Sunday, 24 May 2020

Week to May 22nd

Opening surge on vaccine hopes, Ranging all week, US-China tensions

The week started with a strong gap up ad surge on hopes of a potential COVID-19 vaccine from MRNA (whose stock gapped up 30%), and positive comments from Fed Chair Powell but failed to advance much further as poor data (including another new 2.5m Jobless Claims) and rising US-China tensions tempered enthusiasm.  However, Monday’s gains were not lost, and Gold and the yen fell, showing some degree of positive sentiment.
Monday is Memorial Day, and also a holiday in the UK shortening the final week of May which has been more flat than bearish this year. Earnings season is over,  and there isn’t much news other than another preliminary read of US GDP (QoQ est -5%). Look out for any further war of words between the US and China, and of course any COVID-19 second wave effect as many people exit lockdown.

Mon May 18
Markets gapped up hugely over the weekend on new of a potential COVID-19 vaccine from MRNA (whose stock gapped up 30%), and carried on rising all day after Fed Chair Powell told CBS 60 Minutes “there’s a lot more we can do to help the economy”. SPX closed at a two-month high. Oil rose sharply in line with equities. The haven trio bonds, gold and JPY were sharply down, the latter even against an otherwise falling dollar, following the dovish Fed remarks. A classic risk-on day. 

Tuesday May 19
Initially, markets held Monday’s gains as TreasSec Mnuchin confirmed the governments commitments to COVID-19 bailouts. However we had turnaround Tuesday into the US close, as some profit was taken. (Non-US indices were still up, as they close earlier). MRNA stock had been falling since the gap up. Gold and Bonds also reversed back up, although JPY continued to fall, again the only currency to do so, which can also be put down to forex being mainly traded in London hours.

Wednesday May 20
Markets were back up again today, although only matching Tuesday’s high, following positive Fed minutes indicating further support for the economy, which of course means printing more money, and the dollar was down again everywhere except GBP, following the UK inflation miss at 0600. The equity push was led by FB and AMZN which made new all-time highs. Oil was up in line. Oddly Gold and bonds continued upwards, the latter possibly on the new US 20-year bond auction

Thursday May 21
Pessimism started in Asia, with HSI down 3.4% on news of a new Chinese ‘national security’ law in Hong Kong, aimed at quelling protest, and Donald Trump claimed China was behind a disinformation and propaganda attack on the US. This was followed by another depressing Initial Jobless Claims report of 2.4 million, just one of many bad reports, for example New Home Sales hit a 10-year low. Markets were down everywhere. Oil ignored all this, and was up following the EIA stock report beat.

The dollar broke its three-day losing snap, and rose against all currencies (although it was practically flat against JPY). Bonds were flat as well, although Gold, reacting to the dollar reversal, was down 1.46%.

Friday May 22
US and European markets initially dipped on Friday but ended the day roughly flat going into the long weekend. By contrast the HSI was down 5.6%, its worst day in five years on China’s new laws. SecState Pompeo called the plans a “death knell” for autonomy in the territory, and this was reflected in Gold and bonds, both up. Oil also pulled back after gaining all week. USD was again up across the board, except for JPY which was flat, in line with the earlier dips.

Indices had a strong week, although all the beginning, and the biggest riser was DAX. NZDJPY was the strongest performer up 3.31%. Crypto had a fairly flat week, and FANGs were rather variable swinging from a 5.48% loss on NFLX to a 11.4% gain on FB.

My choice last week of NZDCAD paid off, up 2.04%. 16 weeks, 7 wins, net profit 6.45%. I am still bearish about equity markets, so I will sell EURJPY this week, also considering the new EU pandemic plan, which will be expensive. (My other choice was to sell EURUSD, but you can never tell with USD when markets fall).

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)

  • Memorial Day 4-day week
  • US and Canada GDP
  • Expect more China tension
  • End of month
Monday May 25
Markets are closed today in the US and the UK, so forex will be calm as well as equities, unless of course something happens in Asia. Ramadan ended this weekend, so there may be increased activity from Islamic countries. There are rate decisions in Romania and Israel.

06:00 EUR Germany Q1 Final GDP
08:00 EUR Germany IFO Business Sentiment
17:30 CAD BoC Governor Poloz speech
22:45 NZD NZ Imports/Exports/TB

Tuesday May 26
A quiet day on news, so COVID-19 and China will drive the markets. There is a rate decision in Hungary. Markets are closed in Indonesia.

06:00 EUR Germany Gfk Consumer Confidence Survey
12:30 USD Chicago Fed National Activity Index
13:00 USD US Housing/Home Price Indices
14:00 USD US New Home Sales/Consumer Confidence
14:30 USD Dallas Fed Manufacturing Business Index
21:00 NZD RBNZ Financial Stability Report

Wednesday May 27
The EU presents a continent-wide pandemic recovery plan today. Remember that most of Europe is borderless. The debate will be, as ever, whether richer countries should support poorer ones.

Here is a useful chart from Reuters showing the effect of COVID-19 policies on EURUSD, both from the Fed and ECB.

There is little scheduled news.

08:00 EUR EU Financial Stability Review
14:00 USD Richmond Fed Manufacturing Index

Thursday May 28
Today is the heaviest news day, with the 1230 batch of US data, the Jobless Claims being the most important. There are rate decisions in South Korea and Poland.

12:00 EUR Germany Prelim CPI (YoY e0.6% p0.8%)
12:30 USD US ND Capital Goods (p-0.8%)
12:30 USD US Prelim PCE QoQ
12:30 USD US Initial Jobless Claims (May 22) (e2.0M p2.4M)
12:30 USD US Q1 Prelim GDP (Annualised e-5.0% p-4.8%)
12:30 CAD Canada Current Account
14:00 USD US Pending Home Sales
15:00 USD US EIA Oil Stocks
23:30 JPY Tokyo CPI (Core YoY e0.1% p-0.1%)
23:30 JPY Japan Jobs/Unemp
23:50 JPY Japan Industrial Production (p-5.2%)

Friday May 29
The last trading day of the month may bring volatility, especially as “Sell in May” does not appear to have happened this year. There are rate decisions in Colombia and Chile.

06:00 EUR Germany Retail Sales
09:00 EUR Eurozone CPI (Core YoY e0.9% p0.9%)
12:30 USD US Prelim PCE (MoM and YoY)/Personal Income
12:30 CAD Canada Q1 Final GDP (Annualised p0.3%)
13:45 USD Chicago PMI
14:00 USD Michigan CSI

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