Saturday, 13 July 2019

Week to Jul 12th

Dovish Fed stimulates market, Dollar back down again, GBP bounces off two-year low

Mon Jul 08
In the absence of concrete news, Friday’s slide continued on Monday, first in Asia and then in DAX and SPX which fell 0.48%, as traders waited for the Powell testimony. FTSE did slightly better ending the day flat. The dollar momentum continued on concerns that a cut may not happen. DXY added 0.2% and all currencies were down. Gold, Oil and Bonds all fell in line.

Tuesday July 09
Another day of waiting for the Fed meant a directionless day for equities. SPX recovered the previous day’s drop. However NKY down after a sharp move up in JPY (anticipating rate cuts). DAX fell after a profit warning from BASF. FTSE was down less due to sterling weakness.

In forex, GBP fell again, below the psychological $1.25 to a two-year closing low, fuelled by the tone of the ruling Conservative Party leadership contest, increasing the no-deal Brexit risk. Other currencies also slipped as DXY added 0.14%. However Gold and Oil held their own, adding slightly. Yields continued to rise, adding 3bp.

Wednesday July 10
At today’s semi-annual Humphrey-Hawkins testimony, Chair Powell said that uncertainties in the US economy “have increased in recent months”. Coupled with the FOMC minutes mentioning a “near term” cut, equities rallied sharply and the dollar and yields fell equally quickly. The mood was not shared in DAX and FTSE struggling against their currencies, to post red candles.

All currencies and Gold rallied as DXY close 0.43% softer on the day. FTSE only managed to close flat as GBPUSD rallied both from the Fed report and finding bottom support. CAD was unusual, it rallied an instant 60 pips on the rate hold, and then immediately gave it back after the dovish press conference 15 minutes later. Such a quick move is rarely seen.

Thursday July 11
Todays US inflation print at 1230 was a firm beat, with the YoY Core figure at 2.1% vs 2.0% estimate. This cause a brief wobble in the equity rally and dollar slide (strong inflation negates the need for a rate cut), but this quickly disappeared on the second day of Powell testimony to produce another green day across the board in US equities, with DJIA closing above 27000, and SPX also making a new high one tick shy of 3000. The rally was shared by NKY but not DAX or FTSE, both down on currency strength.

USD had been falling prior to the release, but reversed for the rest of the day, closing down a mere 0.02%, with most currencies flat, and AUD advancing slightly. Oil came off very slightly, whereas Gold gave about half the previous day’s rally. Bond yields did not stop rising at the CPI print, and rallied all day adding 7.2bp to its highest level since June 11, on bond-stock rotation.

Friday July 12
A fourth green day for SPX which closed above 3000 for the first time. NDX and DJIA also closed at record highs, as markets continued to anticipate a rate cut in three weeks. Once, again though, as the dollar fell for the same reason (DXY down 0.35%), the currency pressure forced DAX and FTSE further down, and the chart shows a very unusual period of SPX and the European indices moving in different directions all week. All currencies and Gold moved upwards. Like yesterday, Oil gave up a little more of Wednesday’s gains, and yields ended flat after briefly touching a new July high of 2.14%

There were new all time highs in the US, with DJIA coming out top, but the fade in NIFTY was the biggest index move. (INR only fell 0.13%). The dollar was down everywhere, with NZDUSD the strongest, up 1%. Cryptos slowed down after a few hectic weeks, with BTC and ETH going in different directions. Whereas the shine has come off FANGs, AMZN and particularly FB outperformed.

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)
  • Earnings season starts
  • Four inflation reports
  • China GDP
  • OpEx week

Monday July 15
China GDP may set the initial mood, but US earnings season kicks off today, as always with the banks, the first being C, reporting before the bell. Markets are closed in Japan and Turkey.

02:00 CNY China Retail Sales/Industrial Production (YoY)
02:00 CNY China 19Q2 GDP (YoY e6.2% p6.4%)
22:45 NZD NZ CPI (YoY e1.7% p1.5%)

Tuesday July 16
Earnings before the bell today from DJIA components GS, JNJ and JPM, together 11.62% of DJIA. If, for example, all three moved, say, 3% in the same direction that would equate to 93 points on the index. The EU votes today on Ursula von Leyen’s nomination to head the EU Commission. Markets are closed in Chile and Thailand.

01:30 AUD RBA Meeting Minutes
08:30 GBP UK AHE/Claimant Count Change
09:00 EUR Germany ZEW Economic Sentiment (e-5.9 p-21.1)
12:15 USD Fed Bostic speech
12:30 USD US Retail Sales (Control Group Jun e0.4% p0.4%)
13:15 USD US Industrial Production (MoM)
14:00 NZD GDT Milk Index
17:00 USD Fed Powell Speech
20:30 WTI API Oil Stock

Wednesday July 17
Today BAC report before the open, and IBM (3.55% of DJIA) and NFLX (1.96% of NDX) come in after the close. Elsewhere watch UK inflation, given the beleaguered state of sterling.

08:30 GBP UK CPI (YoY e2.0% p2.0%)
09:00 EUR Eurozone CPI
12:30 USD US Housing Starts/Building Permits
12:30 CAD Canada CPI (Core YoY p2.1%)
14:30 WTI EIA Oil Stock
23:50 JPY Japan Imports/Exports/TB

Thursday July 18
After nothing remarkable during the day, the big earnings report is from MSFT, now the top NDX component at 11.2%. This is after the bell.

00:30 AUD Aus NFP/UnEmp (NFP p42.3k)
08:30 GBP UK Retail Sales
12:30 USD US Jobless Claims
12:30 USD Philly Fed Manufacturing Survey
22:45 NZD NZ Credit Card Spending (YoY)
23:30 JPY Japan National CPI

Friday July 19
Today is July option expiration (OpEx) day, so expect additional volatility. AXP (3.2% of DJIA) reports before the bell. Senate elections are held in Japan this weekend.

06:00 EUR Germany PPI
14:00 USD Michigan CSI (p98.2)
15:05 USD Fed Bullard Speech
20:30 USD Fed Rosengren Speech

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