Flows Drive Pre-Thanksgiving Trade

WHERE WE STAND – I’ll try to keep things relatively short and sweet this morning, with today being Thanksgiving, resulting in a round of market closures, and substantially thinner liquidity and lighter volumes in those markets which remain open. A very ‘Happy Thanksgiving’ to my US readers!

I shan’t use the ‘Q’ word to describe the conditions which could pan out today, at risk of tempting fate, though you all know what I’m alluding to!

As for trade yesterday, it was another choppy day, meaning I can delve into my book of analyst clichés for a narrative to explain the price action. Was it month-end? Yes! Were the moves detached from fundamentals? Yes! Well, let’s put it down to flows and/or rebalancing (you choose!) and move swiftly on.

There is a serious point here, in that one should never read too much into price action around EoM, nor price action around major market holidays. Typically, those moves that we see around these times retrace relatively quickly, particularly when flows – which in this case were USD-negative – aren’t aligned with the broader macro theme, which remains a bullish US one.

That said, some of the move seen in the FX space yesterday were pretty chunky, with the greenback shedding around 1% against a basket of peers, as the DXY slipped back under the 106 figure. Other G10s took full advantage, with the JPY rising to the top of the G10 leaderboard, while both the GBP and EUR notched their best one-day gains since August.

Still, I remain a dollar bull, and would be buying USD dips here, as I continue to reside firmly in the ‘US exceptionalism’ camp. I need not repeat the laundry list of issues facing the eurozone, nor bang on about the ‘stagflation-lite’ outlook here in the UK, but suffice to say that neither is particularly bullish for the respective currencies.

The buck’s losses were compounded by a notable rally across the Treasury curve, led by the belly with 5- to 10-year yields falling as much as 7bp. The gains were, perhaps, something of a head-scratcher, though perhaps came as a function of yesterday’s ‘mixed bag’ of US figures – inline GDP; soft-ish durable goods orders; solid initial jobless claims, but a cycle high continuing claims print; better-than-expected personal income and spending; and, lastly, inline PCE inflation figures.

Finally, stocks traded heavy, in weakness led by the tech sector, as the Nasdaq slipped around 1% on the day. I can’t say, though, that I’m particularly concerned by this decline, and still see a  ‘Santa Rally’ on the cards, as the bull case remains strong heading into 2025.

LOOK AHEAD – Nothing written here is ever trading advice. However, I’d strongly suggest that today is a good day for putting one’s feet up, and indulging in a chosen pastime, given the thin conditions that are likely to prevail, and the barren economic data docket.

Said conditions are likely to persist into Friday as well, with most US participants enjoying their long weekends to the fullest, meaning subdued trade is likely into the weekend, barring any potential unexpected news flow.