- July 7, 2023

European stocks slump but US markets remain supported

This Daily Digest will cover:

  • European stocks slump but US markets remain supported
  • Crypto at the bottom end of recent range struggling to for momentum
  • Carry trade flashing warning signs?
  • All about Non Farm Payrolls today

A quiet week in ranges with Crypto confined, major FX sidelined still and European stocks markets wobbling but watching the gorilla in the room holding firm for now. The data out of Europe this week has been poor with PMI’s missing across the board. In the UK the combination of hot inflation, poor PMI and a housing market teetering on the edge leaves us looking like a battle between a recession and a carry trade so GBP is getting whipped around. Conversely the data out of the States has been solid and the release of ADP employment yesterday (double expectations) has set the scene for Non Farm Payrolls today. US yields are flying and expectations of more rate hikes are soaring again. Should NFP beat (and it will) we could see an old fashioned catch up sell off in US stocks as blue chip stocks yielding 3% look unattractive in this environment.

The USD should have done better yesterday, and why EURO/USD is not sub 1.0800 is beyond me at the moment. The fact it didn’t, and the fact that USD/JPY is struggling all of a sudden is a little warning sign to me. Should NFP disappoint (unlikely) we could see cross yen take a dive. I also have a sneaky feeling that should the number beat dramatically (possible) the yen carry trade could see a weekend square up. Valuations are stretched and prudence feels the better part of valour at the moment so tactical short EUR/YEN is my position into the release.

Crypto remains whippy in a tight range. BTC tried for about the fifth time to get a foothold above 31,000 yesterday but failed again and has just dipped below 30,000. I am not sure how heavy positioning is either way at the moment as the reluctance to add to longs meets a concern about getting squeezed short. The danger is a move to 28,400 on a risk off move this afternoon but I remain hopeful that any move is temporary and my eye is still firmly on a close above 31,000 igniting the upside!

Good luck as always

Richard Usher
Head of OTC Trading 

 

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