Trading with point and figure

May have a little further to go, lets see?

6sujrs.jpg
 
yesterday...very few pips
tank in Bunds not expected...no losses and no gains
gave up early for the day...was really too hot aswell

today..a bit cooler ..not sure whether we get the volatility...dollar and index in LIMBOLAND..lol
 
bears just have NOT picked up to much momentum on index...still lookin like a poss pullback...not a top
 
those pivot areas...yu could probably set alerts and trade from those
they seem to be well defined
 
- Digesting Japan wages and BoJ JGB intervention, German and French
Industrial Production; focus on US labour data, Fed semi-annual report
and G-20 meeting; UK Industrial Production, Trade & Construction output,
Canada Employment, Brazil & Mexico inflation also due

- Much stronger than expected French & German readings point to upside
risks for UK Industrial Production; Trade deficit seen drifting wider

- US Labour data: risks modestly to upside of consensus for payrolls,
despite ADP dip; focus on Average Hourly Earnings

- Charts: US, UK, Germany, Italy, Japan 10-yr yields, UK I-L 2068 price;
JPM EMBI Spread, US High Yield ETF

..........................................................................

********************
** EVENTS PREVIEW **
********************

It's the first Friday of the month, so it's time for another edition of US Payrolls bingo! That said markets' internal dynamics in terms of flows, seasonally impaired liquidity amid a broader underlying lack of turnover/liquidity, with some signs that the multi-year reach for duration and yield in bonds/credit may have arrived at one of those convexity and/or risk parity inflexion points. Geopolitics continues to be writ large as the overarching theme / influence, and thus put what will likely be a tense, perhaps even acrimonious G20 meeting in Hamburg in the spotlight. The question then is whether any of the many other items on the day's agenda garners much attention, which in statistically have the overnight Japan Wages data along with French and German Industrial Production to digest ahead of China FX Reserves, UK Trade, Industrial Production and Construction Output, with Canadian labour data (important ahead of the 12 June BoC meeting), and Brazilian and Mexican consumer prices also due. Last but certainly not least, the Fed releases its semi-annual Monetary Policy Report to Congress ahead of Yellen's testimony next week, though this typically springs few surprises relative to the most recent set of FOMC minutes, but Fed balance sheet reduction comments will of needs be closely watched.

The Industrial Production readings from Germany (1.2% m/m vs. expected 0.2%) and France (1.9% m/m vs. expected 0.6%) serve to corroborate the sharp improvement seen in recent survey data, and further underscore the strong momentum in the Eurozone and EU economy. If previous instances are anything to go by, they bode well for UK Industrial Production, where the consensus sees a modest 0.4% m/m gain after April's 0.2%, with Manufacturing Output seen up 0.5% m/m, and something closer to 1.0% appears possible. If it were that strong, then it would feed into expectations that the BoE may hike rates as early as August, though the Average Weekly Earnings (12 June) and CPI (18 June) are likely to weigh far more heavily in the balance of the MPC's deliberations. The UK Trade Balance is expected to have widened modestly to £-10.85 Bln (vs April £-10.38 Bln), while the ever erratic Construction Output is seen rebounding 0.6% m/m after a likely revised drop of 1.7% m/m in April.

While G7 govt bond yields have risen quite sharply, a trawl through the attached charts of 10-yr benchmark yields underlines that as much as the moves have been abrupt, this is hardly a 'rout', though the ultra-long end of the UK Index-Linked Gilt market has been well and truly trounced, but again it is still holding within the range of the past year, albeit in a far more volatile fashion. As has been the case on previous govt bond sell-offs, what continues to be remarkable is the insensitivity of 'riskier' credit assets to such moves, as the attached charts of the US High Yield ETF and the JPM EMBI spread underline.

** U.S.A. - June Labour data **
- For some, it may well appear that today's labour report is little more than red herring, both from the aspect that the JulY FOMC meeting is not a press conference meeting, and the arguably ostensible signal from the minutes, that Fed policy is "on auto-pilot", both in rate and balance sheet terms, notwithstanding claims of 'data dependency'. Be that as it may, the consensus looks for a 170K rise in Payrolls, with yesterday's marginally weaker than expected 158K ADP reading, and 23K downward revision to May to 230K, underlining that any read across to Payrolls is at best tenuous; as previously outlined other anecdotal evidence implies greater upside than downside risks relative to forecasts. Indeed as with last month's 'soft' +138K, any weakness would invite as much reason to highlight hiring difficulties, as the suggestion that labour demand is weakening. Up until May's report, the fall in the Unemployment Rate was largely attributable to strength in Employment, while the labour force expanded, and even May's 439K drop appeared to be more a correction to prior strength than a trend turn, with the consensus looking for an unchanged 4.3%, though the primary focus should remain the U-6 Underemployment Rate, which now stands at 8.4%, close to the previous cyclical low of 7.9% (Dec 2006). For the Fed members worrying that inflation trends are sub-optimal, there will be particular focus on Average Hourly Earnings, which are forecast to show a slight uptick to 0.3% m/m, that would take the y/y rate up to 2.6%, and the 3-month annualized rate to 2.8% from 2.0%. It seems safe to observe that today's report will need to spring a/some bigger surprise(s) to distract from markets' internal flow dynamics amid talk of risk-parity and / or convexity related sellers, above all in the likes of German Bunds, where ultra-low or zero coupons leave asset managers vulnerable to becoming forced sellers as rising yields pull duration indices lower.

from Marc Ostwald
 
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