The models are broken
The market is trying to get back to the pre-Covid and pre-war times, but that model is broken. A new dawn is here and the financial world needs to adapt.
Chief Investment Officer
Summary: Morning APAC Global Macro & Cross-Asset Snapshot
(Note that these are solely the views & opinions of KVP, they do not constitute any trade or investment recommendations of any kind.)
To see this wk’s Macro Monday click here
APAC Global Macro Morning Brief
So overnight saw a decent beat in US ISM Non-Manufacturing at 54.7a 53.5e 52.6p (previous month experienced a big miss). Interestingly enough the Markit final Service PMI missed at 50.6a 51.0e/p – yet as it’s the US… its all about the ISM reading…
The ISM beat resulted in a much stronger USD, that saw the DXY finish up +0.49% to 97.983 – and this post a positive Monday session of +0.27%. Yields also broke out higher with UST hitting 1.8708 at one point before close at 1.8584
The higher yields & a stronger dollar, resulted in a punch in the face to the gold bulls as we dropped from above 1500 to close down -1.74% to 1483. Silver bulls on the other hand, received two punches to the face, as it fell -2.65% to 17.58 lvls
Equities also lost some start post the numbers, after what seemed like a very bullish day in the making – net-net, all this is price action that suggests the Fed is doing nothing in a while, let alone Dec. Current rate cut prob for 11 Dec 2019 & 16 Dec 2020, stand a t7.9% and 67.3%
The latter is still way too low for KVP – who is still in US economy deceleration camp & could be dead wrong here. One piece I forgot to add on this wk’s Macro Monday was a comment from our excellent economist Dembik on the US’s job data from last Friday.
“Due to ongoing uncertainty, US companies have cut CAPEX but not jobs yet. The latest payroll published on last Friday is rather encouraging regarding the state of the US economy.
The headline was a big surprise for most market participants, as the NFP beat consensus at 128k vs 85k expected. The figure is even more impressive considering that the General Motors strike had a very negative impact on employment and subtracted 41k from the figure according to the BLS.
On the top of that, the net 95k upward revision for August and September tends to confirm that the economy is more resilient than most expected.
There is not much market slack as the number of “people not in the labor force but still wanting a job” is back to pre-crisis level.”
For Dembik’s full piece click here. US Employment Growth in Cyclical Sectors
Yet none of this is the most interesting thing that happened yesterday & is currently on the radar…
That was the breaking down of USDCNH through the 7.00 level after Mon close of 7.0330, and saw a session low of 6.9866 before coming back to close at 7.0026. This is important as USDCNH is probably the best barometer of the US / CH trade negotiations
For those without context, over the last year, the range of USDCNH has been from 6.6777 to 7.1940, we are still c. +5% on a spot basis from the lows in April, before the tit-for-tat tariffs kicked off
We initially in the Asia session yesterday had positive comments from Wilbur Ross on the tape – yet it did not seem (to KVP at least) different from previous rhetoric around the trade deal. A move like this (-0.43% is a big move on USDCNH) suggests someone/s behind some serious positioning knows something
Or perhaps someone/s are not as bearish on the trade negotiations & no longer believe USDCNH to be asymmetrically skewed to the upside (i.e. weaker yuan, stronger USD). KVP still remains sceptical of an actual deal, let alone one that can be respected & held by the Trump administration – yet the price action, is the price action
Respect the price action…
Yet also be aware we have oscillated between high outcomes of a trade deal in the making, to low outcome of trade deal in the making. China still wants a tariffs lift to be part of the process
And yes, it is paradoxical that we get a big strengthening of the yuan vs. the dollar, yet the dollar rises against most currencies. Welcome to Global Macro folks, home of trends, counter trends, and ripples within ripples…
Which is why the most important backdrop in every global macro & global investors thinking should be, what is the meta trend?
And as we have covered many times on Macro Monday & our dailies… the Meta Trend is unchanged… you can run from Global Macro for a while… but you cannot hide forever
Have an incredible day everyone
Chief Investment Officer
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