- Data and events schedule rather minimalist: digesting Japan monthly Tankan,
awaiting US Housing Starts, EIA oil inventories and another round of US
Q2 Corporate earnings; Germany to sell 30-yr, UK to sell 5-yr
- US Housing Starts: rebound expected after May weighed down by unexpectedly
weak multi-unit starts
- EUR/USD - rate differential expectations offers counter to USD's politics
related weakness
- Charts: EUR/USD vs. IMM positioning; Eurodollar/Euribor spread; WTI price
and historical volatility, RBOB Gasoline future
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** EVENTS PREVIEW **
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Outside of the US Housing Starts, Q2 Corporate Earnings and the US-China Comprehensive Economic Dialogue talks, today's schedule looks set to ensure that trading in most asset classes will likely be 99.9% perspiration and a nano-microcosm of inspiration. The market narrative around the persistent failure of Congress to pass a Health Care bill is notable for that fact that the USD and US equities to a lesser degree are persistently sold off on the various failures, yet have largely not rallied in recent months in anticipation of any bill being passed. A similar false narrative surrounds the EUR, where every ECB 'tapering' (N.B. not tightening) story prompts another leg higher, yet a look at where US and EUR rates are likely to be in 12 months' time as represented by the attached chart of the spread between June 2018 Euribor & Eurodollar futures underlines a) a still large premium for USD, and b) minimal change in the differential since the start of Q2, and c) the chart of EUR/USD vs. the IMM COT EUR positioning highlights that the EUR net long is at an 8-yr high. As has been seen in everything from 10-yr Treasuries, Gold, Silver, Corn, Wheat, Coffee to Sugar, stretched positioning frequently ends with a sometimes quite brutal retrenchment.
** U.S.A. - June Housing Starts **
- Following on from the setback in the NAHB Housing Market Index (64 vs. expected 67, June revised down to 66), which was the lowest reading since November, but still very robust by any historical standard, today sees Housing Starts. These are expected to bounce back from May's much weaker than expected 1.092 Mln SAAR pace to 1.16 Mln, predicated on the assumption that the sharp drop in the (ever volatile) multiple housing units component was aberrant, with risks likely skewed to the upside. In passing it is also worth noting that growth in the volume of housing under construction has slowed quite sharply over the past 3 months from nearly 20% in February to just under 6% in May, a pace which is likely to be insufficient to meet current strong demand for housing.
from Marc Ostwald
