Sunday, 24 March 2019

Week to Mar 22nd

Fed signal no more hikes in 2019, Still no Brexit resolution, Very bad week in Germany

 Mon Mar 18
US markets continued last week’s rally today, as did FTSE on the back of weaker sterling. The mood did not extend to NKY and DAX, which were flat. The dollar was generally flat (DXY +0.08%). There was none of the usual intermarket correlation. Gold and JPY (and EUR) were slightly up despite SPX gains. AUD was up, CAD was slightly down despite Oil rising, as was GBP. Yields fell slightly despite stronger equities.

Tuesday March 19
An early rally in SPX today fell off sharply on reports that China is pushing back on some US trade demands, with indices flattening off. Only DAX managed to stay green, after upbeat comments on the automotive sector (about 20% of the index) from BAML. The dollar had another flat and directionless day (DXY +0.12%), with a Turnaround Tuesday on most currencies, bonds and Oil. Only Gold and EUR moved in the same direction as Monday. This was despite decisive beats in UK AHE and unemployment (the latter the lowest since 1971) at 0930, and German ZEW Sentiment at 1000. It seems like everyone was waiting for the Fed.

Wednesday March 20
The big story today was the Fed minutes, with a hugely dovish move in the ‘dot-plot’ (the views of individual FOMC members) from two rate hikes in 2019 to zero. The reaction in USD was immediately, an instant 0.5% down, which is where it ended the day. All currencies, Gold and bonds (inverse to yields) were up with the exception of GBP, which was already down 0.75% on Brexit concerns that it still managed to close red on the day. The third parliamentary vote on Brexit was postponed. Oil was up sharply on the EIA beat at 1430.

US equities had been falling all day following a statement by President Trump that the US will most likely leave tariffs in place during negotiations to ensure “China lives by the deal”. They were given a small short-lived boost by the Fed announcement, but all ended red. DAX woes were compounded by a 13% drop in BAYN.DE (BAYRY) following a court judgment that Roundup weedkiller caused cancer, and 5.7% drop in BMW on a profits warning.

Thursday March 21
Stocks slid in the Asian and European markets, as did US futures, but on the cash open there was a classic risk-on surge with SPX adding 1.1% and the riskier NDX was 1.4% higher. It was clear that this was a reaction to the dovish Fed as financials (which benefit from high interest rates as they are lenders when everyone else is borrowers) were the only sector to fall. Other indices followed, except DAX, beleaguered with individual component problems, today it was DBK.DE (DB) and CBK.DE (CRZBY) opening 5% and 4% lower.

DXY recovered most of its Wednesday drop, and all currencies, Gold, Oil and bonds were down. However this was not even. Although EUR exactly retraced (as did AUD), the key instruments of JPY and bond yields only faded a little of the Fed move. It was a large further drop (0.57%) in GBP which evened out the basket. The BoE rate decision did not cause any notable move, selling was fairly even all day.

Friday March 22
In the European session today, DAX and EUR were hit hard by a surprisingly bad miss on the German Manufacturing PMI at 0830 (44.7 v 48.0 est). The German Bund yield went negative for the first time since October 2016.

The Eurozone equivalent print half an hour later was 47.6 vs 49.5 est. FTSE also fell as GBP recovered. Following that, US markets were sapped by the US 3-month bond yield rising above that of the benchmark 10-year note, as the latter hit a 14-month low of 2.418%. This inversion is considered to be a recession indicator and was last seen in August 2007, just before the massive equity pullback. The sell-off was strong, SPX down 1.9%, NDX down 2.5% and RUT losing 3.6%.

USD was generally back up again today, although Gold, JPY and bonds rallied in the risk-off conditions, and GBP bounced back from the Thursday low. The Canadian CPI beat
and Retail Sales miss at 1230 cancelled each other out. Oil 
gave up Wednesday’s gains in line with the equity fade.

The collapse of DAX after a string of issues for individual stocks such as Bayer, BMW and Wirecard made in the biggest index mover in a generally flat week for equities. For the third week, the biggest forex mover was GBPJPY, the best short two weeks ago, the best buy last week, and now the best short again. It was a second quiet week for cryptos, and FANGs were mixed, although generally outperforming NDX.

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.

(all times are GMT)

(Calendar High volatility items are in bold)
  • Brexit endgame approaches
  • Large CB speaker roster
  • NZ rate decision
  • Final week of Q1/2019

Weekend News
The latest on Brexit is that the EU have offered to extend Friday’s deadline until May 22 if the deal is passed in Parliament this week, but only until Apr 12 if it isn’t. Weekend reports suggest no progress. In the US, Special Prosecutor Mueller is due to publish his report into Russian election meddling, but has already said there will be no further indictments. 

Monday March 25
USTR Lighthizer and TreasSec Mnuchin return to China this week to resume trade talks. Apple are holding a special product event, widely believed to be a new streaming service. There is another attempt by British MPs to take control of Brexit from the government. Fed Evans (centrist, 2019 voter) speaks today at 0145, followed by Harker (dove, 2020 voter) at 1000. Markets are closed in Greece and Colombia.

09:00 EUR Germany IFO Business Climate/Assessment/Expectations
12:30 USD Chicago Fed National Activity Index
17:00 AAPL Apple Product Event
20:30 AUD RBA Ellis speech
21:45 NZD NZ Imports/Exports/TB

Tuesday March 26
The third and final Brexit deal vote is planned for today, although weekend reports suggested it may be cancelled due to lack of support.

The Boao Forum opens in China today, with Premier Li Keqiang giving the opening remarks. Fed Harker (dove, 2020 voter) speaks at 1200 followed by Rosengren (hawk, 2019 voter). There are rate decisions on HUF (est 0.9% hold) and NGN.

07:00 EUR Germany Gfk Consumer Confidence Survey
12:30 USD US Housing Starts/Building Permits
13:00 USD US S&P/Case-Shiller Home Price Indices (YoY)
14:00 USD US Consumer Confidence
20:30 WTI API Oil Stock

Wednesday March 27
Senate Aviation Committee hearings on the Boeing 737-Max start today. The FAA and NTSB will testify. Traders will be listening to see if the RBNZ joins the dovish chorus. There are plenty of other CB speakers. RBA Asst Gov Kent speaks at 0010, and Fed George (hawk, 2019 voter) is on at 2130. From the ECB we have Chair Draghi (0800), Praet (0845), De Guindos (1045) and Mersch (1330). There is rate decision on KES.

01:00 NZD RBNZ Rate Decision/Statement (1.75% hold est)
09:40 EUR DE10 Bond Auction
12:30 USD US Trade Balance
12:30 CAD Canada International Merchandise Trade
14:30 WTI EIA Oil Stock

Thursday March 28
Today is the most important day in the week for data, with the final US GDP print for Q4, as well as PCE, the Fed’s preferred inflation indicator, and German inflation as well. Fed Quarles (centrist, 2019/2020 voter) speaks at 1115, followed by Williams (hawkish, 2019/2020 voter) at 1325 and Vice-Chair Clarida (centrist 2019/2020 voter) at 1330, and Bullard (dove, 2019 voter) at 2120. SNB Maechler is on at 1700. There are rate decisions, all expected to hold on CZK (1.75%), ZAR (6.75%) and MXN (8.25%).

In the British Parliament, today is the last day to pass the Brexit extension bill (short or long) as the House does not sit this Friday.

08:00 EUR ECB Pres Draghi speaks
10:00 EUR Eurozone Business Climate
12:30 USD US Jobless Claims
12:30 USD US 18Q4 GDP Final (est 2.4% prev 2.6%)
12:30 USD US PCE
13:00 EUR Germany CPI (est 1.6% prev 1.7%)
14:00 USD US Pending Home Sales (MoM)
21:45 NZD NZ Building Permits s.a. (MoM)
23:30 JPY Tokyo CPI (est 1.1% prev 1.1%)
23:30 JPY Japan Unemployment Rate
23:50 JPY Japan Retail Sales

Friday March 29
Today is the end of the week, month and quarter. In the UK, it is Brexit Day, unless an extension is granted and passed by Parliament, which seems almost certain. Taxi firm LYFT makes their IPO on the Nasdaq. Fed Quarles speaks again at 1645. A Moodys rating review is due in South Africa. There is a rate decision on CLP.

00:00 GBP Brexit Day - UK Initial Departure Day
00:01 GBP UK GfK Consumer Confidence
07:00 EUR Germany Retail Sales
08:55 EUR Germany Unemployment Rate/Change
09:30 GBP UK 18Q4 GDP Final
12:30 USD US Personal Income (MoM)
12:30 CAD Canada GDP Jan (MoM)
13:45 USD Chicago PMI
14:00 USD Michigan CS Index
14:00 USD US New Home Sales (MoM)
17:00 WTI Baker Hughes Rig Count

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