Sunday, 14 October 2018

Week to Oct 12th

Monday October 08
The US stock market was open on Columbus Day, when concerns about the China trade war and Italian politics continued the downward slide in markets seen last week. The Chinese CSI300 had its worst day since February, and MIB fell 2.4% after the EC warned that Italy’s budget plans would break EU rules. All indices fell slightly, but with the US bond market closed, there was no direction for USD. DXY advanced very slightly (0.09%) with downward movements from Gold and all currencies except AUD and JPY, the latter reflecting risk-off mood. Oil was slightly up on the day.

Tuesday October 09
Unusually today, the worries switched back to the US. Italy’s bonds and stocks recovered, with MIB recovering 1.1%, leaving DAX flat on the day. FTSE and NKY were down slightly due to currency strength. The bond market re-opened and yields briefly touched a new seven-year high, SPX fell again, but was only down by 0.1% at the close after bonds finished 2bp down. Similarly, currency movements were muted with DXY flat (down 0.08%) on the day, and with no variations, every currency was very slightly up, as was Gold and Oil.

Wednesday October 10
The constant pressure from bond yields (Monday’s high was 3.248%) which are now nearly double the dividend yield of SPX (currently 1.89%) meant something had to give, and today indices fell hard. SPX fell 4%, in a near-marubozu red candle, and other indices followed suit. DAX was down 3.21%, FTSE a relatively mild 1.27% and NKY 3.46%. VIX rose 43%. USD also fell against EUR and GBP, the latter despite the GDP miss at 08:30. JPY was particularly strong, as would be expected, leaving DXY 0.23% down. However risk currencies AUD and CAD fell hard, as did Oil. As we pointed out a few weeks ago, Oil often falls in line with stocks, indicating reduced growth. Yields pulled back, but ended the day flat.

Thursday October 11
As often happens after sharp falls, there is a follow through day, and this is what happened today. All indices were down again, with SPX giving up  and falling below its 200-day moving average for only the second time since June 2016. The inflation miss at 12:30 did not help. Further downside was probably mitigated by a sharp pullback in yields, down 8bp on the day. Oil was down following the EIA stock miss at 15:30 and in line with stocks.

The follow-through happened with USD as well. DXY was down 0.45%, with all currencies advancing, particularly AUD, after Gold, somewhat late to the risk-off party, put in its best day in two years, adding 2.5% or $28.

Friday October 12
Earnings season starts in earnest today, and JPM, C and WFC reported before the bell. The first two beat on EPS but all three missed on revenue. Nevertheless, sentiment shifted and US indices recovered part of the previous two days losses. Foreign indices were still slightly down on the day (NKY was flat).It was still the worst week for indices since February, and in the case of RUT, the worst since Jan 2016.

DXY was quieter, adding 0.2%, gaining against all currencies except CAD, which advanced slightly, to be usual the least volatile, and the only currency to beat the dollar this week. The release of the US pastor in Turkey had a surprisingly muted effect on TRY, up only 0.73%. Oil was slightly up, and Gold gave $6 back of the previous day’s huge move.

Please note all figures and percentages given for daily movement on indices cover the entire cash and futures period in that day.


DXY retreated 0.4% this week, with all currencies except CAD advancing. JPY was the strongest, in the risk-off environment, so a CADJPY short would have been the best forex trade. Indices of course fell heavily (except NIFTY, which did it last week). Note that the foreign indices fell more than the US but if you take into account the currency movements (ie a DAX short is placed in euros), SPX was the best short. Cryptos resumed their downward trend, and again ETH suffered more than BTC. FAANG performance was uneven, with AAPL holding up well, and AMZN being the best short.

AUDUSD 0.7114 (+0.92%)
EURGBP 0.8800 (+0.22%)
EURUSD 1.1575 (+0.49%)
GBPUSD 1.3154 (+0.32%)
NZDUSD 0.6506 (+1.09%)
USDCAD 1.3041 (+0.80%)
USDJPY 112.21 (-1.31%)
DAX     11568 (-4.52%)
FTSE     6998 (-4.37%)
NIFTY   10358 (+0.41%)
NKY     22689 (-4.63%)
SPX    2768.8 (-4.22%)
GOLD  1216.60 (+1.11%)
OIL     71.49 (-3.70%)
BTCUSD   6292 (-5.24%)
ETHUSD 197.02 (-13.79%)
FB     153.74 (-2.28%)
AAPL   222.11 (-0.97%)
AMZN  1788.61 (-5.35%)
NFLX   339.56 (-3.36%)
GOOGL 1120.54 (-4.05%)

(Crypto prices are given as at 0000GMT Saturday, after the other markets close.)

NEXT WEEK (High volatility items are in bold)

Monday October 15
A US Treasury report is due today, the key takeaway of which is whether China will be branded a currency manipulator. Commentators don’t think it will happen, but if it does, expect Chinese stocks and CNY volatility. Also the Italian budget is presented to the EU, who are expected to reject it as incompatible with deficit rules. The bank earnings continue with BAC reporting before the bell, and of course we have US Retail Sales. The Bavarian election result is due, with a possible CSU loss of majority.

02:15 CNY China FDI (time approx)
12:30 USD US Retail Sales (Ex-autos est 0.3% prev 0.3%)
14:30 CAD BoC Business Outlook Survey
18:00 USD US Monthly Budget Statement (time approx)
21:45 NZD NZ CPI

Tuesday October 16
A big day of earnings with GS, JNJ and UNH (together 16.25% of DJIA) reporting before the bell, along with MS, and NFLX (1.8% of NDX) and IBM (3.77% of DJIA) reporting after the close. UK earnings are the big news release of the day. There is also a rate decision on HUF, hold expected.

01:30 AUD RBA Meeting's Minutes
01:30 CNY China CPI/PPI
08:30 GBP UK Average Earnings/Unemp/Claimant Change (Ex-bonus est 2.8% prev 2.9%)
09:00 EUR Germany Economic Sentiment/Current Situation
13:15 USD US Industrial Production/Capacity Utilisation
14:00 NZD NZ GDT Milk Index
20:30 WTI API Stock

Wednesday October 17
The EU Brexit summit today is focused on the Northern Ireland border issue, which has become the main sticking point in negotiations. Remember that the ruling Conservatives are only in power with the support of the Northern Irish DUP, who strongly oppose a hard border. Staying with the UK, yesterday’s earnings figure is followed by the inflation print. GBP could have a volatile day. The monthly FOMC minutes are of course important. The market current expects another 25bp in December, and is divided on March 2019. Trader will be looking for any language which varies this view.

00:00 EUR EU Brexit Summit (all day)
08:30 GBP UK CPI (Core est 1.8% prev 2.1%)
09:00 EUR Eurozone CPI (Core est 1.0% prev 0.9%)
12:30 USD US Housing Starts/Building Permits
18:00 USD FOMC Minutes
15:30 WTI EIA Stock
23:50 JPY Japan Imports/Exports/TB

Thursday October 18
Another day, another GBP print, but Retail Sales is less important, coming after CPI as the former is, in the end, a proxy for the latter. The Australian jobs report is important. The estimate is modest, and a beat may well add to the shaky recovery of AUD. ISRG (0.74% of NDX) report after the bell. There are rate decisions in CLP (hold expected) and KRW (25bp hike expected).

00:00 EUR EU Brexit Summit (all day)
00:30 AUD NAB Business Confidence (QoQ)
00:30 AUD NFP/Unemp/Participation Rate (NPF est 15k prev 44k)
08:30 GBP UK Retail Sales
12:30 USD Philly Fed Manufacturing Survey
13:00 USD Fed Bullard speech
23:30 JPY National CPI

Friday October 19
Attention turns to Canada today with the simultaneous inflation and Retail Sales reports. Now that NAFTA is concluded, these reports may start to have more significance. PG (2.12% of DJIA) reports before the bell. Today is OpEx day, so expect additional volatility.

02:00 CNY China Retail Sales/Industrial Production
02:00 CNY China GDP (YoY est 6.6% prev 6.7%)
04:30 JPY All Industry Activity Index (MoM)
06:35 JPY BoJ Kuroda Speech
12:30 CAD Canada CPI/Retail Sales (Core CPI est 1.8% prev 1.7%)
13:00 USD FOMC Kaplan Speech
14:00 USD Existing Home Sales (MoM)
17:00 WTI Baker Hughes Rig Count

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