Monday saw the DJIA make its ninth successive ATH, although other indices, SPX, DAX, FTSE and NKY were flat. In currencies, USD continued to fade, although less aggressively than last week. DXY was down 0.1%. EUR and JPY were slightly up, but AUD CAD and GBP were down, as was the 10-year bond yield. Gold was also slightly up, whereas oil was slightly down as the OPEC conference continued.
On Tuesday, President Trump reacted to North Korea’s latest provocation with language not dissimilar to that used by the Kim regime, promising ‘fire and fury’ if NK continued its path. Nevertheless, after the normally unimportant JOLTS Job Openings beat at 1400, the SPX and DJIA briefly made another ATH of 2490 and 22178 respectively, before pulling back quickly to end the day down. The beat was substantial, (6.16M vs 5.77M) which validates what we always say about minor releases. Finally, the VIX reacted, and was up 11% on the day at 11.03. The pattern was repeated to a certain extent in DAX, FTSE and NKY, after the German Trade Balance beat at 0600. The JOLTS print also helped USD, which was looking for an excuse to rally, and in any event, still buoyed by last week’s NFP beat. The dollar was up strongly against EUR, GBP and AUD, but flat against CAD, and actually gave up ground to JPY. (GBPJPY faded 100 pips on the day). Gold fell on the JOLTS report, but finished the day up. Yields did the exact reverse (i.e. bond prices correlated with Gold). As JPY was the only currency gainer, we can safely assume the Trump remarks caused traders to take risk off. Oil was down on the day as the OPEC meeting failed to deliver a definitive answer on cuts. The API stock beat at 2030 (-7.84M, prev +1.78M) of course came after the open outcry market closes.
Wednesday saw further negative sentiment as the war of words between Kim and Trump continued. However, the reaction from US stocks was relatively muted, with SPX DJIA and NDX only slightly down. The reaction was stronger elsewhere. DAX futures had fallen after Tuesday’s cash close, so although trading was fairly flat, the gap down was not recovered and the index closed 1.1% down, partly because EUR clawed back some of Tuesday’s losses. NKY was well down on NK tension, and of course Tuesday’s yen strength. FTSE was also down as GBP recovered. In currencies, JPY continued to hold up and gold rose as risk-off sentiment continued. Otherwise USD was down against EUR AUD and GBP. Surprisingly, CAD was down despite the EIA Oil stock release at 1430 (-6.45M vs -2.72M) confirming the API beat, and Oil’s expected response, up 1.39% on the day. The Oil price action this week was unusual. The future moved from 49.00 to 49.60 in the European session, in advance of the EIA print, gave it all up on the print, despite the beat, and put it all back on (and another 10c) by the pit close at 1830. Bond yields did their own thing, fading hard into the Labor Costs (strong miss) and Non-Farm Productivity (beat) reports at 1230, and rebounding straight afterwards to end the day flat. The NZD rate hold at 2200 did not have an instant reaction, but the Kiwi dollar had given up a massive 1.58% to hit a one-month low by the end of Thursday’s Asian session.
Thursday saw no resolution of the North Korea issue, and risk off intensified. SPX fell 1.5% to a one-month low and below its 50-day moving average. VIX was up 40% on the day, NDX fell an even bigger 2.1% (although this was partly on tech news/earnings). DJIA was relatively unscathed down 0.9%. Similar losses were seen in other indices around the world. Once again, USD was strong against AUD, CAD, GBP and EUR (although this rallied later in the day), but down sharply against JPY losing 0.8% on the day. Gold and bonds were up again (yields were down) as investors sought safe havens. After breaking the psychological $50 point briefly, Oil fell $1.50 on reports that OPEC had increased output, something not mentioned in the earlier meeting. The day’s news was low-key and with mixed results and had little effect.
After falling for the most of the week, some equities staged a slight recovery on Friday. SPX and DAX made small gains, NKY was flat. Only FTSE continued to fall after a strong performance from GBP which recovered two days of losses. USD was down across the board after the inflation (CPI) miss at 1230. However, risk was still off, as JPY held steady and Gold rose again. Bond yields briefly spiked up on the CPI print, but ended the day flat, and Oil made a slight recovery.
WEEKLY PRICE MOVEMENT
These are the prices movements for the week on the instruments we cover. The best forex trade of the week would have been short AUDJPY, down 1.76%. The strongest index movement was NIFTY, down 3.58%
AUDNZD 1.0783 (+0.84%)
AUDUSD 0.7893 (-0.45%)
EURGBP 0.9087 (+0.62%)
EURUSD 1.1821 (+0.40%)
GBPUSD 1.3009 (-0.21%)
USDCAD 1.2680 (+0.23%)
USDJPY 110.68 (-1.34%)
DAX 12003 (-2.30%)
FTSE 7301 (-2.85%)
NIFTY 9710 (-3.58%)
NKY 19427 (-3.10%)
SPX 2442.1 (-1.31%)
GOLD 1289.08 (+2.41%)
OIL 48.79 (-1.47%)
NEXT WEEK (all times are GMT)
Campaigning starts for the German Federal Elections this weekend. The incumbent CDU (Merkel) party have a 16-point poll lead, and so the market is pricing in continuity. At least we think so, the DAX is down 650 points against this time last month, but this is largely to do with EUR strength. We think that the North Korea situation, along with Russiagate, is still the biggest damper on the market. However, negative sentiment tends to fade, and if nothing further is heard this week, we may well be back to business (equities rising) as usual.
Monday’s news is all at the beginning, with the RBA meeting minutes at 0130, and Chinese Retail Sales and Industrial Production at 0200. Mondays have been quiet the last few weeks, and we expect this to be no exception.
Tuesday is Indian Independence Day, and Assumption Day in France and Southern Europe. We will be watching GBP from the London futures open (0600) to see if the price/action indicates whether the inflation (CPI) print at 0830 is a beat or miss against the 2.7% estimate. There has been much speculation about whether these figures are leaked in advance, or whether ‘buy the rumor, sell the news’ applies. However, we have called the UK release beats/misses about 80% of the time based on the early morning action. The release is important because a miss will definitely be seen as dismissing hopes of an early rate hike, and sterling is likely to fall. USD Retail Sales at 1230 is also important (to USD recovery). The estimate is ambitious at 0.3% after last month’s -0.2%. Even a small beat should help USD rise against EUR and GBP. Whether USDJPY rises depends on the ongoing NK situation. Don’t forget the milk auction (prev -1.6%), which will help NZD if the figure turns positive.
Wednesday has UK unemployment statistics. Despite the figures being produced by the International Labour Organisation, these are ONS (UK Government) statistics so our caveat about leaks also applies. Unusually, Canadian and US Housing Starts come in within 15 minutes of each other at 1215 and 1230. If the first spikes USDCAD, the second may well revert it. The EIA Oil Stock arrives on time at 1430, and this week we have an estimate, -2.72M, a lower figure than last week’s -6.45M. As usual, follow the previous day’s API print. However, the big news is the FOMC Minutes, in particular, the Fed view on balance sheet reduction/tightening. This may be the trigger for the beleaguered dollar to rise, particularly against EUR.
Thursday’s focus is away from the US. First, we have the Australian employment/unemployment data, their version of NFP at 0130. We don’t have an estimate yet, but last month’s figure of 14k was modest (after 61k in April and 42k in June). The figure is, like last month, regarded as high volatility. In the European session, there is first UK Retail Sales for July (est 1.4%, follow previous comments re leaks). Then the key releases of the day are the Eurozone inflation print at 0900, followed by the ECB MPC accounts at 1130. We have discussed in subscriber news how EUR is out of sync with bond prices (too high). Traders need a reason to sell, and this could be it. The day continues with various low-level US releases.
Friday is light, the main news being Canadian inflation. A beat on the 1% YoY estimate will strengthen the case for a rate hike, Canada being behind the US curve, and may stop the recent USDCAD recovery in its tracks.
CALENDAR (high volatility items in bold)
Mon Aug 14
0130 AUD RBA Meeting Minutes
0200 CNY Retail Sales
0200 CNY Industrial Production
0900 EUR €Z Industrial Production
Tue Aug 15
0600 EUR Germany GDP
0830 GBP UK PPI
0830 GBP UK inflation (CPI)
1230 USD Retail Sales
1230 USD Import/Export Price Indices
1400 USD NAHB Housing Market Index
1430 NZD GDT Milk Auction (time approx.)
2030 WTI API Stock
Wed Aug 16
0830 GBP ILO Unemployment/Claimant Count Change
0900 EUR €Z GDP
1215 CAD Housing Starts
1230 USD Housing Starts/Building Permits
1430 WTI EIA Stock
1800 USD FOMC Minutes
2350 JPY Imports/Exports/Trade Balance
Thu Aug 17
0130 AUD Employment/Unemployment
0600 EUR Germany Wholesale Price Index
0830 GBP UK Retail Sales
0900 EUR €Z inflation (CPI)
1130 EUR ECB MPC Accounts
1230 USD Initial/Continuing Jobless
1230 USD Philadelphia Fed Manuf Survey
1315 USD Capacity Utilisation
1315 USD Industrial Production
Fri Aug 18
0600 EUR Germany PPI
1230 CAD Canada inflation (CPI)
1700 WTI Baker Hughes Rig Count