Risk ManagementEquity MarketsCommodities

The Daily Fix – It all comes down to this

Chris Weston
首席分析师
2024年6月11日
The countdown is on, with the market going into full risk management mode. Market participants have undertaken a full assessment as to the skew in risk, expected volatility and the subsequent review of their position sizing over US CPI and the FOMC meeting, and a six-hour period that could set up a whippy ride across markets. It’s these periods, over marquee news, where liquidity often becomes be a factor that drives exaggerated price moves and various flow dynamics impact and makes price action hard to explain.
  • Traders moving to full risk and position management mode
  • Our Asia equity index opening calls are looking heavy
  • Winners and losers from US trade
  • FX markets failing to follow the rally in US treasuries
  • Commodity moves – Look to Nat Gas and Cocoa for the movement

It makes for exciting watching, but to others who have positions in the market or want to enter one, this backdrop offers little edge, and many choose to stand aside - they look for the facts to emerge and to get set once the dust settles and the collective in the market reveals how it really feels.

In the lead up though, our opening calls for Asia equity look heavy once again, with the ASX200 and HK50 likely opening 0.6% lower, while the NKY225 should fare somewhat worse with an unwind 0.9% lower. There aren’t a whole lot of reasons to jump in and support the opening weakness either, so we could easily see further selling on open, although we did see a reasonable sell-off in the ASX200 yesterday, so one could argue much of the pre-positioning has played out and investors feel comfortable with their how portfolios are set into US CPI/FOMC.

European equities have offered no inspiration for Asia either, although the political considerations which have impacted EU peripheral spreads, and seen EU equity markets lower on the day, are not Asia’s issue – semantics does count though and does spill over into other jurisdictions.

US large-cap equity markets have closed higher (S&P500 +0.3%, NAS100 0.7%), and while there was a migration to higher-quality names, the move in the respective indices was driven largely by Apple (+7.3%), which traded 40.76m shares - double the 15-day average. After the bearish outside day reversal yesterday, we see Tuesday’s low ($192.15) held in firmly, with investors having a momentous rethink as to the prospects of an upgrade cycle, subsequently pushing the stock into $207.15 and the best gain since November. Communication services worked well too, with gains in Google and Meta also supporting the tape.

Staying on the winners Oracle sits +9% in the post-market session after hitting the market with earnings, as well as corporate activity aligned with Google/Open AI deals. GameStop has closed +22% after completing its $2.14b offering, so we’ll see if that can kick further as the usual suspects chase this.

The notable loser comes from US financials, and we can see in the XLF ETF that the price has broken down through the consolidation range it has held since late May. Tesla has also broken down and trades through the 50-day MA, which has been acting as a floor since mid-May, with investors and traders looking decisively at the ATM tomorrow.

Preview

Strong demand in the US 10-year Treasury auction has resulted in a 6bp rally in USTs, with yields lower across the board – it’s somewhat surprising to see such demand ahead of the key event risk, but fixed income funds have piled in, and this has taken down yields. The USD hasn’t reacted too intently to the move lower in US bond yields and looks well supported going into the key event risk. EURUSD obviously has political issues to contend with, and the EUR is looking more closely at the rise in French bond yields than anything else. But while G10 FX has seen tight ranges, we can see bigger movement in the USD vs the MXN and COP, with USDCOP pushing 4000 and the ceiling it has held all year – the unwind of EM FX carry continues and this is a big level for FX traders to focus on.

Tactically, USDJPY is one to have on the radar, where a hawkish reaction to CPI/FOMC takes the pair into the 29 May high of 157.71, and back to MoF intervention territory.

Preview

Commodity markets have been calm, with crude +0.2%, gold +0.3% and copper -1.1%. The action though has been seen in Nat Gas which has rallied 7% and broken to new run highs – the trend and momentum accounts adding length to positioning and this could easily test the YTD highs. We also see good movement in cocoa (+7%), and this also looks like it could kick further higher. On the other hand, the unwind of OJ continues and the sell-down remains aggressive – I like this from the short side.

So, onto CPI/FOMC, with that six-hour period between the US CPI dropping and Jay Powell speaking in his presser potentially offering some fireworks.

I like to use US core CPI m/m as my simple playbook guide, with 0.3% m/m expected, so any number that rounds to 0.2% m/m could offer relief in risk markets and bring out USD sellers, while a number that rounds to 0.4% could see US 2yr yields rise and with it the USD comes in hot. Where we get real venom in markets is an absolute print above 0.4% or below 0.2% - this would be a surprise and add some spice to price action. The Fed meeting could go either way, but the statement should be largely unchanged, and in the SEP’s we should see 2 cuts as the Fed's base case in the ‘dots’ for 2024, and core PCE should be taken higher to 2.8% (from 2.6%) – the US CPI print could influence expectations, of course, but the market is expecting movement (options price a move of around 1% in the S&P500 on the day) – so stay nimble and an open mind to price action counts.

For a deep dive into the CPI/FOMC meeting, see my preview video – click here

Good luck to all,

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