HomeContributorsFundamental AnalysisBefore & After the Hurricanes

Before & After the Hurricanes

Hurricanes will get the bulk of the blame but the latest data showed growth was slowing before Harvey and Irma. A big week ahead: Trump’s UN speech on Tuesday; Fed decision & Yellen presser on Wednesday; PM Theresa May’s EU speech on Friday and German Elections on Sunday. A new Premium note has been added to further our existing index trade.

A cascade of growth downgrades followed US retail sales and industrial production numbers on Friday. Retail sales fell 0.2% compared to +0.1% expected in August. The control group, which excludes autos, gas and building supplies was down 0.2% compared to +0.2% expected. In addition, July sales were revised lower.

It wasn’t just consumers with bad news. August industrial production fell 0.9% compared to +0.1% expected in the worst monthly decline in five years. The Fed said Harvey reduced output by 0.75 pp so it’s not as bad as it looks, but it’s undoubtedly a poor reading. How poor? The NY Fed and Atlanta Fed GDP trackers were both lowered by 0.8 pp for Q3 while Q4 estimates were trimmed as well.

The market took the weak data in stride in a sign that it views Harvey as the culprit. That may be a hint on how buoyant the dollar will be in the week ahead as the market prepares for details of Trump’s tax plan at the end of the month.

What was unambiguous was pound strength as cable finished the week just under 1.36. The OIS market is pricing in a 65% chance of a BOE hike on Nov 2 and 73% before year-end. What makes that probability even higher is that Carney’s credibility can’t afford another misstep.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by – long by +.

  • EUR +86K vs +96K prior
  • GBP -46K vs -54K prior
  • JPY -57K vs -74K prior
  • CHF -2K vs -2K prior
  • CAD +50K vs +54K prior
  • AUD +60K vs +65K prior
  • NZD +12K vs +15K prior

Those sterling shorts are suddenly rather vulnerable and no doubt many covered since the Bank of England decision. Watch out for Carney’s speech today at 11 am EST (4 pm London). Euro shorts were pared after last week hitting the most-extreme since May 2011.

Ashraf Laidi
Ashraf Laidihttp://ashraflaidi.com/
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.

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