Run Euro Run !

The euro’s rally may have only just begun.

While the European Central Bank made few changes Thursday to its forward guidance and Mario Draghi said that policy makers were still waiting for wages and prices to match the region’s improving economic growth, the common currency rallied to its highest level in nearly two years.

It’s the best performer among Group-of-10 currencies this year and could still have further to run with the bank likely to announce the scaling back of its quantitative easing program in either September or October.

“It’s an armor-plated rally and it won’t stop,” Peter Kinsella, a London-based senior foreign exchange and rates strategist at Commonwealth Bank of Australia, wrote in a note. “Everything speaks in favor of further EUR appreciation — increasing portfolio inflows, changing monetary policy, improved political risks.”

Increased hawkishness from the central bank, spurred by Draghi saying that reflationary forces had replaced deflationary ones on the continent, has helped the euro rally from lows last seen near the start of the millennium. Investors expect the ECB to start tapering in the new year and are pricing in a 10 basis point rate hike by September 2018.

At the same time, political risks have largely dissipated. The victory of market-friendly Emmanuel Macron in France allayed fears after a populist wave swept through the European Union following the Brexit vote and the election of Donald Trump as president of the U.S. Economic growth has also picked up, helping to buoy investor prospects.

The euro broke through $1.16 after Draghi said that the currency’s recent re-pricing had received “some attention,” without specifically saying he was concerned about its strength, at the press conference following July’s ECB decision. That reference helped boost the shared currency, while European bonds rallied following the meeting led by those of Spain and Portugal.

Mario Draghi “essentially did not push back on the market pricing, which was the key point,” said Jordan Rochester, foreign-exchange strategist at Nomura International in London. “The Fed was moving more aggressively in terms of their monetary policy while other banks were still easing. All that’s come into reverse now,” he added, referring to the Federal Reserve’s recent rate hikes.

The euro advanced 0.1 percent to $1.1642 as of 8:49 a.m. in London, having touched $1.1677, its highest since August 2015. The currency has climbed about 11 percent this year, partly on speculation that a tapering of bond purchases is drawing closer. It traded near its highest versus the pound in eight months with one euro worth 89.59 pence.

Nomura currently forecasts the euro at $1.15 by the end of the year. “In the short-term we’re overshooting and I wouldn’t fight it,” Rochester said.

For some analysts, the only thing that can stop a prolonged euro surge is events on the other side of the Atlantic. That could come in the form of progress of U.S. tax reform, according to Rochester.

“One factor that might stop the euro rally from here is a repricing of expectations for the Federal Reserve,” said Andrew Cormack, a London-based money manager at Western Asset Global Management. “There is so little priced for the Fed now any upside surprise in the data could see this reverse.”

Cheerio

The Wig and Pen Club shares information with MF Solutions Ltd

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Markets Update

U.S. job growth surged more than expected in June and employers increased hours for workers, with signs of a labor market strengthening that is likely to keep the Federal Reserve on course for a 3rd interest rate increase this year, despite lackluster inflation. Non-farm payrolls increased by 222,000 jobs in June beating expectations for a 179,000 gain. Data for April and May was revised to show 47,000 more jobs were created than previously reported. US unemployment rose to 4.4%, from a 16-year low of 4.3%, because more people were looking for work; a sign of confidence in the labor market. The jobless rate has dropped 0.4% this year and is close to the most recent Fed median forecast for 2017.

UK data released on Friday showed output by British factories unexpectedly fell in May, indicating that the UK economy has struggled to gain any momentum after a slow start to 2017 and further raising questions about the likelihood of the Bank of England raising interest rates this year. Markets were expecting an increase of 0.5% in Manufacturing Production (MoM) but were surprised with a very poor reading of -0.2%. GBPUSD reacted immediately dropping from 1.2955 to 1.28664 (-0.7%) whilst EURGBP climbed from 0.87964 to 0.88602 (+0.55%). GBPUSD is currently trading around 1.2905 and EURGBP around 0.8840.

The G20 meeting in Hamburg over the weekend had little to no impact on the markets. The highlights were the first-time meetings of Trump, Putin & Xi Jinping. The general undertone was that this was the G19 plus 1 meeting as the US was not a particularly welcome attendee.
USDJPY initially dropped by 0.6% on Friday, to trade as low as 113.148, before rebounding higher following the NFP to reach a high of 114.176 – a 0.8% increase on the day. In early trading USDJPY is around 114.15.

EURUSD had a similar story reaching a high of 1.14393 after the data release before retracing down to a low of 1.13791 a relatively small loss of 0.2% on the day. Currently EURUSD is trading around 1.1410.

Gold had heavy selling pressure, dropping 1% on Friday to trade as low as $1,207.17 – close to a 4-month low. Gold is down over 1.6% on the week resulting in its worst performance since May. Currently Gold is trading around $1,212.

WTI closed down 4% on the week as the decline in US inventories did not convince traders that global production was anywhere near rebalancing. On Friday WTI traded down 1.8% to hit a low of $43.88pb. Currently WTI is trading around $44.65pb.

Today & Tomorrow is light on impactful economic data releases – traders are focusing on Wednesday July 12 when, at 09:30 BST, the UK will release its Average Earnings Index followed, at 15:00 BST, by the Bank of Canada interest rate decision and Fed Chair Yellen’s Testimony.

Cheerio,

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

 

Oil Bull Is Bearish

One of oil’s most prominent bulls is starting to sound like a skeptic.

The global crude market has “materially worsened” and prices may be stuck around $50 a barrel or below, storied hedge fund manager Andy Hall said in an investor letter this week, reversing the optimistic tone he’d taken for months.

Crude prices are down 16 percent for the year, amid signs that rising U.S. output will undercut production cuts ordered by the Organization of Petroleum Exporting Countries and its allies. After a rally last week, futures for West Texas Intermediate oil slipped 4.1 percent on Wednesday after Russian officials said they were opposed to deeper reductions.

“When the facts change … ” Hall wrote to investors in his Stamford, Connecticut, hedge fund, Astenbeck Capital Management LLC, in a July 3 letter obtained by Bloomberg News. “Not only did sentiment plumb new depths but fundamentals appear to have materially worsened.”

U.S. shale drilling is expanding “at a surprisingly fast rate, thus raising the odds for significant oversupply in 2018, even if OPEC maintains its production cuts.”

Hall’s career stretches back to the 1970s, including stints at BP Plc and legendary trading house Phibro Energy Inc., where he was chief executive officer. This year, he’s consistently pushed against the bearish tide, arguing in investor letters that data showing rising oil supplies was incompleteand that a sustained rally was on its way.

‘Rangebound’

U.S. producers have ramped up output and lowered their own costs faster than expected and growth in demand seems set to be lower than anticipated going forward, Hall wrote in the latest letter. While oil prices may recover somewhat in 2017, they look to be “rangebound for some time to come.”

“At the start of the year, the anchor was thought to be about $60″ for Brent crude “and rising over time,” Hall wrote. “Today, it appears to be closer to $50 (and possibly still falling.)”

A message seeking comment from Hall wasn’t immediately returned. Astenbeck managed $2.4 billion as of the end of 2016, according to a previous investor letter reviewed by Bloomberg. The most-recent letter doesn’t mention the size of the Astenbeck fund or its latest performance.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd