Forex Trading Update

We ended up last week with softer than expected April US retail sales and consumer prices. As a result, the US Dollar, which had had a very good week, gave back almost half of its gains of the week.

By the time you are reading this, our week of trading will have already started. Retail sales q/q for New Zealand was out late last night and beat the forecasted figure by 0.4%. Retails sales rose 1.5% against estimate of 1.1% on Q1. China Industrial Production was out at 3am as well and that was y/y release.

Today should be a typical Monday with no news. Traders coming back to their desks and assessing what happened over the weekend and preparing their week ahead. We should experience thin liquidity thanks to no important Fundamental Events happening throughout the day. We only have Theresa May who is Due to participate in Facebook’s Live Q&A hosted by ITV News, via satellite;

Due to Brexit talks which are going not so well at the moment plus a General Election in the UK on June 8th, this speech should affect the British Pound in the morning as investors will have their eyes and ears plugged on any clues the UK Prime minister may give on her plans for Brexit negotiations and the future of the country.

The British Pound is one of the Major currencies which should be most affected this week with CPI Y/Y on Tuesday, Average Earnings Index3m/y on Wednesday and Retail Sales m/m on Thursday. All being released @ 9:30 GMT on their respective days.

France has now its new president Emannuel Macron who was sworn as President yesterday with the difficult task of transforming electoral success into political strength in a society tormented by unemployment and divided by anger.

There is not much to say in terms of fundamentals as the bigger picture haven’t changed much in the past few weeks and the market is quite indecisive at the moment. It looks like the summer doldrums may be starting to have its effects . For the time being the biggest mover is the USD/JPY and that could easily be a “buy the rumours sell the news” run fuelled by the idea that the FED will hike next month at its next meeting.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

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FOREX Friday

The dollar sold-off ahead of NFP release today (Non Farm Payroll) . The institutions gave us a market with currency pairs all at critical levels. Trying to trade today is definitely gambling. Just be disciplined and stay out of the carnage. Don’t forget that the second round of the French elections will take place this weekend. Have no pending orders left open over the weekend. The market has all the potential to open on Sunday night with another gap like 2 weeks ago.

Cancel all pending orders due to NFP today.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Call Options Whatever You Want

Traders are buying so many S&P 500 call options right now that the ratio of those contracts to put options hit an all-time high Wednesday, according to Credit Suisse.

A call option is the right to acquire a stock in the future at a preset price. A put option is the right to sell.

“The biggest trend, the most notable thing, is the resumption of the call buying in the S&P,” said Mandy Xu, derivatives strategist at Credit Suisse. With “Trump coming out with a new tax plan, we’ve seen that upside demand in the market.”

Xu calls this ratio the “call skew” and here’s the chart the bank sent clients Wednesday showing the metric at a record level.

The jump in the ratio of call-to-put buyers came ahead of the Trump administration’s afternoon announcement on a highly anticipated tax proposal.

Call skew began climbing after the November U.S. presidential election, and the last time call skew hit a record was Feb. 14, Xu said. The S&P 500 climbed about 3 percent in the following days before setting its most recent closing record on March 1.

Stocks and call skew levels then dropped as Republicans pulled their health-care bill, creating worries about whether market-friendly tax reform would be passed. Growing concerns about geopolitical tensions from North Korea to anti-EU sentiment in France also pressured stocks.

So far this week, the S&P 500 has rallied nearly 2 percent after the first round of a French presidential election on Sunday that showed centrist candidate Emmanuel Macron remaining the favorite against far-right populist candidate Marine Le Pen.

That said, stocks don’t have an all-clear signal. Congress has yet to vote on tax reform, while overseas surprises could rock markets again.

Xu also thinks the bullish bet from call options buyers is probably near its limit around these record levels.

“It’s pretty extreme as it is. In order for it to go higher we probably need something more concrete or substantial to extend that,” she said.

But that’s obviously not the whole Options story. S&P 500 is but one vehicle amongst a myriad of many such as commodities and metals with both Gold and Silver looking attractive right now. Oil – well, nah.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Gold Rise To Continue

“Don’t gain the world and lose your soul; wisdom is better than silver or gold.”

You may have to read the quote more than once, but Bob Marley knew what he was talking about.

At the moment, investors seemingly disagree a bit with him, and they have pushed spot gold up around 8 percent higher since the beginning of the year.

The lack of wisdom from everyone with the desire to hurt others has meant the safe-haven trade has found a new pocket of geopolitical opportunity.

Nobody sane wants more people to die in Syria, and nobody sane wants to start a war with North Korea, but how to handle both these hotspots is easier said than done, and this is proving the case with the new U.S. administration, just as it was the old.

The potential for deflation is a thing of the good old days (like 2016), but even with inflation gods sprinkling inflation dust, gold as an inflation hedge is not the only reason to buy the metal.

Kieron Hodgson, a commodity and mining analyst from Panmure Gordon & Co, says that despite having a bullish outlook for the  USD, all other factors are in place to push the spot gold price higher.

He lists economic uncertainty (Brexit, French elections, Chinese debt levels), concerns over high equity valuations (the U.K. now has all 10 industry groups returning positive 5-year rolling performances for the first time), trading positions (short positions were peaked around the recent U.S. rate decision and then collapsed when the conversation switched to deleveraging the Fed’s balance sheet), central banks (they are now marginal buyers of gold for the first time since 2012) and indeed the pickup in inflation as being the main issues that should continue to support the price of gold.

Hodgson says that the long term trend of lower gold prices that has been in place since 2011, will come to an end due to gathering risks, which could impact record high equity markets and lead to a correction.

Panmure Gordon isn’t waiting, and has upgraded its gold price forecast to $1,300 per ounce (from $1,225 per ounce) for 2017.

For 2018, they also see a rise to $1,350 per ounce (from $1,200 per ounce).

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Something To Sip Over The Weekend

A report by by Elin McCoy

The new wines look as though they’ll be even better than last year’s, but Brexit, Trump, and French elections loom large among the chateaus.

The big wine story next week will take place in Bordeaux, where flags are already flying over turreted stone chateaus to welcome several thousand enthusiastic merchants and journalists. They’re swooping in from around the globe for en primeur, the region’s famous annual spring ritual. (Some call it a circus.)

From Monday to Friday we’ll all sip and spit hundreds of red, white, and sweet wines from the new 2016 vintage, still aging in oak barrels, to evaluate how the wines are turning out. The weather last year was, as they say, complicated but ended well. So far, local Bordeaux wine whisperers claim the quality of the 2016s is as exceptional, possibly even better, than the superb 2015s I reported on last year.

Based on a few quick chateau visits a couple of weeks ago, I’d say maybe they’re right. Here’s my sneak preview.

I stopped by a handful of top estates, including Château Calon-Ségur, Château Palmer, Château Pichon Baron, Château Montrose, and Château La Conseillante. The wines were all luscious to taste, with expansive floral aromas, plenty of plump fruit, freshness, and even more succulence and vibrancy than the 2015s. The second wines and estates’ other labels, such as Calon-Ségur’s Château Capbern, were also delicious. All the wines were vivid and dynamic; those from the Saint-Estèphe appellation are definitely better than their 2015s.

Is the vintage consistent at both top and less-prestigious estates? Will there be some super values? After sampling 500 or so wines next week, I’ll report in detail.

A Surprising Harvest

Meanwhile, I heard plenty of 2016 gossip from winemakers at an annual event in the gigantic Bordeaux warehouse of negociant Millesima. Around us, stacks of thousands of wooden cases of older vintages reached the high ceiling, reminding us that selling Bordeaux is big, big business.

Nicolas Glumineau, who runs Château Pichon Lalande in Pauillac, told me, “2016 was a miracle, it’s like a mix of two great vintages, 2009 and 2010.” Others harkened back to the great twin years of 1989 and 1990, a pretty good recommendation. This, actually, is a surprise; Philippe Dhalluin of Mouton Rothschild, who had just flown in from London, explained, “The quality of 2016 was completely unexpected because of the year’s weather.”

Meaning: The growing season wasn’t exactly a slam dunk.

In his annual weather report, Bordeaux merchant Bill Blatch described 2016 as “a year of two long extremes, totally wet for the first half, then totally dry for the second.” Yes, the region was lucky compared with Burgundy, which was plagued by frost and hail, but constant rain and then record-breaking summer drought and heat waves stressed the grapes.

A thunderstorm on Sept. 13 saved the day, writes Blatch, and breathed new life into the vines. A long sunny autumn with cooler temperatures resulted in such good grapes at some estates they barely had to sort them during harvest in early to mid-October.

And there will be lots and lots of wine. The 2016 harvest is the largest in more than a decade, the equivalent of about 770 million bottles, according to official figures.

How that will affect prices is one of the questions merchants will be asking themselves, as they assess quality and decide what their clients might buy.

In case you’ve forgotten how the futures game works, it goes like this: The chateaus offer a portion of their wines while still in barrel to negociants, the 300 or so brokers who sell about 70 percent of all the wine produced in Bordeaux. The negociants tack on a margin of profit before selling them on to retail merchants, who then sell to customers, who finally pick up their bottled wines in 2019. The wines are aged in barrels for anywhere from 12 to 24 (or more) months and bottled at the chateau, and then released about six months later.

Many chateaus now hold back a big percentage of their wine, reckoning they can sell it for more later, especially in China, where wine lovers prefer to buy it only in bottle.

But quality is only one of the factors merchants consider when pondering which wines to snap up.

Global Politics

This year there’s plenty of global uncertainty, with the upcoming French elections, the falling British pound, and the triggering of Brexit this week. All could make it difficult to hawk wine outside of France.

 

“A new, hugely important variable in the U.S,” Shaun Bishop of JJ Buckley emailed, “is what kind of impact the proposed border-adjustment tax being debated on Capitol Hill might have.”

Happily, sales of 2015 futures were a qualified success compared with the previous lackluster four years—though still nothing where barrel sales were for the great 2009 vintage.

 

In the U.S., though, the dollar is strong and Bordeaux appears to be back, after a hiatus with very little wine-lover interest. “We sold thousands of cases of good values like Tour St. Christophe futures last year,” emailed Chris Deas of Westchester, N.Y.-based Zachy’s. “En primeur is now a hot trend to follow.” A couple of merchants I spoke to sold about same amount stateside as they did of the 2009s.

No one, though, unloaded a lot of first growths like Château Lafite Rothschild; 2015 futures are now selling for about $550 a bottle. The sweet price spot, explains Dan Snook of negociant Joanne USA, is less than $100.

Price—and the exchange rate—will be very, very important. Clyde Beffa of the Bay Area’s K & L Wine Merchants, cautions, “The second vintage of back-to-back great vintages always falter if prices are the same or higher.”

So far, so good. On Monday, March 27, sweet Sauternes estate Château Guiraud was the first to announce its release price, even before buyers tasted it, and pitched it at €30 ($32.40), the same as for the 2015.

All these merchants said they’ll be looking for values. Hey, me too.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions.

 

Le Pen Writes Off Euro

The euro will tumble to a 15-year low if Marine Le Pen becomes French President, with the immediate reaction in the currency similar to that seen in the pound following the U.K.’s Brexit vote, according to economists.

The shared currency would drop to $1 or below a day after a victory for the National Front leader, according to 23 of 38 respondents in a Bloomberg survey, with five of those calling for a decline below 95 U.S. cents. A Le Pen victory is seen causing such a rapid decline because the anti-European Union candidate has threatened to call a referendum on the euro and re-denominate the nation’s debt.

A decline to parity for the first time since 2002 would be a fall of more than 7 percent from the current level of about $1.08, while a move below 95 cents would represent a decline of around 12 percent. Such a move would mirror the reaction seen in the pound following the U.K.’s decision to leave the EU, and reinforce an emerging trend of currencies taking the strain for political upheaval.

In a similar survey before the Brexit referendum last year, the majority of economists forecast a drop below $1.35 in the event of a decision to leave, a call that was borne out after the vote as the pound slumped more than 10 percent to a 31-year low of $1.3229.

“The market reaction would be very negative since re-denomination risks have been priced in only to a very modest extent,” said Frederik Ducrozet, an economist at Banque Pictet & Cie in Geneva, who expects the euro to drop below parity after a Le Pen victory.

A Le Pen victory is seen as unlikely, with the economists surveyed assigning a 61 percent probability that independent candidate Emmanuel Macron will become the next president, compared with just 20 percent for Le Pen.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions.