Headline employment data disappointed, increasing the probability of another RBA cut in their October meeting.
- Unemployment rose to 5.3% (highest rate since August 2016)
- +34.7 jobs were added, yet the headline figure was propped up by part-time workers
- Full-time jobs fell by -15.5k
- Participation rate hits a new record high, likely supported by the rise in part-time work
By yesterday’s close, WTI futures enjoyed their 5th most bullish session according to Reuters data going back to December 1984. If prices are to remain elevated, it will surely put an extra strain on growth numbers as costs to consumers and businesses rise, which inadvertently brings along inflation. However, today we’ll look at how WTI prices traded higher levels of bullish volatility.
Please note, the table on the left shows the top 30 bullish days using close to close data, whereas the right hand chart shows the forward returns of the top 30 excluding yesterday’s close (so there will be minor differences between the two, although the underlying analysis remains consistent.
- It appears that bullish spikes don’t necessarily lead to bullish trends over the week following a bullish spike.
- Average returns were also bearish over 50% of the time, one week later.
- 20 days later (around 1 month) shows a positive expectancy for median prices, yet negative on average (so a few outliers have dragged the average down). However, average returns are bullish over 50% of the time.
- Average and median returns are clearly positive three months later, over 50% of the time.
To look at the data in a slightly different light, we measured % gain from the prior close to the daily high. This is to better capture the volatility of the session, along with the initial gap higher. This places yesterday’s rally as the 15th most bullish session from the data set.
- The pattern remains similar, in that average and median returns are negative for up to a week after a bullish spike, whilst also producing bearish returns over 50% of the time.
- There’s a slight positive expectancy on median returns one month later, although average returns are again negative.
- Three months also shows a positive expectancy for average and median returns, over 50% of the time.
From this basic analysis, it appears that that bullish spikes haven’t favoured continued gains over the near-term but could signal a bullish resumption around 3 months later. In some ways this makes sense, as a price shock can lead to confusion and uncertainty, making prices vulnerable to whipsaws and / or retracements.
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Using historical data, we’ve mapped out a seasonal matrix for FX majors and noted the bearish tendency for USD/CHF in September. Read More
A look at how markets have performed following a US 10-2 yield curve inversion.
Unless you’ve been living under a rock, you may have heard a thing or two about the yield curve inverting in the news recently. In fact, you probably heard the several months lead-up to its potential too. Well, the yield curve has indeed inverted and sparked a fresh round of calls for a recession some time over the next 20 or so months (although estimates do vary in the timing).
As my colleague Joe Perry pointed out, regardless of whether a session materialises, equities have tended to bounce after such a signal. So, we’ll start with backing this up with a chart and see how other markets reacted following an inverted 10-2 yr yield curve.
Using Fed Funds data from 1971, we filtered the Fed cuts and calculated average, forward returns up to +20 after a cut to see if we can isolate potential trends in the future. We stopped at +20 days to avoid an accumulation effect on the averages, where the Fed may have cut at two consecutive meetings in a row which. Read More
- Fed’s William’s said current estimates of the US neutral interest rates are around 0.5% and, if inflation gets stuck below goal, people’s expectations may push inflation lower, “reducing the Fed’s ability to be effective”.
- Richard Clarinda, who was mostly ‘centrist’ at the June meeting, said during a live TV interview that “you don’t want to wait until data turns decisively” and “it’s important to act pre-emptively.
That these comments were said on Donald Trump’s favourite Fox News program, ‘Fox and Friends’ is also worth noting, given the Fed have been accused of bowing to the President’s pressure and therefor, not as independent as they claim. Still, what’s said is said and markets reacted accordingly.
- USD index closed to a 2-week low amid its most bearish session in 1-month
- Gold broke to a fresh, 6-year high (nice call Fawad)
- AUD/USD hit a 3-month high
- US2yr fell to 1.76%, a 9-day low and now far from its YTD lows
- OIS markets are now pricing in a 76% chance of a 50bps cut this month, whilst CME’s FedWatch tool suggests a relatively modest 44.2%.
Starting with AUD/USD, it’s most bullish day since late January closed right on the December ’18 bearish trendline.
- A higher high and low has materialised since the 2016 low, which could be part of an inverted head and shoulders pattern.
- If successful, the pattern projects an approximate target around 0.727, although the 0.7200 area makes a logical interim target
- However, the 200-day MA and eMA are nearby, so we’d want to see a clear break above 0.7100 before assuming a bullish reversal
USD/JPY looks set to re-test its lows and potentially extend its bearish trend now bearish momentum has returned.
- The 109.02 resistance level previously highlighted has continued to be a good level to fade into, with the 50-day eMA capping as resistance
- Intraday traders could look for shorts below the 107.54 area (but expect some noise around this level heading into the weekend)
- The daily structure remains bearish below 109.02, but we could consider fading into moves on the daily chart below 108.38
- Next target is 106.78 but the bias is for a break to new lows
Source: Eikon, City Index
To be more precise, GBP/USD has actually closed to a 25-month low. But having recently tested how the S&P500 responded to its 52-week milestone, we extend our curiosity the cable. Read More