell-off, there could be a bounce triggered by options expiration. After all, all these equity puts need to be rendered worthless somehow. 😂  

The Bond Trader (treasuries) report 02/08/2024 Treasury market Bonds have already started its long awaited secular bull trend. The BoE cut.   Bund: another positive session now that resistances were broken, with the Bund future, taking off from the 133% level a approaching today 135%. I sold yesterday my short bet on the French OAT, and now fully long in Bund: I await some ups and downs but the trend is definitively bullish. The situation is not as clear in the periphery, with Italian, Spanish and Greek papers taking a breather at important supports (in yield terms) at 3.65%, 3% and 3.30%$. UST: bad indicators, ISM and employment, spur concerns about a slowdown and represent a failure of FED wait & see policy: Sept’s cut sounds now too late for investors and market prices 3 cuts this year. Focus on Nonfarm Payrolls today. Intel and Amazon’s weak earnings do not add on the bullish sentiment. Bad is good and USTs rallied, with the 2 years yield losing 14bps to 4.13%, an annual low, and the 10 year at 3.95%. Gilt: the BoE didn’t disappoint, cutting to 5%, in a tight vote of 5 against 4. The GBP barely moved (at the end, a deposit at 5% is still attractive), while the Gilt starts to attract investors' interests, as till now has been underperforming peers in the US and in the EU. The Gilt future jumped from 99% to 100.50% in the last hours, breaking out important support and taking off. International big funds are adding Gilts to their portfolios. Japan: BoJ attacks again now pointing that inflation is likely to pick up later thanks to higher domestic wages: further rate hikes are guaranteed. The JPY heads up, supported by unwinding of carry trades (lend in cheap JPY, invest in USD). Despite the efforts from the central bank to convince investors that rates will continue rising, the Japan 10 year finally rose after a highly volatile session yesterday. Gold: lower US rates dent the USD value plus tensions in the Middle East, with the escalation of violent rhetoric between Iran and Israel, join up to favour investments in the classic safe haven: Gold should rise further and break out the 2,470 level and start trading at no-men land. I'm long on this. Cryptos have been forgotten because of the weak economy, uncertainty about the new President’s policy on crypto regulation triggered fears of a mass sale event by the US government, after it confiscated USD 2 billion of tokens. Bitcoin remains at USD 64k, losing 5% in the week. Emergins Indonesia growth probably slowed to 5% in the 2nd quarter on limit capital inflows from the developed world into the emerging area: while low inflation could trigger a cut of rates, the central bank will not do it as focused on mitigating the spillover impact of global risk in the currency exchange, central banker said. Peru raised USD 3 billion via a 2 trancher at 10 and 30 years at 5.38% and 5.86%, rated Baa1: proceeds to be used to finance general budgetary requirements. Good luck

#marketreflection 03.12.24 Longer-dated Treasury yields rose after after labor market data showed an increasing number of unfilled jobs, but demand remained high at the short end as investors seeking safe haven from geopolitical uncertainty in Asia bought Treasuries. "Yields went up a couple of basis points after the JOLTS report, but markets do not think a higher job creation number changes the Fed's view as expressed by Governor Waller on Monday", said Angelo Manolatos, macro strategist at Wells Fargo. Lou Brien, strategist at DRW Trading in Chicago, also noted the safe haven effect. "There might have been a little bit of a bid in Treasuries, sort of a safety play there, because it looks like people are getting out of South Korean ETFs." Benchmark 10-year notes fell 9/32, yielding 4.2265%. 30-year bonds were 26/32 lower, with a yield of 4.4054%. Meanwhile, two-year notes gained 1/32, to yield 4.1754%  The dollar lost ground against a basket of world currencies as financial markets cemented expectations that the Federal Reserve will make another interest rate cut at this month's policy meeting. The dollar index fell 0.11% to 106.33. South Korea's won tumbled to as low as 1,443.40 per dollar, the lowest since October 2022, following a declaration of martial law, which was lifted later in the session. The dollar was last up 0.99% at 1,417.17 won. "It's a very confusing situation," said Marc Chandler, chief market strategist at Bannockburn Forex in New York. But at the end of the day, he noted that South Korea's news is local and has limited impact. "Our corporate clients do not have Korean won exposure for a couple of reasons. One, the Korean won is a restricted currency. And second, most of the trade between the U.S. and South Korea is conducted in U.S. dollars." US Market Focus 04.12.24 MBA Mortgage Applications  7:00 AM ET ADP Employment Report  8:15 AM ET Alberto Musalem Speaks  8:45 AM ET PMI Composite Final  9:45 AM ET Factory Orders  10:00 AM ET ISM Services Index  10:00 AM ET EIA Petroleum Status Report  10:30 AM ET Treasury Buyback Announcement  11:00 AM ET Treasury Buyback Announcement (Preliminary)  11:00 AM ET 4-Month Bill Auction  11:30 AM ET Jerome Powell Speaks  1:45 PM ET Beige Book  2:00 PM ET Treasury Buyback Results  2:00 PM ET #affinmoneybrokers

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AUD/USD, ASX 200 SPI Futures: On Alert for Reversal Patterns Ahead of US Inflation Riskier asset classes have often performed well ahead of US CPI reports recently. For AUD/USD and Australia’s ASX 200 SPI futures, such an environment should be advantageous for near-term gains. https://lnkd.in/gVqqJE4r #AUDUSD #ASX200 #SPIFutures #USInflation #CPIReports #RiskAssets #MarketTrends #Forex #Investing #EconomicIndicators

The CFTC’s Commitments of Traders report of CME positions shows a clearly less bearish stance on the Australian dollar by both hedge funds and real money accounts over the week to 27 August. Leveraged funds trimmed A$ net shorts to -20.1k contracts from -27.1k, both by increasing longs and reducing shorts. Asset managers and institutional accounts did likewise, but more substantially, the net position shrinking to just -18.1k from -39.9k contracts. This is their least bearish Aussie stance since February 2023. Covering shorts is hardly surprising in a week where AUD/USD rose from 0.6741 to 0.6792, the pair probing close to year-to-date highs, though only breaking 0.6800 after the CFTC cutoff time. The week included dovish FOMC minutes paving the way for a September rate cut, the US benchmark payrolls revisions of -818k/-0.5% which left US yields lower and most notably, Fed Chair Powell’s speech at Jackson Hole. Powell managed to be more dovish than market positioning, the 2-year Treasury yield closing down about -8bp and Aussie squeezing up 65 pips. Australia’s calendar over the week was low-key, with July CPI released just hours after the cutoff time. However, while AUD popped above 0.6800 on the slightly above consensus 3.5%yr reading, it soon slipped back despite improved yield support. The Aussie starts the week intriguingly poised. It traded above 0.6800 for three straight days, failed to close above the figure on any day but remains well within striking distance of the 2 January high of 0.6839. Australia’s calendar highlight this week is what should be another quarter of sluggish economic growth, Q2 GDP seen up just 0.3%qtr, 1.0%yr. But the US seems more likely to be the source of AUD/USD volatility this week, with notable data including the August manufacturing (Tue) and services (Thu) ISM surveys and the highlight on Friday, the August employment report.