Sunday, 3 May 2020

Week to May 1st

Lockdown starts to ease in some areas, EU hawks and Fed doves, Sell in May bites a day early

The week opened with news that many states, even New York, plan to re-open for business. NY Governor Cuomo is well-trusted in his plans. Earnings continued to be fair to moderate, and another remdesivir proved positive in the treatment of COVID-10. However, concern about elevated values, and another 3.8m initial jobless claims on Thursday, 300k more than estimate, caused a sharp collapse on Thursday, which continued Friday after President Trump started to blame China for the virus, and threatened new sanctions. Coupled with poor (AMZN) or absent (AAPL) forward guidance, indices which were 4% up ended flat for the week. Nevertheless indices booked their best calendar month since 1987.

The dollar fell all week in anticipation of and then reaction to Fed dovishness (additional measures) on Wednesday, followed by ECB hawkishness (no new QE) on Thursday. Haven assets were pulled both ways, and ended fairly flat, with Gold posting its first inside week since the COVID-19 market shock.

Next week sees some shifting in sentiment indicators. On the one hand, we do seem to have passed COVID peak (and even if there is a second wave, it won’t be immediate), and earnings are mostly done, but the mounting macro bad news crescendoes with Friday’s NFP, reflecting a full month of lockdown, and the worst estimate (2.1M) in history, way beyond the bottom of 2008. Add to this the “Sell in May” maxim and it is difficult to see anything good.

For the third week, we offer a table of major earnings estimates against current prices. The last column effectively shows the move in P/E ratio since the last ATH for that stock. As you can see, there is a distinct return to the trend where tech companies are more highly valued than other sectors, as you might expect given that anything to do with the internet has thrived through the lockdown. This is the final table in this series, as the bulk of major earnings are now released.

Mon Apr 27
Signs that several states, including New York are planning reopening of some parts of their economy gave markets a boost today, which were all up. The dollar continued its Friday decline, as traders were concerned about further Fed looseness, and were still worried about Oil, which fell sharply, although not as sharply as the USO proxy ETF, which dumped all its June futures and closed nearly 15% down on the day. Gold and bonds were both down in line with equities.

Tuesday April 28
Markets rallied in Europe today continuing yesterday’s trend, but then pulled back sharply on the US cash open, closing the futures gap, with tech fading most, possibly in anticipation of poor FANG results. The dollar followed a similar pattern, although the fall was sharper and all currencies were up against the greenback. The yen was up on additional BoJ stimulus, as were bonds, although Gold fell for a second day. Oil futures were flat, although the USO ETF was down again.

Wednesday April 29
The dollar was down again today on the GDP miss (-4.8% vs -4.0%) and a dovish Fed report, with further easing on offer, with a particular strong showing from commodity currencies AUD and CAD, and Gold was also up slightly. Another positive report on remdesivir helps to boost stocks, and a less than expected drop in GOOGL earnings the night before have indices their best day of the week, and GILDs own gain of 5.7% helped NDX to post a 3.5% gain on the day. Oil was up in line, and bonds were down.

Thursday April 30
The main event today was the ECB rate set meeting. Rates were unchanged, but the relatively hawkish outcome, with no further QE saw EUR soar with a consequent collapse of DAX. The effect spread with a similar rally in GBP and fade in FTSE. Some of this was of course also a further move out of USD following the previous night’s Fed. Also at the same time was yet another terrible Initial Jobless Claims figure, 3.8M (versus 3.5M estimated).

Equities had rallied on the Fed stimulus overnight, so the sharp fall meant a relatively modest red day in US equities and NDX, buoyed by index leader MSFT earnings the night before even managed a small gain. Oil was up in line (although not USO) and bonds were down. Gold was sharply down despite the other moves.

Another factor may have been end-of-month profit taking, as rotational funds change into defensives, ahead of the traditional change in sentiment at the end of April. Defensive ETFs XLV and XLP both outperformed SPX. Despite today’s move, SPX closed up 12.68% for the month, the best since 1987.

Friday May 1
Markets opened the new month after poor guidance from AMZN and none at all from AAPL. Also today the White House announced that China “will be held accountable” for coronavirus, and sanctions may be reintroduced. Sell in May certainly happened today, and stocks fell substantially, with markets down around 3%, despite the ISM Manufacturing PMI beat. Havens all responded as you would expect, with JPY, bonds and Gold up, and Oil, AUD and CAD down. Other currencies were mixed, with EUR adding to Thursday’s ramp whereas GBP retraced it.

The strongest index was DAX, although this is partly to do with its closure on Friday. Continuing Oil problems made CAD the weakest currency. As EUR was the strongest, buying EURCAD would have yielded 3.63%. Cryptos surged unlike FANGs whose variability reflected earnings.
My call to sell NZDJPY failed, the pair was up 0.21%. Thirteen weeks, five wins, and a running total of +3.31%. This week, I am selling GBPAUD.

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. Recoveries in line were seen in most FANGs, but not NFLX, which has not really fallen like the others.

NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)

  • Lockdowns may be selectively eased
  • Major earnings season pauses
  • Worst NFP estimate ever
  • UK and Australia rate decisions

Monday May 4
Focus now is on the reopening of the economy, which it increasingly seems will not be uniform. Today’s news is fairly light. Markets are closed in China for Labor Day

01:00 AUD Aus TD Securities Inflation
07:55 EUR Germany Markit Manufacturing PMI(Apr)
14:00 USD US Factory Orders (MoM)(Mar)

Tuesday May 5
The ISM Non-Manufacturing PMI is the first since the crisis, and the estimate is for a record low figure. Disney reports after the bell. Markets are closed in Japan and South Korea.

04:30 AUD RBA Interest Rate Decision (e0.25% hold)
08:30 GBP UK Markit Services PMI (Apr)
09:00 EUR EC Economic Growth Forecasts (time approx)
12:30 USD US Trade Balance(Mar)
12:30 CAD Canada Trade Balance
13:45 USD US Markit Services/Composite PMI(Apr)
14:00 USD US ISM Non-Manufacturing PMI (e32.0 p52.5)
14:30 NZD NZ GDT Milk Index (time approx)
22:45 NZD NZ Emp/UnEmp/AHE (UnEmp e4.2% p4.0%)

Wednesday May 6
There is talk of a new 20-year bond being issued today when the Treasury announces its quarterly funding requirements. Also the ADP estimate at minus 2 million is unprecedented. Tech companies SQ SHOP and PYPL report after the bell. There are rate decisions in Poland and Brazil.
01:30 AUD Australia Retail Sales (MoM)(Mar)
01:45 CNY China Caixin Services PMI(Apr)
06:00 EUR Germany Factory Orders s.a. (MoM)(Mar)
07:55 EUR Germany Markit PMI Composite(Apr)
08:00 EUR Eurozone Markit PMI Composite(Apr)
09:00 EUR Eurozone Retail Sales (YoY)(Mar)
12:15 USD US ADP Employment Change(Apr) (e-13.0m p-27k)
14:30 WTI EIA Crude Oil Stocks Change(May 1)
23:50 JPY BoJ MPC Minutes

Thursday May 7
At a new early time, we get the first UK rate decision under new Governor Andrew Bailey. The key US stat today is the Initial Jobless Claims. There are also rate decisions in Norway and Czechia.

01:30 AUD Imports/Exports/TB
02:30 China Imports/Exports/TB (time approx)
03:00 NZD RBNZ Inflation Expectations (QoQ)(Q2)
06:00 GBP BoE Rate Decision/Statement (e0.1% hold)
06:00 EUR Germany Industrial Production (e-7.0%, p0.3%)
06:30 GBP BoE's Governor Bailey speech
12:30 USD US Initial Jobless Claims(May 1) (p3839k)
15:00 CAD Canada Ivey PMI

Friday May 8
The estimate for NFP is the largest in history, and reflects a full month of lockdown. Markets are closed in the UK and France for the 75th anniversary of VE Day. Germany is not closed.

01:30 AUD RBA Monetary Policy Statement
06:00 EUR Germany Imports/Exports/TB
12:30 USD US NFP/AHE/Unemp (NFP e-2M p-701k, UE e14% p4.4%)
12:30 CAD Canada NFP/AHE/Unemp (NFP e-350k p-1M, UE e7.2% p7.8%)

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