Sunday, 3 September 2017

Week to Sep 1st

After a flat NKY and JPY in the Monday Asian session, DAX and FTSE opened lower but then recovered, only to fade again with SPX in the US Session. EUR closed at new 27-month high, GBP was also up, pushing DXY to close at 92.52, a level not seen since May 2016. Bond yields similarly fell. Gold was sharply up, on North Korea fears. It broke the $1,300 barrier with ease, AUD followed it, but then fell sharply at the end of the day. CAD was also down, following a sharp drop in Oil prices, despite the 7% rise in gasoline futures following Hurricane Harvey.

On Tuesday, the North Korea missile flying over Japan caused a sharp gap down in the NKY, and this gap was repeated when the DAX and FTSE opened. Gold briefly hit $1,325, its highest price this year. However as the day progressed, and Trump and his cabinet’s response was less bellicose than in the past — neither fire nor fury were mentioned — the markets recovered their losses, partially in the case of DAX and FTSE because of currency pricing, and Gold pulled back to end the day flat.

DXY fell sharply at first as well, touching a new low of 91.62, but it also recovered to close the day up. This was, however, the second day it closed below the 200-week moving average of 92.50, for the first time since May 2014. The picture with other currencies was less clear. JPY was down smoothly all day. The other currencies spike up, but then all except AUD retreated to end the day flat. Yields fell in line with everything else, but ended the day up, although not fully recovering the previous day’s drop. So all in all, a one-day wonder.

Wednesday saw equities recover, with all indices up, following the reduction in North Korea tensions, and also beats across the board, in Europe from Eurozone Economic Sentiment (0900), German inflation (1200), and strongly from the US ADP jobs report at 1215 (237k vs 185k) and US GDP at 1330 (3.0% vs 2.7%). The only counter-intuitive event was oil. It spiked briefly and slightly on the EIA strong beat at 1430 (-5.39M vs -1.91M) which followed the API beat the day before, but otherwise continued its downward path, despite news of refinery closures in Texas. USD saw a similar recovery. It was also up against all currencies and Gold, and back up above the 200-week MA. However, yields didn’t move and were flat on the day.

Thursday was month end, and following a Eurozone inflation beat at 0900 (1.5% vs 1.4%) all equity indices were up closing ten green monthly candles in a row. As gasoline futures (RB_F) hit a 12-month high, having risen 16.7% since Hurricane Harvey made landfall after markets closed last Friday, WTI futures at some point would have to respond, and Oil rose 2.5% on the day to finish an inside month.

USD had a bad day. It started well against the Euro, which had pulled back on ECB concerns about the high value of the latter, but then pulled back against Gold and all currencies, particularly CAD which rose on the back of Oil, to close the month virtually flat. DXY closed negative for the sixth month in succession. It has not done this for 14 years. Bond yields were similarly down.

Friday started with a surprise NFP miss, given the earlier ADP beat, but this didn’t stop the momentum of indices into the new month, helped a little by the ISM PMI beat at 1400. All were up, NKY only slightly given that JPY started to fade again. The ‘bad news is good news’ reason — a poor print may delay interest rate rises —was the general consensus, although we have not seen this logic before in the Trump era. 

Currencies were mixed and volatile. USD fell 0.5% on the jobs report, the main beneficiary being CAD, which made a new 14-month closing low of 1.2397. Unusually, however, DXY ended up 0.26% on the day as EUR and JPY (71.2% of the basket) were down, whereas CAD and GBP (21% combined) and AUD were all up. Bond yields recovered Thursday’s losses and Gold was flat. So it is not really possible to say which way USD started the month. Oil had a quiet day, adding 0.2% with little volatility.


These are the prices movements for the week on the instruments we cover. The best major forex trade of the week would have been short NZDCAD down 1.85%. The strongest non-forex trade was GOLD, up 2.65%

AUDNZD 1.1132 (+1.61%)
AUDUSD 0.7969 (+0.47%)
EURGBP 0.9156 (-1.11%)
EURUSD 1.1861 (-0.51%)
GBPUSD 1.2953 (+0.57%)
USDCAD 1.2397 (-0.67%) 
USDJPY 110.26 (+0.84%) 
DAX     12147 (-0.20%)
FTSE     7447 (+0.68%)
NIFTY    9990 (+0.99%)
NKY     19696 (+1.22%)
SPX    2475.0 (+1.29%)
GOLD  1325.22 (+2.65%)
OIL     47.35 (-1.07%)

NEXT WEEK (all times are GMT)

This shortened first week on the month sees focus move away from the US and to three rate decisions. The big day is Thursday, with Eurozone GDP followed by the important ECB rate decision and press conference. CAD is the other currency worth watching.

Monday is Labor Day in the US and Canada and markets there are closed. It is only three weeks to the German Federal Elections, and Angela Merkel and SPD leader Martin Schulz appear in a TV debate. All the polls suggest a continuation, and there is very little interest by traders in this election.

Tuesday sees the RBA rate decision and statement in the Asian session. No change is expected. Note that Gov Wheeler will also make remarks at a dinner at 0910. AUD has been very volatile this summer and any reversal of recent dovish remarks could push the currency back towards the psychological 80 cent line. Staying in the same part of the world, we also have the New Zealand milk auction. European and US news is minimal.

Wednesday sees US Trade Statistics and PMIs, and then the Canadian rate decision. Like Australia, no change is expected, although recent strong GDP and jobs prints have meant some traders are expecting a hike. Significantly, there is no press conference for Gov Poloz to say anything hawkish. CAD hit a two-year low last week, and USDCAD has fell 14c (10.15%) in four months. With looming NAFTA talks, a rate hold could easily trigger a reversal. Finally, we have API Oil stock, reported a day later in holiday weeks.

Thursday is all about the Euro. At 0900 Eurozone GDP is reported, which may set the tone for the run-up to the big event. There has been a lot of concern about the single currency’s meteoric rise recently, breaking 1.20 last Tuesday, a two year high, and a rise of over 15% this year. Investor redemptions in European funds hit a six month high last week. Against this, because of improving economic data, traders are expecting the ECB to start unwinding its QE programme which would push the Euro even higher. So ECB President Draghi’s words on Thursday will be highly significant, as he tries to walk a path between two opposing forces.

Friday opens with German trade statistics, but this will probably be overshadowed by continuing Euro price action from the day before, which will in turn affect DAX. UK Consumer Inflation Expectations is a forward looking sentiment survey, and gives an indicator to actual CPI print the following Tuesday Sep 12. Canada has a different take on ‘first Friday’ and reports its payrolls figure today, so the effect on USDCAD is less than when it is reported on the same day as NFP. The 15k estimate is low, it equates to 133k in US terms, well below the stellar prints in June (54.5k) and July (45.3k) and is probably guided by last month’s dismal 10.9k. Of course CAD movement will depend to an extent where the loonie is after Wednesday.
CALENDAR (all times are GMT). High volatility items are in bold

Mon Sep 04
0100 AUD Australia TD Securities Inflation
0830 GBP UK Construction PMI
0900 EUR Producer Price Index

Tue Sep 05
0145 CNY China Caixin Services PMI
0430 AUD RBA Rate Decision (est 1.5%, prev 1.5%)
0755 EUR Germany Markit Services/Composite PMI
0800 EUR Eurozone Markit Services/Composite PMI
1400 USD US Factory Orders
1430 NZD GDT Milk Auction (time approx)

Wed Sep 06
0130 AUD Australia GDP
1230 USD US Trade Balance
1345 USD US Markit Services/Composite PMI
1400 USD US ISM Non-Manuf PMI
1500 CAD BoC Rate Decision (est 0.75%, prev 0.75%)
1800 USD US Fed Beige Book
2030 WTI API Stock
2330 AUD Australia AIG Performance of Construction Index
2350 JPY Japan FDI

Thu Sep 07
0130 AUD Australia Retail Sales
0130 AUD Australia Trade Balance/Imports/Exports
0500 JPY Japan Leading Economic Index
0900 EUR Eurozone GDP (est 2.2%, prev 2.2%)
1145 EUR ECB Rate Decision (est 0%, prev 0%)

1230 USD US Initial/Continuing Jobless Claims
1230 USD US Labor Costs/Nonfarm Productivity
1230 EUR ECB MPC Statement and Press Conference
1400 CAD Canada Ivey PMI
1430 WTI EIA Stock

Fri Sep 08
0130 AUD Australia Home Loans/Investment Lending
0200 CNY China Trade Balance/Imports/Exports
0500 JPY Japan Eco Watchers Survey
0600 EUR Germany Trade Balance/Imports/Exports
0830 GBP UK Consumer Inflation Expectations (no est yet, prev 2.8%)
0830 GBP UK Manuf/Industrial Production
1200 GBP UK NIESR GDP Estimate
1230 CAD Canadian Employment/Unemployment (est 15k, prev 10.9k)
1700 WTI Baker Hughes Rig Count
1900 USD US Consumer Credit Change

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