Help ! I’m stuck ! 2021wk13

Reading Time: 9 minutes

This Week

Opinion piece “Help me out, I’m stuck”
MACRO
- filtered lockdown fear-o-meter
- Cold Turkey aftermath
- US data shine
- EU data wunderbar
- CB action
TECHNICALS
- Chart storms for Rates/Bonds, FX, Commodities, Stock Indices
- Performance Tables/Heatmaps Global Cross Assets
“…one more thing…” : Alex’ Cake !

* this is not a trade recommendation and for educational purpose only. please do your own research.

Opinion Piece

“Help me out, I’m stuck!”

The now famous image of this week’s blockage of the Suez Canal with the “Ever Given” being stuck in mud is already and will be a meme and metaphor for all sorts of problems to come.

On average nearly 100 ships travel through the channel with an estimated average cargo value of nearly $10bln per day according to Lloyd’s List. 12% of global trade, 30% of global container ship traffic travel through the Suez Canal. Thus, this bottleneck has now hundreds of ships waiting or owners evaluating the cost and time to reroute around Africa’s Cap Hoorn. Obviously, freight costs and due to shortage, some materials will temporarily increase.

But this image could also stand as a metaphor for so many personal things in life. When you stuck in school or uni, at work, in a relationship, trying to find a solution for a problem. And, last but not least in trading.

Often, traders find themselves stuck with a problem, finding a trade or managing a trade. Finding a trade can feel like stuck in mud of too much information or worse, contradicting signals, mentally unable to pull the trigger. Managing a trade and feel being stuck like in mud is while having a bad trade and mentally unable to pull that trigger and booking the loss.

The solution of each problem can be daunting, it’s a mind game and not comparable with the physical problem of the “Ever Given”. Step back, take a break, re-focus. Some trades are obvious, some need patience, but nobody is immune for losing trades. That’s part of the business. But flexibility is more often a key part of not getting stuck. Don’t get in too early, let others try to “buy the bottom” or “short the top”. Don’t get too greedy and manage the risk reward ratio constantly. And manage two crucial parts of this business: your mental stage and your capital. Emotions get into the trade performance. Emotions either way, anger and frustration or party and greed may harm the overall mental performance. The market certainly doesn’t care about personal feelings. Capital erosion destroys future opportunities. Let your personality match the preferred time frame to conquer most of the problems.

MACRO

CV19 lockdown fear-o-meter

Filtered view from the dashboard: 12M new highs Brazil, Poland, Hungary, Philippines

Cold Turkey: The Aftermath

As mentioned previous blog, last week the CBRT raised again the key policy rate by +200bp to 19%. This aggressive policy resulted with President Erdogan sacking the central bank governor after only 5 months in charge and replacing him with a apparently dovish banker
When Asia opened Monday morning, first wave of selling pressure started
- Turkish Lira opened with a huge gap down (USDTRY +15%) as the popular Japanese retail carry trade took a hard stop loss. Fast money used the opportunity and shorted the gap, TRY fell 7% before rebounding during the week.
- TRY 1M implied vola jumped from 17.5% to 45% before fast money selling to close at 28%
- 10Y Govt bond yields surged from 14% to 18%
- 5Y CDS Credit Default Swap surged from 300bp to 460bp
- Turkish stocks BIST100 benchmark sold off but rebounded to a degree
- TUR ETF crashed -20% as a combination of weak local stocks and the weak Lira
Market participants and real money are now monitoring closely what it could mean for the central bank’s new policy, it raised the uncertainty to the interest rate outlook, maybe a reversal of the recent CBRT aggressive policy, possible capital control, containing high inflationary pressures and Turkeys current account deficit ongoing problem.

MACRO II

US

Business and Consumer Confidence improved further, but given the CV19 restrictions and vaccine programs, some of the usually leading indicators surveys are indeed bit lagging. One has to put this into context for now.

Regionals Manufacturing Surveys
- Richmond Fed
  - Manufacturing 17 (14)
  - Services 16 (-6)
- KC Fed 23 (26)
Flash PMI
- Manufacturing 59.0 (58.6)
- Services 60.0 (59.8)
Uni of Michigan Consumer Confidence (flash) all slightly better, but also still miles away from true optimism. 79.7 means z-0.5 5Y, z+0.1 10Y and z+0.2 20Y.
- Current 93.0 (91.5)
- Sentiment 84.9 e83.6 (83.0)
- Expectations 79.7 (77.5)
New home sales -18.3% to 775k = 9M low
Jobless claims improved, but PUA/PEUC remained at 13+mln !

EUROPE

European Business confidence quite strong, despite regional ongoing restrictions or extensions. Diffusion indices are good indicators, in context of inflection points and trend, but they don’t reflect volume or intensity. Very robust IFO gives a clue for next week ESI, and flash PMIs were strong. UK services at 56.8 was surprisingly positive given March still in national lockdown, but April first loosening restrictions.

Flash PMI
- EuroZone
  - Manufacturing 62.4 (57.9) +4.5
  - Services 48.8 (45.7) +3.1
- Germany
  - Manufacturing 66.6 (60.7) +5.9
  - Services 50.8 (45.7) +5.1
- France
  - Manufacturing 58.8 (56.1) +2.7
  - Services 47.8 (45.6) +2.2
- UK
  - Manufacturing 57.9 (55.1) +2.8
  - Services 56.8 (49.5) +7.3

Germany GfK -6.2 (-12.7) 5M high

Germany IFO Index showed a huge rebound in confidence driven by more optimistic expectations, despite the recent lockdown. Front runner remains the manufacturing sector which was reported at 34M high and the laggards Services, Trade and Retail moved to a 3M high
- Situation 93.0 (90.6) 13M high
- Climate 96.6 e93.2 (92.7) 21M high
- Expectations 100.4 (95.0) 35M high
France INSEE 98 (98) = unch

Central Bank Action

This week, all central banks of Switzerland, Czech Rep, Hungary, South Africa, China, Thailand, Philippines, Mexico left rates unchanged
Bank of Canada announced taper and discontinuation of CV19 crisis introduced market functioning programs
- balance sheet expected to decline to C$ 475bln by end of April
- Contingent Term Repo Facility CRTF will be deactivated
- Term Repo Operations will be suspended
- Is concerned about housing bubble FOMO

TECHNICALS

Very mixed week across the board, a lot of rotations and rebalancing, plus, Monday-Thursday RiskOFF week turned around and saw a strong rebound into Friday.

Initially I would expect further consolidation/correction in the major leading stock indices after this tremendous rally but still very supportive fiscal and monetary measurements, and on the other side with some bond markets short term oversold I would have expected a temporary retracement. That all happened, until Thursday, or especially Friday LAST HOUR performance in SPX.

RATES

It’s not a one-way street is probably the best way to explain some situations. Markets breathe, and in particular the STIR and bond market is the US had quite a sell-off in anticipation of better than previously assumed growth and inflation expectations. “Too fast too furious”. 10s and 30s were oversold, a technical reaction is on the cards.

Global rates with the few exceptions of e.g. Turkey, Brazil, paused their previous bear momentum. Bull-flattening this week across most regions
I added previous week “exhaustion” scores into some charts, so the technical correction (Mon-Thu) shouldn’t come as a total surprise.
CHARTSTORM:

FX

NZD: Government introduced a raft of measures to cool its housing bubble (interest deductibility removed for future investors, “bright-line test” for taxation doubled to 10yrs, NZ$ 2.7bln fund to accelerate housing supply). Westpac said the moves could see house prices drop -10%. Housing bubble was also fuelled by Chinese investors.
You might think, the above mentioned announcement was <the> trigger for a softer Kiwi$, but look around to the other samples, it was a US$ move. DXY is now +4.2% off recent low, and further strength will have more impact on EM and commodities.
Top underperformer this week were commodity producing pairs: AUD -1.4%, ZAR -1.7%, RUB -1.8%, NZD -2.3%, CLP -2.6%, BRL -4.6%.
CHARTSTORM:

COMMODITIES

Highlight this week clearly the temporary distraction in the Suez Canal. Bottleneck and who knows how long this will take to float the “Ever Given”.
Crude oil had 4 x 6% swings in both directions
Rare Cotton comment (explained in the chart)
Gold has gone absolutely nowhere this week, trend is down, but I was expecting a wave up towards 1780-1800.
CHARTSTORM:

STOCKS

As mentioned above, I thought we are in a temporary consolidation/correction phase, but last hour Friday was stunning
ITB Home Builder ETF had a strong week, new 52wk high, and this actually is surprising (at least for me) given the enormous lumber rally and mortgage rates increasing.
IYT Transportation ETF strength on the other hand makes sense (at least for me) with the strength of manufacturing business confidence over the last months.
The core reflation and rotation theme Banks vs benchmark KBE/SPY and Copper miner vs Gold miner COPX/GDX recently paused and somehow make it look like diverging from one of the core factors: yields and yield curve. This is an optical illusion, there is no 100% correlation, but it’s worth to notice this “gap”.
European stocks e.g. DAX is back near or at new ATH. IBEX underperformed as Spanish banks have the most exposure to Turkey on a relative basis.
Netherlands, Greece top performer local and US$ ETF , top underperformer Brazil, Turkey.
CHARTSTORM: