Trading with point and figure

dentist007 said:
ftse

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obvershot our 7732 rez..who cares
 
some guy on twitter
saying
watch liquidity drain out of the markets and attention turn to football
 
Last edited:
Ostwald, Marc
Attachments15:25 (18 minutes ago)
to Marc
Post ECB thoughts - 'How to announce the end of QE and stay very dovish - another Draghi tour de force'

a) In truth the ECB's forecast tweaks and its policy measures should really have come as little, if any, surprise. We should by now have enough respect for Draghi to realize that he would come up with some formulation of the policy that would err on the dovish side, just as the Fed yesterday managed to be resolutely hawkish, without being aggressive.

b) Forecast - as ECB sources had clearly signalled, the staff forecast update offered a very clear rationale for its policy measures today, even if the suspicion remains that they are rather less forecasts, and rather more a means to an end. Be that as it may, the upward revisions to the CPI forecasts leave CPI on a flat trajectory for the 2018-20 period, and sufficiently short of the target of 2.0%. Per se that allowed the council to commit to not raising rates before the end of Q2 2019, while tacitly undermining the EUR above all vs the USD. The Q4 taper to EUR 15 Bln also fits with that, though it should be noted that there is an element of contingency to ending QE at the end of Q4, though the wiggle room is quite limited. The GDP forecast was very much in the same vein, with only 2018 cut, but still implying an overall pace of growth throughout the forecast period that is above the perceived potential rate of 1.5%.

2018 2019 2020
GDP 2.1% (2.4%) 1.9% (unch) 1.7% (unch)
CPI 1.7% (1.4%) 1.7% (1.4%) 1.7% (1.7%)

It is also perhaps worth noting that the staff forecasts assume a shallower rate trajectory than in March, with 2019 3-mth Euribor seen at -0.2% vs. prior -0.1%, and 2020 at +0.2% vs. prior 0.4%. While EUR/USD traders appear to still to be fixated with the 10-yr US/Bund spread, this sharp widening in Fed and ECB rate expectations should not be ridden roughshod over, as the attached 2-yr Schatz/Treasury yield spread chart should attest. I will be tedious and reiterate this point from the post FOMC commentary - "The simple point for some time has been this: the opportunity cost for holding 'cash' or cash like instruments falls with every Fed rate hike, and by contrast the opportunity cost of chasing riskier assets (duration, credit and equities) rises concomitantly - everything else is primarily a noisy FOMO/TINA narrative that gets one 'hospital pass' after another."

b) The overall message on the economic from Draghi remained relatively upbeat, but clearly conveyed the point that there are plenty of risks to the outlook, be that Eurozone internal, or externally from protectionism. Thus Draghi noted: ""The assessment that the Governing Council gave of the current economic environment, of the underlying strength of the economy, while being overall appropriate for achieving the decisions that we've taken today, doesn't want to underplay the existing risks."

c) As was also sadly to be expected, the press conference was in the end rather dull, with far too many questions about Italy, and redenomination risk, which Draghi had no trouble in fielding, or batting way where the line of questioning was clearly straying into the overtly political.

d) Aside from keeping a watchful eye on incoming Euro area data in order to judge how much momentum has been lost in the Euro area during H1, the next key event is the expiry of that EUR 324 Bln LTRO in September, and how the ECB proposes to deal with that hurdle, and what it implies for its overall liquidity management will presumably be the central point of interest for the 26th July meeting.

- Next points of focus for markets

a) just how far will the Atlanta Fed Q2 GDPnow estimate (last 4.6%) be revised up after the very strong US Retail Sales data (any takers for well north of 5.0%??);

b) what will Trump do about the hard deadline tomorrow for imposition of trade tariffs on China - chatter varies from an extension on the decision period, through a range of just of $3.0 to the full $100.0 Bln;

c) the BoJ meeting tomorrow - Kuroda now has his work cut out to sound as confident but as dovish as the ECB;

d) for next week, and following the very strong UK Retail Sales, how heavily will the BoE "roll the pitch" for an August rate hike?

------------------------------

Marc Ostwald
Global Strategist
ADM Investor Services International Ltd
 
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