We can clearly see the risk-off sentiment last week provided, with global stocks closing down between 6% to 7%, with US equities experiencing their worst first week of the year in history. Gold finally saw a bounce higher form multi-year lows and regained its title as a safe haven but the main beneficiary to the turmoil were JPY and CHF crosses. Whilst these patterns are fairly predictable when global sentiment turns sour it should also be remembered that these trends can turn again just as violently when the world of investing experiences a bout of good news, or news deemed to be as bad as it could have been.
USD saw a volatile week so the speculative positioning data may be skewed, after the USD closed marginally above the open price for the week and formed a spinning top (indecision). Liquidity has not fully returned yet so we need to keep this in mind but from a price action perspective, the Dollar is struggling to maintain bullish momentum and has failed to retest 100 since breaking back below it 5 weeks ago. However open interest (proxy for volume) is on the rise) with large speculators becoming increasingly exposed to the long side.
EUR futures saw a very slight slight reduction of short exposure but price action, which inverts the USD Index, may has produced a bullish hammer on the weekly charts to suggest pending strength.
AUD futures positioning is unlikely to be a true representation judging from the bearish price action seen since the report was compiled. Large specs are likely to be net short at present as the Aussie appears poised to break to fresh multi-year lows.
CAD futures are now at their lowest since 2004 as traders continue to price in a rate cut by BoC. The long/short ratio is far from record lows to suggest we could see more downside to come but we will continue to monitor the oil markets along the way.
JPY Futures has just flipped (ever so slightly) to net long and if current themes persist we should see further strengthening of JPY crosses over the coming week/s. On the same token, if sentiment changes so will the trend on JPY which can reverse quickly both ways as we flip between risk-off and risk-on.
Weekly Wrap: China and commodities dominated sentiment
A snapshot view of money flow and market events form last week to help prepare for the weeks' trading ahead.
United States: FOMC December minutes revealed some members are increasingly concerned over inflation remaining below 2%; ISM manufacturing contracted for a second consecutive month and at its fastest rate since July 2009, then Services PMI missed expectations to provide further fears of a US slowdown. However Friday's NFP data presented less gloomy data to close the week, printing 292k jobs vs 200k expected and unemployment remained unchanged (and at multi-year lows) of 5%.
Europe: Inflation for Germany and the Eurozone was yet another round of data to miss expectations, painting a gloomy outlook for 2016 just trading two days into the new year.
China: China was a key driver towards last weeks turmoil. Manufacturing PMI contracted for a 10th consecutive month and Services PMI appears to be slowing, adding to concerns of a global slowdown. To mix things up a bit China introduced a new circuit breaker to help calm their stock markets last Monday, where a 5% decline triggers a 15-minute trading halt and a 7% halts trading for the day; Both circuit breakers were triggered within 30 mins on its first day. Investors saw the new measures as a reason to rush for the exit and after four successful days of trading, the system was cancelled on Thursday which, ironically, resulted in calmer trading conditions on Friday. Further gloom was presented over the weekend as producer price index
United Kingdom: UK produced some of the better PMI reads last week, with construction at a healthy rate of expansion of 57.8 and services at 55.5 (only a tick below the 55.6 expected). However this didn't stop GBPUSD breaking to a 6 year low as the Greenback benefitted from safe-haven flows, GBPJPY a 3-year low and EURGBP breaking above the Oct '13 bearish trendline.
Australia: Commodity prices declined a further 23.3% whilst manufacturing, services and construction all declined from previous reads, with only manufacturing above the 50 threshold (expansion). Global sentiment weighed heavily on AUD crosses which saw AUDJPY break to it its lowest since Oct '12, AUDCHF a 3-month low and EURAUD now at a 3-month high. AUDUSD is now back below 70c and on the cusp of breaking to fresh 7-year lows.
Canada: Canada didn't to miss out on dismal growth data which saw Ivey PMI contract, industrial production and raw material prices also below expectations and contracting. The RBC/Markit read of manufacturing printed a 5-year low of 47.5 vs 48.6 previously. Headline employment initially looked promising at 22 vs 10k expected, but this was mainly made up of PT positions whilst FT actually declined.
New Zealand: Dairy previous declined 1.6% and building permits only expanded by 1.8% vs 5.1% previous. However the main drivers for Kiwi crosses on a relatively quiet calendar week came from China and lower oil prices.