ForexLive Americas FX news wrap: Retail sales beat but risk aversion dominates

Closing changes for US markets

On the day:

• S&P 500 -51 points, or 1.9%, to 2600
• DJIA -2%
• Nasdaq -2.3%

On the week:

• S&P 500 -1.3%
• DJIA -1.2%
• Nasdaq -0.8%

The big bearish engulfing candle last week was a dire sign on the weekly chart. Now with the close at the lowest since April, along with tax loss selling and hedge fund window dressing, it's not looking good.

MUFG on the euro

MUFG Research discusses EUR/USD outlook and adopts a neutral bias but flags next week's FOMC as a possible trigger for reversing USD strength through next year.

"The euro is continuing to stabilize at lower levels against the US dollar. A narrow trading range between the 1.1200 and 1.1500-levels remains in place for now. The ECB's latest policy meeting proved largely uneventful for the euro. The ECB was more cautious on the growth outlook but it was largely as expected as market participants have already pushed back the timing of the first expected ECB rate hike into 2020," MUFG notes. 

"The main focus in the week ahead for the US dollar will be the upcoming FOMC meeting. If the Fed pare back plans for further rate hikes in 2019 and open the door to rate pause as early as in March, it could encourage a weaker US dollar," MUFG adds. 

The weekly forex positioning data in the CFTC Commitments of Traders report for the week ending Tuesday, December 11, 2018

• EUR short 56K vs 61K short last week.  Shorts trimmed by 5K
• GBP short 42K vs 40K short last week. Shorts increased by 2K
• JPY short 98K vs 110K short last week. Shorts trimmed by 12K
• CHF short 18K vs 20K short last week. Shorts trimmed by 2K
• CAD short 12k vs 13k short last week. Shorts increased by 1K
• AUD short 46k vs 51k short last week. Shorts trimmed by 5K
• NZD short 15K vs 21K short last week. Shorts trimmed by 6K

It's not a particularly eventful report. The market trimmed yen shorts as the pair stayed stubbornly high. Overall, US dollar net longs pulled back from a nearly two-year high.

What Powell has been thinking about

Back in August, Fed Chairman Powell piled into off a ridiculous few months of global policymakers mulling about what neutral rates were, or r*.

Well that wasn't the only star on his mind. The WSJ writes that at the Fed's Christmas party this week, Powell and Vice Chairman Richard Clarida played and sang a duet on guitar.

It was a take on the Barenaked Ladies' version of "God Rest Ye Merry Gentlemen/We Three Kings"

The WSJ also revealed that the Fed's Clarida has a 12-track album that you can listen to on Spotify. Turns out he can really sing.

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The index is teetering

The S&P 500 is down 43 points to 2607, which would be the worst close since April of this year.

The October low is nearby with the December low not far away. It's another ugly day for sentiment and for the chart.

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White House advisor Peter Navarro on Fox Business

Nothing new here from Navarro.

Robin Hood might be the most important company in the world

The next great technological disruption is going to be in banking and brokerages. It's already underway and it's going to put massive amounts of money into people's pockets that was otherwise destined for banks.

That's good and bad.

Strong banks have money to lend and that credit helps to grow the economy.

Bank fees are a different story. They've escalated to the point that consumers universally hate their banks. At the same time, interest on deposits has dwindled.

The part of the industry that's prime for disruption is the fee-charging side. In the future you're not going to be paying for bank account transactions and securities transactions. You're also going to make money on your deposits.

Robin Hood is at the forefront. The company currently offers US customers zero-fee stock trading. Yesterday it made a move into banking and said it will pay 3% on all deposits in savings and checking accounts. That also includes no-fee checking and savings accounts with no minimums, ATM fees, penalty charges or foreign transaction fees.

There are already worries about regulators but it's a problem that will be overcome.

Here's co-founder Baiju Bhatt talking about it on CNBC. (skip to 2:20 for a hilarious moment when he thinks the audio is cut off).

Here's what the future looks like: No fee everything.

That means the financial services sector is going to shrink dramatically in the next 10-20 years. The mutual fund industry is already getting crushed by extremely low-fee ETFs. Now the online brokers themselves are going to be squeezed.

But banks are the big fish. If someone like Robin Hood can do what Amazon did -- grow for 15 years by operating on 0% margins -- then that's going to destroy the bottom lines of commercial banking.

It's coming.

Trouble filling the shoes of the Pres. Chief of Staff

Crude oil is trading at $51.12 currently

How do they leave it for the week?

 

• Spot gold is down -$2.45 or -0.19% at 1239.65
• WTI crude oil is down -$1.50 or -2.85% at $51.09
• Bitcoin on Coinbase is down -$77 at $3175. The price is trading at new lows for the year taking out the earlier Dec low at $3212. 

In the forex market, the strongest and weakest remain the same as at the beginning of the year.  The JPY and the USD are the strongest. The NZD and the AUD are the weakest.  

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That would bring down the government and force and election

117 Conservative MPs voted in a secret ballot to turf Theresa May, but do they dislike her enough to bring down the government and risk losing power to Labour?

Buzzfeed report there could be a hardcore group of 20 of them that want May gone badly enough to do it. If the government loses a no-confidence vote it gets 14 days to try again before an election is called. During that time they believe they could force May to resign and another leader could run in the general election.

"Sources in government and the pro-Brexit European Research Group agree there is a hardcore group of at least 20 MPs who are seriously talking about abstaining in the event of a confidence vote, in the hope of forcing a change of leader. They are said to believe an emergency Tory leadership contest could be held in 14 days to anoint a new Brexiteer PM," Buzzfeed reports.

Others in May's party think a second referendum is the only way out of the quagmire but note that May is dead against it.

Some overhead resistance to get through.

Trump tweets about China

'China wants to make a big and very comprehensive deal, it could happen and rather soon'.

The efforts at propping up the stock market are increasingly falling flat. Trump may have played this card one-too-many times.

The S&P 500 is down 32 points to 2618.

More signs a deal with the EU is close

I don't think we need to see every headline on this sorry saga anymore. Consider it done.

New York Fed GDP Nowcast

• Q4 2.42% vs 2.44% a week ago
• Q1 2019 2.40% vs 2.46% a week ago

"Positive surprises from industrial production and capacity utilization data were roughly offset by negative surprises from export and import prices data," the report says.

Basis returns money to investors

Inventors into Basis included some of the biggest names in finance with raising $133 million:

•  Andreessen Horowitz
• Bain Capital
• Stanley Druckenmiller
• Former Fed governor Kevin Warsh

The idea was to create a US dollar stablecoin to take on Tether and Gemini. However leaders announced the project would be dissolved today and the money returned to investors.

"Unfortunately, having to apply US securities regulation to the system had a serious negative impact on our ability to launch Basis," a blog post by Nader Al-Naji, chief executive of Intangible Labs, said on Thursday.

The company was trying to respect regulation and just couldn't do it. That's a worrisome signal for the 60-or-so other stablecoins in development. It's also a problem for Tether and the never-ending rumors of its demise.

What's refreshing is that they realized there was always a regulatory risk and planned to return money to investors if it didn't work out.

"The binary nature of our bet is precisely why we included a return of capital clause in our token sale to begin with, even though it was something we hoped we'd never have to rely on. So, while we're disappointed we couldn't launch the system we were all hoping to build, we're thankful that we can at least do right by our investors given these circumstances," the post says.

I wish that was the case in hundreds of ICOs in the past year.

Finance Magnates has more.    

USD/JPY down 25 pips

USD/JPY has been hit by heavy selling into the fix.

There are no headlines driving the move, or at least no headlines that I can find.

Draghi met with EU leaders

Draghi summarized the ECB view yesterday as "continuing confidence with increasing caution" and he repeated that line in talks with EU leaders, according to a Reuters source.

Does that line make any sense? I mean caution is pretty much the antithesis of confidence.

US dollar weakness coming

Morgan Stanley says the tide is turning on the US dollar in a note today. Tailwinds to USD strength have been a rising equity market and cheap US corporate funding costs. It was also benefitting from inflows from emerging markets. They note that all those factors have reversed since September.

"Global investors seem to be diversifying away from long-term USD assets while US capital goods orders and shipments have started to moderate. Lower investment suggests that the US may not be able to lastingly increase its growth potential supported by higher productivity. Accordingly, higher US real rates and yields should self-correct via the subsequently slowing US economy building up domestic savings. This scenario would bring about a weaker USD," they write in a note today.

The comment on emerging markets is particularly interesting. Aside from a couple LatAm trouble spots, EM FX has largely held up against the US dollar since the start of October. That's partly a reflection of a more-dovish Fed but it may also highlight that EM growth could be more attractive than what's coming to the USA.

Since Oct 1:

Economy minister was meeting with Moscovici and Dombrovskis

• More meetings planned

Trend line and swing area being tested

US October business inventories

• Prior was +0.3% (revised to +0.5%)

The pair makes a break outside the box

Markit surveys on service and manufacturing

• Prior was 54.7
• Markit services index 53.4 vs 54.6 expected (54.7 prior) - lowest since Jan
• Markit manufacturing index 53.9 vs 55.0 expected (55.3 prior)
• Manufacturing new orders lowest since April 2017
• Expectations of business growth at 2.5 year low
• Jobs growth at lowest in 1.5 years
• Services new orders lowest since April 2017
• Full report

Poor numbers. This is a leading, forward-looking indicator. The dip is a bit of a worry after some very strong retail numbers earlier.

"The flash PMIs bring signs of the US economy ending 2018 on a softer note. With business activity expanding at the slowest rate for one and a half years, the surveys indicate that the pace of economic growth has faded to 2.0% in December albeit closer to 2.5% for the fourth quarter as a whole."

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