Hey Bluedog. Thanks for your comments. Hoping to achieve your full time club sometime in the future. What is your trading approach in general terms?
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just 1 trade today. This morning the pound found a stronger footing after the heat from brexit resignations cooled and it became clear there isn't going to be a confidence vote. BOE is widely expected to raise rates in August but it hangs off data being good. Today was trade balance and manufacturing news and while they aren't as important as other data points they are facets of the backdrop into the economy. All data points from now until the August statement will give clues to the probability of a hike.
Given these data points are not as important as others, you need to adjust your expectations on the reaction that might unfold. I wouldn't have taken a trade if there was not a sizeable deviation and when manufacturing came out at 0.4 when 1.0 was expected along with the trade balance being -12.4B when -11.9B was expected, there were a few pips to be had. I took 10 pips from the move which isn't much but inline with expectations for the type of data released.
FYI: the UK started releasing monthly GDP numbers today and hopefully this will be another data point to trade in the future.
The rest of the day will be monitoring for sentiment shifts
Given these data points are not as important as others, you need to adjust your expectations on the reaction that might unfold. I wouldn't have taken a trade if there was not a sizeable deviation and when manufacturing came out at 0.4 when 1.0 was expected along with the trade balance being -12.4B when -11.9B was expected, there were a few pips to be had. I took 10 pips from the move which isn't much but inline with expectations for the type of data released.
FYI: the UK started releasing monthly GDP numbers today and hopefully this will be another data point to trade in the future.
The rest of the day will be monitoring for sentiment shifts
BOC review for tomorrow
been refreshing my notes and knowledge on their site reading through publications and conference videos. Have also been refreshing the most recent data and aligning this with their publications policy speech. finally been catching up on analyst commentary.
some notes
Financial system risks
- household debt and housing imbalances
business survey prior tariffs on steel and aluminum
- sales moderate but rhobust
- intensifying capacity pressure
- increasing labour shortages
- expectations for inflation growth to pickup
- no credit issues
- business survey at near record levels
monetary policy
- moderation lasting longer than expected but highlight 2 reasons they believe are responsible
- need for negative real policy steadily diminishing but gradually
- 4 key sources for uncertainty on the outlook of inflation
1] economic capacity has more slack than previously thought
2] inflation dynamics and forecast models but recent data has given confidence in their models
3] wage dynamics
4] interest rate sensitivity in economy noting housing problems and household debt. noted that households have been affected by new mortgage guidelines and household credit is been moderating. noted households are adjusting to higher rates
- inflation target is a range of 1 to 3 percent
looking at wages they have been mostly flat since 2017 in manufacturing ( the major element of their economy ), but have increased slightly outside manufacturing. core inflation has been mostly flat all year but up from 2017. food inflation has been decreasing all year and cpi has been increasing but in decreasing velocity all year. consumer credit according to the data has moderated only slightly.
all things considered i agree with analyst commentary that this rate hike is not a hawkish hike but merely a journey towards normalisation and a neutral rate target. i will be looking to sell cad on the news especially if the press conference confirms what we are all thinking. added to this is the trade concerns including tariffs and nafta. i dont see any room for hawkish tone because the data doesn't warrant it and external risks provide uncertainty
been refreshing my notes and knowledge on their site reading through publications and conference videos. Have also been refreshing the most recent data and aligning this with their publications policy speech. finally been catching up on analyst commentary.
some notes
Financial system risks
- household debt and housing imbalances
business survey prior tariffs on steel and aluminum
- sales moderate but rhobust
- intensifying capacity pressure
- increasing labour shortages
- expectations for inflation growth to pickup
- no credit issues
- business survey at near record levels
monetary policy
- moderation lasting longer than expected but highlight 2 reasons they believe are responsible
- need for negative real policy steadily diminishing but gradually
- 4 key sources for uncertainty on the outlook of inflation
1] economic capacity has more slack than previously thought
2] inflation dynamics and forecast models but recent data has given confidence in their models
3] wage dynamics
4] interest rate sensitivity in economy noting housing problems and household debt. noted that households have been affected by new mortgage guidelines and household credit is been moderating. noted households are adjusting to higher rates
- inflation target is a range of 1 to 3 percent
looking at wages they have been mostly flat since 2017 in manufacturing ( the major element of their economy ), but have increased slightly outside manufacturing. core inflation has been mostly flat all year but up from 2017. food inflation has been decreasing all year and cpi has been increasing but in decreasing velocity all year. consumer credit according to the data has moderated only slightly.
all things considered i agree with analyst commentary that this rate hike is not a hawkish hike but merely a journey towards normalisation and a neutral rate target. i will be looking to sell cad on the news especially if the press conference confirms what we are all thinking. added to this is the trade concerns including tariffs and nafta. i dont see any room for hawkish tone because the data doesn't warrant it and external risks provide uncertainty
Just a quick addition to yesterday's boc post for more context into my trading plan. If they hike and the communication on future guidance is either hold due to negative influences like jobs, nafta etc, then I will sell. No hike and communication have no guidance on future hikes then I will sell. If hike and future guidance is more hikes then I will be buying.
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Announcement yesterday for 10 percent extra tariffs and china's response has seen slight risk aversion today and this could affect any cad trade. Noted the following story on the news feed
Bunds: safety first, supply later
In contrast to many if not most recent sessions, the 10 year German bond bounced off the open and extended gains after an initial 162.59 print to 30 ticks at 162.68 before fading to a 162.58 low. The renewed bid reflects another ramp up in global trade war tensions as the US and China exchange heavier blows in terms of reciprocal import tariff threats, prompted by the former unveiling a fresh lost of goods totalling $200 bn that could be subject to a 10% tax from the end of August. Turning to Wednesday’s Eurozone agenda, the only real data of note comes via Portugal and CPI, but there is another array of ECB speakers slated and more importantly Germany launches a new 2028 benchmark in Eur4 bn ahead of $22 bn 10 year notes from the US.
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Bunds: safety first, supply later
In contrast to many if not most recent sessions, the 10 year German bond bounced off the open and extended gains after an initial 162.59 print to 30 ticks at 162.68 before fading to a 162.58 low. The renewed bid reflects another ramp up in global trade war tensions as the US and China exchange heavier blows in terms of reciprocal import tariff threats, prompted by the former unveiling a fresh lost of goods totalling $200 bn that could be subject to a 10% tax from the end of August. Turning to Wednesday’s Eurozone agenda, the only real data of note comes via Portugal and CPI, but there is another array of ECB speakers slated and more importantly Germany launches a new 2028 benchmark in Eur4 bn ahead of $22 bn 10 year notes from the US.
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note on April statement against Julys
April
This progress reinforces Governing Council’s view that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target. The Bank will also continue to monitor the economy’s sensitivity to interest rate movements and the evolution of economic capacity. In this context, Governing Council will remain cautious with respect to future policy adjustments, guided by incoming data.
July
Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data. In particular, the Bank is monitoring the economy’s adjustment to higher interest rates and the evolution of capacity and wage pressures, as well as the response of companies and consumers to trade actions.
This hike is in my opinion neither hawkish or dovish. They say they will continue but admit their projections inclusive of tariffs is impossible to fully account. They also, as usual are data dependent and added an additional note (in blue) on their watch list. This is important because it signifies they are not hawkish at all and actually nervous about their projections as they will closely be monitoring businesses and consumers in respect to trade issues.
Selling CAD at the lows
April
This progress reinforces Governing Council’s view that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target. The Bank will also continue to monitor the economy’s sensitivity to interest rate movements and the evolution of economic capacity. In this context, Governing Council will remain cautious with respect to future policy adjustments, guided by incoming data.
July
Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data. In particular, the Bank is monitoring the economy’s adjustment to higher interest rates and the evolution of capacity and wage pressures, as well as the response of companies and consumers to trade actions.
This hike is in my opinion neither hawkish or dovish. They say they will continue but admit their projections inclusive of tariffs is impossible to fully account. They also, as usual are data dependent and added an additional note (in blue) on their watch list. This is important because it signifies they are not hawkish at all and actually nervous about their projections as they will closely be monitoring businesses and consumers in respect to trade issues.
Selling CAD at the lows
Quick update on this trade and the process taken to initiate it. The release had the market buy cad which is typical of participants blindly initiating trades off the release alone without any consideration to context. I pulled up notepad and copied last months headline paragraph from the central bank website. On the release accessed the latest and pasted it underneath the previous months. Here you can quickly evaluate changes in wording which is what I highlighted. Operating off my research yesterday and looking at the wording it was clear the hike offered a cautious tone. A bit disappointed in Ransquawk not doing this for me as they normally do for the fed. Hopefully this gives you a view of how it's done with respect to these rate hikes and offers a glimpse into why you occasionally see a hike followed by a selloff.
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Last edited:
Trade update:
UK white paper released this morning:
-Abandons idea of mutual recognition for financial services, will push to enhance the equivalence regime
-Plans to diverge from EU rules for services (That means lower level of access post-Brexit)
-Facilitated customs arrangement will be as if UK was in a combined territory with EU
-Will end free movement of people and direct jurisdiction of ECJ over the UK
-Abandons idea of mutual recognition for financial services, will push to enhance the equivalence regime
The EU are likely to reject:
-Facilitated customs arrangement will be as if UK was in a combined territory with EU
-Will end free movement of people and direct jurisdiction of ECJ over the UK (related to prev point)
-visa free access to workers (without ECJ)
How can they maintain friction free trade without the ECJ and free movement (core pillars in the EU framework). I strongly believe the EU will have significant rejection of parts of this paper and moreover, the plan to diverge services with goods when services are the biggest slice of our economy will be problematic for business especially financial services. The EU want the UK to suffer and be an example, this plan goes against that narrative.
Shorting Cable
UK white paper released this morning:
-Abandons idea of mutual recognition for financial services, will push to enhance the equivalence regime
-Plans to diverge from EU rules for services (That means lower level of access post-Brexit)
-Facilitated customs arrangement will be as if UK was in a combined territory with EU
-Will end free movement of people and direct jurisdiction of ECJ over the UK
-Abandons idea of mutual recognition for financial services, will push to enhance the equivalence regime
The EU are likely to reject:
-Facilitated customs arrangement will be as if UK was in a combined territory with EU
-Will end free movement of people and direct jurisdiction of ECJ over the UK (related to prev point)
-visa free access to workers (without ECJ)
How can they maintain friction free trade without the ECJ and free movement (core pillars in the EU framework). I strongly believe the EU will have significant rejection of parts of this paper and moreover, the plan to diverge services with goods when services are the biggest slice of our economy will be problematic for business especially financial services. The EU want the UK to suffer and be an example, this plan goes against that narrative.
Shorting Cable
second trade
US inflation softer - with a strong economy with strong employment you wouldn't expect to see inflation ticking lower. This isnt a big deviation but i would have at least expected it to come out as expected, not softer. Given this backdrop and the fact that the $ has had a good run already over recent months.
Shorting $
US inflation softer - with a strong economy with strong employment you wouldn't expect to see inflation ticking lower. This isnt a big deviation but i would have at least expected it to come out as expected, not softer. Given this backdrop and the fact that the $ has had a good run already over recent months.
Shorting $
Lbc radio made me pips last night. I was getting ready for bed listening when breaking news came out about trump saying the new white paper means no trade deal is possible with the US. I immediately shorted sterling against the dollar and woke this morning with 30 pips in the bag.
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Last trade for the week. Joint statement by May and Trump where a reporter asked Trump about what he said in regard to not having a trade deal on the basis of the current white paper. Trump said that after speaking further with May and her colleagues, he is confident a trade deal can be done. Immediately went long sterling against dollar and just closed for 13 pips profit.
being agile with news and setting expectations appropriately is definitely a good formula when trading these types of news events.
being agile with news and setting expectations appropriately is definitely a good formula when trading these types of news events.
So on the cards for this morning is UK inflation. Yesterday's vote to defeat the remainers custom union ammendment would have caused another election if May lost. That had a short term overshadowing effect on the BOE upcoming hike. Today the question is, will yesterday's house of commons continue to overshadow or will the market realise that if the vote had gone the other way, the chaos would have been turned up several notches. For this reason I feel that the outcome was the best in terms of stability and certainty and focus should be realigned with CPI and BOE. Shorting sterling would have had more steam yesterday and it didn't and there was a strong rejection of price at 0.89
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Atilla
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I think you have your finger on the pulse there.
Market dreads a Brexit and will dump the pound effectively factoring in future potential for UK trade.
Raising interest rates to stall importing inflationary pressures will be the only option left to the BoE and Carney has referred to this on a number of occasions.
Alternatively, any softening or abortion of Brexit will strengthen the pound.
I can't see Eurosceptics or Brexiteers hanging up their boots so onwards and forwards with greater uncertainty as exit date approaches UK at warp speed.
Brexiteers have lost an edge imo. Time will tell. I'm still feeling bullish on the pound.
I read an article a few days back that the UK is 30 percent undervalued according to the big mac index against the dollar. Brexit has certainly offered many trading opportunities as has Trump. Today is sales data and I expect the weather to affect the numbers In a positive way.
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