Saturday, 16 March 2019

Week to Mar 15th

Brexit deadlock: UK seeks extension, Trade talks postponed, SPX NDX and Oil hit new 2019 highs

Mon Mar 11

Equities sharply reversed last week’s decline today as the mood changed, driven by M&A enthusiasm as NVDA announced the acquisition of MLNX, and the merger of DB and CBK.DE moved closed. All four stocks shot up. SPX added 1.5% and NDX was up 2%. DJIA opened much lower as its largest component BA gapped down 10% after the 737-Max disaster in Ethiopia, but recovered during the day to close 1.2% up. DAX and NKY followed the US, but FTSE was in the red due to the strong pound. As explained many times in the past, the FTSE has an large number of companies whose revenue is in USD, and so their GBP-quoted stock price moves up when GBP moves down.

DXY was down 0.42% mainly because of a 1.4% surge in GBP, after reports that the weekend had led to something new from the EU side for the Brexit deal vote on Tuesday. The other instruments were as you would expect on a risk-on day. AUD, CAD, Oil and US 10-year yields were up, JPY and Gold were down.

Tuesday March 12
US indices took a breather today and closed only marginally up. DJIA was marginally down, as BA fell again as countries around the world started grounding the 737-Max. DAX was down as DB and CBK gave up some of Monday’s gains, as did NKY. Only FTSE benefited for the same reason it bucked the prevailing trend yesterday.

The high hopes that today, embattled British PM May was finally going to get her Brexit deal passed by Parliament crashed and burned at 1100, when AG Cox confirmed the legal position on the backstop had not changed. GBP instantly fell 1.5%. As expected, the vote later in the day failed.

The US CPI miss at 1230 weighed on USD which fell against most currencies, which when added to the GBP crash resulted in a flat dollar basket for the day. Yields fell sharply by 4.1bp on the CPI news to under 2.6%, a two-month low. Gold rose in line with the dollar move, and Oil was flat.

Wednesday March 13
Enthusiasm returned today, and stocks took another leg up, with SPX and NDX adding 0.7%. The US joined other countries in grounding BA airplanes, but after an initial 3.2% dip, the stock closed 0.5% up. Global indices were up in line. NKY, which had fallen sharply at the open on weak Japanese machinery data recovered in futures to join the others. Yields pulled back 2bp in line.

The dollar was firmly down (DXY -0.53%) across the board (even against JPY) after a miss on PPI at 1230 added to yesterday’s poor CPI print, and GBP soared again, after UK MPs voted to reject a no-deal exit from the EU. Gold and Oil were up in line, the latter reaching a four-month high after the EIA beat at 1430.

Thursday March 14
Just as Wednesday was like Monday, today was like Tuesday, and US indices were flat (this time SPX and NDX were a shade down and DJIA a little up, after strong day for AAPL and V). Misses on Jobless Claims and New Home Sales, and reports of a postponement to April in the US/China talks did not help. It was a similar picture in non-US indices, except for FTSE, buoyed by the no-deal rejection and a pullback in GBP.

USD recovered some of yesterday’s losses and was up against all currencies and Gold. The fall in Gold and AUD was particularly sharp and both may be linked to Copper giving up 1.75% on the day. Yields climbed slightly in line with the dollar. Oil made a small advance. The rise all week has been built on supply cut hopes, and the US sanctions on Venezuela.

Friday March 15
There was another step up today, although slightly weaker as SPX added 0.5% to make a total of 2.9% for the week, the best this year, and together with NDX, a 2019 high. This is all driven by US/China hopes and a ‘patient’ Fed. Today’s rally was largely driven by the JOLTS Jobs beat and the Michigan Consumer Sentiment beat (97.8 vs 95.3) both at 1400. The MCS estimate had already been revised above the 93.0 we published last week, but the print was read as a reversal of the recent decline.

Different prints affect different assets, and the NY Manufacturing Index and Industrial Product and Capacity Utilisation misses at 1230 had little effect on index futures, but precipitated move down in USDJPY and 10-year yields, the latter dropping 5bp in two hours. The decline in both was arrested by the MCS print, but they did not recover. Overall DXY was down 0.24% today, with only CAD weakening as it followed Oil which pulled back slightly after four days of gains. There was nothing surprising from the BoJ rate hold meeting, and despite a brief 30 pip wobble, the yen remained flat during the Asian session.

NDX was the standout performer this week, reflecting a return to risk-on mood, with its biggest component AAPL the star performer. In currencies the wild GBP swings. DXY fell 0.89%, giving up last week’s gains, with only yen declining, also reflecting risk-on. Therefore last week’s top short GBPJPY is this weeks best buy, up 2.42% to pretty much exactly where it was two weeks ago. BTC and ETH had a second quiet week. It was unthinkable even a year ago that crypto would be less volatile than currencies and indices, never mind individual stocks. The CBOE closed its Bitcoin futures contracts this week, citing lack of interest, although the rival CME continues to offer the product.

Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on UUP. The equity and index prices are now based on the cash close each day.

NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)
  • Brexit saga continues with two weeks to go
  • Fed Rate Decision week
  • UK inflation, jobs, and rate decision
  • Bumper PMI day Friday

Monday March 18
Another quiet Monday, unless some black swan flies in over the weekend. There is no European or US news today. Markets are closed in Mexico for Benito Juarez' birthday.

23:50 JPY Japan Imports/Export/TVB (Sunday)
04:30 JPY Japan Industrial Production (YoY)
20:00 NZD NZ Westpac Consumer Survey
22:00 AUD RBA Kent speech

Tuesday March 19
The German sentiment index is likely to be balanced with a continuing strong equity index being offset by continual weak data and Brexit concerns. Any move in GBP from the UK earnings and unemployment results is likely to be overshadowed by Brexit.

00:30 AUD Aus House Price Index (QoQ)
00:30 AUD RBA Meeting Minutes
09:30 GBP UK AHE/Unempl/Claimant Count (AHE est 3.4% prev 3.4%)
10:00 EUR Eurozone Labour Cost
10:00 EUR Germany ZEW Sentiment (est -11.3 prev -13.4)
14:00 USD US Factory Orders (MoM)
14:00 NZD NZ GDT Milk Index
20:30 WTI API Oil Stock
23:50 JPY BoJ MPC Minutes

Wednesday March 20
The CME FedWatch tool has a 98.7% priced-in hold at today’s Fed meeting. With the recent weak jobs and inflation data, yet strong ISM prints, it will be interesting to see which way the Fed jumps in their rhetoric. Note the press conference is 30 minutes later, allowing for some wild moves in the short intervening period. Also scheduled today is yet another UK Parliamentary vote. on Brexit. This could be ‘the one’ with only nine days to go before the scheduled leaving date. This thing is changing every day, so keep watching the press. UK inflation, normally important is overshadowed by Brexit developments. There is a rate decision on BRL (1700)

00:00 AUD RBA Bullock speech
05:00 JPY Japan Leading Economic Index
07:00 EUR Germany PPI
09:30 GBP UK CPI/RPI/PPI (est 1.8% prev 1.8%)
14:30 WTI EIA Oil Stock
18:00 USD Fed Rate Decision/Statement (est 2.5% hold)
18:30 USD Fed Presser
19:00 GBP UK Parliamentary Vote on Brexit
21:45 NZD NZ 18Q4 GDP (est 0.6% prev 0.3%)

Thursday March 21
The UK rate statement allows Gov Carney to give his view on the Brexit situation. It may be hard to determine the general dovish/hawkish view through this. The European Council meets today to discuss China and the US-EU trade deal. Markets in Japan and India are closed for Vernal Equinox Day and Holiday respectively. There are also rate decisions on CHF, NOK, IDR, PHP, and TWD.

00:00 EUR European Council Meeting (all day)
00:30 AUD Aus NFP/Unemployment (est 15k prev 39.1k)
00:30 AUD RBA Bulletin
08:30 CHF SNB Rate Decision/Statement (est -0.75% hold)
09:00 EUR Eurozone Economic Bulletin
09:30 GBP UK Retail Sales
12:00 GBP BoE Rate Decision/Statement (est 0.75% hold)
12:30 USD US Jobless Claims
12:30 USD Philly Manufacturing Survey
23:30 JPY Japan National CPI

Friday March 22
Mostly PMIs today, the full Markit sets (Manufacturing, Services, Composite) are published for Germany, the UK and the US. The main volatility today will probably be in CAD with the Retail Sales and CPI simultaneous prints. Fed Bostic (dovish, non-voter) speaks at 0130 Saturday. There are rate decisions on RUB (1030) and COP (2000).

08:30 EUR Germany Markit PMIs
09:00 EUR Eurozone Markit PMIs
12:30 CAD Canada Retail Sales
12:30 CAD Canada CPI (Core est 1.2% prev 1.5%)
13:45 USD US Markit PMIs
14:00 USD Existing Home Sales (MoM)
17:00 WTI Baker Hughes Rig Count
18:00 USD Monthly Budget Statement

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