Week to Aug 2nd

First rate cut for over a decade, Risk off on tariff tweet, GBP collapses

Mon Jul 29

In the absence of any specific news, which is often the case on Mondays, US equity markets slipped slightly from Friday’s highs, where other world markets advanced, in particular FTSE, which was up 1.82%, its best day in six months, mainly on currency, but also strong gains from LSE.L (up 15%) and JE.L (up 25%) on merger news, and AZ.L (up 4%) and VOD.L (up 6.4%) on earnings.

The currency market was directionless, with slight moves in EUR and Gold (up), AUD and JPY (down), but the big mover was GBP, down 1.33% as new PM Johnson’s bold ’no-deal’ Brexit plans continued. Oil was up, but yields were flat.

Tuesday July 30

Today President Trump criticised China’s intransigence in the trade talks (ie saying a deal is less likely/further away). Markets were down again, with DAX coming off particularly sharply, after the Eurozone Business Climate at 0900 and German inflation print at 1200 missed. (CPI 1.1% v 1.3% est).

DXY was completely flat, with a further 0.46% fade in GBP balancing slight gains in other currencies and Gold. Oil followed the weaker dollar and yields had a second flat day.

Wednesday July 31

The long awaited Fed rate cut came today, and it was only 25bp, and Chair Powell made it clear this was an “insurance” cut, and not a start of a series of easing moves. As you know from previous reports, some people were hoping for 50bp. Equity markets, which had been flat, fell on the news, and USD appreciated sharply (DXY +0.50%) with all currencies, Gold and Oil down. Yields fell 5bp on bond/stock rotation.

Thursday August 01

Today was most unusual. Markets quickly recovered from yesterday’s sharp move (and USD similarly gave up its gains), only for everything to change again when President Trump tweeted his plans to impose yet more tariffs on $300bn of Chinese goods. SPX moved from a +1% to -1% position in minutes. World equities followed suit, this time NKY showing the biggest move.

The USD reaction was pure risk-off. DXY was up 0.18% because EUR moved little, and GBP and CAD hardly at all. AUD fell sharply along with indices. However there was a huge move up in JPY (up 1.3%)  and Gold (up 2%), classic risk-off instruments. Oil had its worst day for nearly three years, falling 7.4% at one point, to close 5.9% down. Similarly yields fell nearly 12bp, the largest one-day drop for 15 months.

Friday August 02

The rout continued today, with all markets falling, ignoring the normally very important NFP print, although this unusually (and must be for the first time in years) came in exactly as estimated at 164k, as did the the AHE and unemployment figures. Other currencies followed the yen and Gold and all moved upwards against USD. DXY was down 0.3%. Yields continued down to touch 1.846%, a level not seen since the day of Trump’s election. Oil made a slight recovery.

WEEKLY PRICE MOVEMENT

Markets all fell on the ‘hawkish’ rate cut and the Trump tariff tweet. DAX fared worst losing 4.41%. Risk off yen and Brexit GBP meant a GBPJPY short would have made you 3.61%, the largest weekly forex move for years. A relatively quiet week in crypto, and the FAANG stocks all suffered more than NDX itself, with AMZN losing most.

Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on DXY. 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)

• Aus and NZ rate decisions
• Further trade war news expected
• China inflation and trade figures
• Will UK GDP help sterling?

Monday August 05

The only releases today are PMIs. Of more interest is any retaliation to Trump’s tariff tweet on Thursday. The president mollified his position with a tweet on Saturday saying things are going “very well” with China. The weekend proprietary market run by British broker IG Markets didn’t buy it, with DJIA down another 80 points.

Fed Brainard (voter) speaks today, but only on payment systems. Also today are USTR hearings on EU Airbus subsidies, and EU/|US talks continue this week.

There is a rate decision on RON. Markets are closed in Canada, and also in Ireland, Croatia, Iceland, Barbados and Ghana.

01:45 CNY Caixin Services PMI

07:55 EUR Germany Markit PMI Composite

08:30 GBP UK Markit Services PMI

13:45 USD US Markit Services/Composite PMIs

14:00 USD ISM Non-Manufacturing PMI (e55.1 p55.1)

22:45 NZD Employment Change Q2 (e0.4% p-0.2%)

Tuesday August 06

No US news today, but DJIA high-flyer DIS reports after the bell. The company has come long way from Mickey Mouse recently with Avengers: Endgame the highest grossing movie of all time, and their planned Netflix-killer streaming service. The stock is of course already up 30% this year .

01:30 AUD Aus Imports/Exports/TB

04:30 AUD RBA Rate Decision/Statement (e1.0% hold)

06:00 EUR Germany Factory Orders s.a. (MoM)

14:00 NZD NZ GDT Milk Index

16:00 USD Fed's Bullard speech

20:30 WTI API Oil Stock

Wednesday August 07

Fed Evans (voter) speaks today. There are also a rate decisions on INR and THB. Markets are closed in Colombia, Bolivia and Jamaica.

02:00 NZD RBNZ Rate Decision/Statement (e1.25% p1.50%)

03:00 NZD RBNZ Governor Orr Presser

06:00 EUR Germany Industrial Production s.a. (MoM)

07:30 EUR ECB Coeuré speech

14:00 CAD Canada Ivey PMI

14:30 WTI EIA Oil Stock

21:30 AUD RBA Bullock speech

Thursday August 08

The main event today is probably the Chinese trade figures. Despite the trade war, the trade balance keeps on rising. There is a rate decision on PHP. Markets are closed in Tanzania.

02:00 CNY China Imports/Exports/TB

12:30 USD US Jobless Claims

23:30 AUD RBA Governor Lowe speech

23:50 JPY Japan 19Q2 Preliminary GDP (QoQ e0.1% p0.6%)

Friday August 09

Chinese inflation and UK GDP are the main events today. The Canadian NFP comes a week after the US. Markets are closed in Singapore, South Africa, and Namibia. There are elections in Argentina this weekend.

01:30 AUD RBA MPC Statement

01:30 CNY China CPI (YoY e2.7% p2.7%)

06:00 EUR Germany Trade Balance s.a.

08:30 GBP UK 19Q2 Preliminary GDP (QoQ e0.0% p0.5%)

08:30 GBP Manufacturing/Industrial Production

12:30 USD US PPI

12:30 CAD Canada NFP/AHE/UnEmp (NFP e10k p-2.2k)

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