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The bond market is usually the first to figure things out but even it’s struggling with the political turmoil and economic uncertainty right now.

Notably, long dated Treasury yields jumped in the immediate aftermath of the debate on June 28 in a signal about a Republican sweep coupled with further tax cut and a deficit running around 6.5% of GDP for the next five years.

Then the market had a rethink. Whether that was due to cross-currents, the still-long timeline before the election or the likelihood of Biden dropping out is debatable. BMO thinks the market is also factoring in the second-order effects of a Republican sweep:

Recall in the wake of the Biden/Trump debate, the
Treasury market bear steepened on supply/reflation concerns. Once the initial
dust settled, the kneejerk response to improved Trump odds appears to be a bear
flattener – the logic being that any rebound of inflationary pressures will
slow the FOMC’s normalization (i.e. cutting) process during the latter part of
2025 and beyond. We suspect the first order response to a Biden withdrawal
would be incrementally bond friendly and most likely still a steepener. Simply
a reversal impulse.

To translate this into FX, the takeaway would be:

• Trump positive = dollar bullish
• Biden/Democrat positive = dollar bearish

I’m on board with this thinking but I wouldn’t get carried away with the idea that it will dominate markets. Also, the most-underappreciated race in 2024 is the House. Betting sites put Democrats only narrowly behind for House control despite all the turmoil and that could quickly turn and lead to a split Congress and the inevitable gridlock that comes with it.

Another thing to keep in mind is that bond seasons are constructive for the next few weeks, meaning the bias in yields is to the downside. None of this is happening in a vacuum and the outlook for the economy and inflation is in flux.

This article was written by Adam Button at www.forexlive.com.

• Canada May retail sales -0.8% vs -0.6% expected
• Biden’s family has started discussing his exit plan – report
• Canada industrial product prices for June 0.0% vs 0.2% expected
• Fed’s Williams: Central banks must own the inflation-control mission
• Add Dem Senator Heinrich to the ranks of “It is time to quit Joe”… and more.
• Crowdstrike CEO: Many customers rebooting systems, could be some time for some to recover
• PBOC: We will keep yuan exchange rate basically stable

Markets:

• USD leads, NZD lags
• WTI crude oil down $2.53 to $80.29
• US 10-year yields up 5.3 bps to 4.24%
• Gold down $46 to $2399
• S&P 500 down 0.7%

There was no place to hide today as stocks, bonds, commodities and precious metals all fell. The lone exception was bitcoin, which notched an impressive 5% gain, perhaps as the Crowdstrike fiasco highlighted the fragility of the tech ecosystem.

For the rest of the market, it was a deleveraging event with political and economic uncertainty high. That meant selling in everything as the market looks to the Fed blackout and a quieter summer market. Given the turmoil recently, that might be a fanciful hope but the temptation to cash out after a 16% YTD stock market rally is real.

Unlike some other pockets of the market, the FX moves were modest. The dollar weakness early in the week continued to erode with the euro backing away from 1.10 and the pound retreating after briefly breaking 1.30. The later looks something like a break after an extended post-election move.

USD/JPY survived the rout in Wednesday and has steadied itself though was reluctant to push anywhere near 158 today. Yields were a tailwind and the talk about the BOJ refraining from further hikes helped. There is unease about intervention though or whatever the MoF playbook might be.

Commodity currencies present the most-compelling narrative as they slide on deteriorating growth prospects both at home and globally. China hasn’t offered up any change of course hints at the Third Plenum, though there are some hopes for post-even announcements in the coming week or two. Domestically, a poor Canadian retail sales report cemented a rate cut next week and has kicked off talk of a deeper, faster rate-cutting cycle.

Have a wonderful weekend. I’ll be off next week so see you in a couple weeks.

This article was written by Adam Button at www.forexlive.com.

The bad news is that it was the worst week for the Nasdaq since April. The good news is that after the sharp correction in April, the market recovered quickly.

Today’s price action was influenced by $2.7 trillion in options expiring including $555 billion in single stocks. It was the largest-ever July month expiration and speaks to the incredible power of the options market at the moment.

Next week we will spin it up again and find some new memes.

• S&P 500 -0.7%
• Nasdaq Comp -0.8%
• DJIA -0.9%
• Russell 2000 -0.6%
• Toronto TSX Comp -0.1%

Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

Credit Agricole sees GBP as one of the best-performing G10 currencies, despite recent setbacks due to returning risk aversion and stickier-than-expected UK inflation. The GBP’s relative strength is attributed to expectations that the BoE will maintain rates, reinforcing its status as a top performer in the G10 FX space.

Key Points:

• Recent Performance:

  • End of Winning Streak: Risk aversion and stickier UK inflation have ended GBP’s recent winning streak.
  • BoE Rate Expectations: The market expects the BoE to keep the bank rate unchanged on 1 August, postponing any rate cut decision to later in the year.

• Upcoming Data Focus:

  • UK PMIs for July: The focus will be on the UK PMIs, particularly evidence of economic recovery extending into Q3.
  • Economic Resilience: Persistent economic resilience might convince policymakers to delay easing beyond August, although it is not central to the current debate.

• FX Market Reaction:

  • Relative Expensiveness: Following its recent rally, GBP looks expensive against both EUR and USD when compared to short-term fair value estimates based on its relative rate appeal.
  • Long Positioning: GBP remains one of the biggest long positions in the G10 FX market, warranting cautiousness on the near-term outlook for the currency.

Conclusion:

Despite recent challenges, GBP continues to be one of the best-performing G10 currencies, supported by expectations of stable BoE rates and economic resilience. However, its current expensive valuation and significant long positioning suggest cautiousness in the near-term outlook. Upcoming UK PMIs will be critical in assessing whether economic recovery can sustain this momentum.

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This article was written by Adam Button at www.forexlive.com.

The oil market has been in a tough spot.

The macro is deteriorating and hopes for Chinese stimulus are fading. At the same time, all the data out of Russian and OPEC show a surprising drop in exports.

That’s led to a real push-and-pull in the market including a big jump on Wednesday and a bigger slump today. WTI crude oil settled Friday down $2.48 to $80.34, which is the lowest settlement since June 17.

On an intraday basis, crude is still within the recent range but just barely. Next week eyes will be on China for some post-plenum stimulus plans but I wouldn’t count on it. Otherwise, we will look to US GDP data and the regular inventory numbers, which ahve been supportive so far.

Out in the Atlantic, there are currently no disturbances that could turn into hurricanes.

This article was written by Adam Button at www.forexlive.com.

Where do you hide today?

• Bonds are down
• Megacap tech is down
• Stocks are down across the board
• Gold is down
• Commodities are all down, including 3% in oil

Full credit to anyone who bought bitcoin, which is up 4.6% today and has had a nice rally from the Mt. Gox headlines early this month. But for 95% of market participants, there is nowhere to hide here.

This Crowdstrike fiasco certainly isn’t helping and liquidity is bad today with some algos shut off but I don’t think that’s the whole story. Market participants are de-risking right now, taking down leverage and heading to the sidelines. It’s been a nice year already and no one wants to get blown up on vacation in July/August.

Layer in angst about the upcoming earnings season and an AI/chipmaker trade that needs a breather and it’s tough to have conviction. There’s a Fed put but by September the FOMC could be behind the curve and the macro situation is less clear.

…and don’t even get me started on politics.

All that said, the case to de-risk here is a strong one and I think it started in early July and I doubt it’s over yet. Moreover, that money isn’t going to be in a rush to come back and buy ahead of poor September seasonals and that could even stretch into November.

So if you’re a fund manager who has matched the 16% rally in the S&P 500 this year (or is even close), what’s the incentive to push your luck here? I don’t see it.

This article was written by Adam Button at www.forexlive.com.

Overnight Crowdstrike uploaded an update that crashed Microsoft products and in turn many businesses. I am still having some issues with my technology. Crowdstrike shares are down -10.60% at $306.40. At least the stock is off the low at $290.10.

Meanwhile, the major indices have moved to new lows in the current hourly bar.

• Dow industrial reached a low of 40,216.32. It currently trades at 40261.40 down -0.90%
• S&P just reached a low of 5507.56. It currently trades at 5508.99 or -35.80 points or -0.65%.
• NASDAQ index trades down -128.89 points or -0.72% and 17740. It’s low reached 17717.97

On Wednesday I targeted the 200-hour moving average for the Nasdaq index as a key target, the green line on the below chart. The price has now moved below that MA level.

In the video yesterday, after the price moved below that 200 hour MA, I also commented:

Going forward, staying below that 200-hour moving average keeps the sellers in control and has them targeting other levels including the low price from July 1 at 17657.64, the low price from June 24 and June 11 at 17494, and the 38.2% retracement of the move-up from the April 19 low. That level comes in at 17358.70.

Here is that video commentary:

Sellers are making more of a play in the Nasdaq index. Dips have traditionally been bought, but it will now take a move back above the 200 hour MA to turn the bias around. Absent that, and the aforementioned support (especially the 38.2% retracement) will be targets that could stall the fall.

Be aware.

This article was written by Greg Michalowski at www.forexlive.com.

The “calls to quit” line gets longer with Dem Senator Heinrich, and then you watch GOP Nominee Trump ramble and ramble in his acceptance speech when he had a chance to unite. SMH. Anyone one candidate is nominated. The Dems convention is not until August 19-22.

Will Biden step down this weekend?

PS Meanwhile, Biden says that he looks forward to getting back on the campaign trail next week. :

This article was written by Greg Michalowski at www.forexlive.com.

Late selling led to the STOXX 600 closing near the session lows and also at the lowest closing level since May 6. It was five straight days of declines in a 2.9% decline on the week.

Closing changes on the day:

• German DAX -1.0%
• France CAC -0.8%
• UK FTSE 100 -0.7%
• Spain’s IBEX -0.8%
• Italy’s FTSE MIB -1.0%

This article was written by Adam Button at www.forexlive.com.

Representatives Jared Huffman of California, Marc Veasey of Texas, Mark
Pocan of Wisconsin and Jesus “Chuy” Garcia of Illinois issued a joint
letter to Mr. Biden on Friday morning saying:

“It is now time for you to
pass the torch to a new generation of Democratic leaders… “We must face the reality that widespread public concerns about your age
and fitness are jeopardizing what should be a winning campaign.”

I think that brings the number of Democratic members of Congress at almost 30, including a second senator today.

The betting markets have bought the latest round of denials that Biden was quitting but I don’t think that’s wise.

This article was written by Adam Button at www.forexlive.com.

I’m curious to hear exact what this ‘new era’ looks like because I strongly suspect it will be just like the old era where central banks are behind the curve and forecast poorly. Fingers crossed that the ‘new era’ isn’t the same old talking points about high and sticky inflation.

In terms of monetary policy, doesn’t expect any surprises as Williams spoke two days ago and said:

• Latest data getting us closer to a disinflationary trend that we’re looking for
• But would like to see more data to gain further confidence inflation is moving sustainably to 2% goal

Sick of Fedspeak? Well I have good news, the Fed blackout starts at midnight.

This article was written by Adam Button at www.forexlive.com.

The major US indices continue to see changes in flows. Today, the Dow and the Russell 2000 are down. The S&P and NASDAQ indices are higher.

A snapshot of the market currently shows:

• Dow Industrial Average average -240 points or -0.58% at 40425
• S&P index up 3.14 points or 0.05% at 5547.70
• NASDAQ up +38.83 points or 0.22% at 17912.36

The small-cap Russell 2000 is getting hit with a decline of -41.38 points or -1.85% at 2198.28.

For the trading week, the indices are mixed:

• Dow Industrial Average average +1.13%
• S&P index -1.21%
• NASDAQ index -2.73%
• Russell 2000 +2.37%

Looking at the US debt market, yields are higher:

• 2-year yield 4.510%, +5.0 basis points
• 5-year yield 4.166%, +6.3 basis points
• 10 year yield 4.246%, +5.9 basis points
• 30-year yield 4.458%, +5.2 basis points

This article was written by Greg Michalowski at www.forexlive.com.