Saturday, 9 May 2020

Week to May 8th

Lockdowns easing start, Worst unemployment since 1930s, Strong week for tech

Despite the worst NFP since the 1930s, the recovery of Oil, a transportation leading indicator, moves towards lockdown easing and the huge central bank stimuli around the world pushed markets higher this week, with tech outperforming as it often does. NDX is only 5% off its all-time high.

Although there is plenty of inflation data (directly and via proxies such as Retail Sales) next week, there is nothing momentous scheduled, and earnings season pauses prior to the retailer finale next week. It is likely that volatility will continue to decline as it has done for weeks now.

Mon May 4
Monday was a fairly quiet day with US indices ending flat. The day was V-shaped, which meant European indices missed the closing rally and were down on the day. (There were technical adjustments for the German DAX which was closed on Friday, but fell in futures). There was a sharp sell-off in airlines after Warren Buffett revealed that he had exited the sector. However lockdown-resistant tech companies outperformed. The currency picture was very mixed, with a 1.7% pullback in EUR, retracing last week’s gains, and a 1.25% advance for CAD, following Oil which was up 4.3%. Nevertheless, the early fall meant haven assets Gold, JPY, and Bonds were slightly up.

Tuesday May 5
News of some lockdown easing, and declining COVID-19 death rates, some more pharma vaccine news, and a strong move up in Oil led to a positive day in markets. The currency picture was the same as yesterday, with EUR falling to produce a green candle for DXY, despite CAD advancing again (following Oil). Bonds were down in line, but Gold ignored the haven rule, and advanced.

Wednesday May 6
Indices took a breather today, after the shocking minus 20.2 million ADP print, with DAX particularly hard hit after the 15.7% drop in factory orders, the worst figure since the 1970s. Oil also pulled back after its two-day run, despite the moderate EIA beat. All currencies except for JPY were down. Oddly, bonds were down, as was Gold.

Thursday May 7
Indices resumed their upward trend, with NDX turning positive for the year, but there were still signs of haven buying with Gold up 1.5% and Bonds up 0.61%, and although the dollar was up across the board (except CAD), the yen drop was weaker than other currencies. The new BoE Governor Bailey’s statement caused a brief GBP rally, although nothing in the larger picture. Despite a poor Ivey PMI print, CAD reverted to its mean, rising all week with the Oil recovery, although ironically Oil did not rise today. Such is the delay in asset correlation.

Friday May 8
The 75th anniversary of the end of World War II in Europe (with British and French markets closed) also brought the worst NFP print seen since the beginning of that war, and there was not even a wobble, such are today’s strange markets. The ‘unlock down’ trend continued with markets up well over 1%, and Oil up nearly 5%. The dollar was down generally, as EUR made a recovery. However CAD continued to fall, as unlike the US, the Canadian NFP, at minus 2M was much larger than the estimate, as was JPY which fell in line with Bonds and Gold to reflect equity risk-on. 

The strongest index was NDX, although this is partly to do with its closure on Friday. The largest forex move was EURAUD down 2.92%. Bitcoin enjoyed a third week of gains, although ETH, which had rallied in previous weeks did not join it. FANGs generally performed in line with NDX, showing that not all tech gains are narrowed into these popular stocks

My call to sell GBPAUD paid off, one of the larger movers at 2.47%. Fourteen weeks, six wins, and a running total of 5.78%. This week, I am taking a bigger chance and buying EURUSD.

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)

  • Coronavirus sentiment dominates
  • Partial end to lockdown
  • US, China and German inflation
  • Earnings season pause

Monday May 11
A new week which again is likely to be sentiment driven. There is no significant scheduled news today. A number of small pharma companies report, but generally this week is a pause, with retail reporting next week. Markets are closed in a number of Islamic countries this week for Ramadan which continues until May 22. Russia is closed today for Victory Day.

Tuesday May 12
The inflation prints today look fairly modest in their declines, and will be compared with Retail Sales later in the week. Two Fed speakers today, Quarles at 1400 and Mester, the hawk at 2100, straight after the bell.

01:30 CNY China CPI (Apr) (YoY e3.7% p4.3%)
02:00 AUD Aus Budget Release (time approx.)
06:00 CNY China FDI (time approx.)
12:30 USD US CPI (Apr) (Core YoY e1.7% p2.1%)
18:00 USD Monthly Budget Statement (Apr)

Wednesday May 13
The NZ rate decision will be interesting, as the first from that country deep into the pandemic. UK GDP is of course only up to Mar 31, and so does not fully reflect the damage to the UK economy. NDX heavyweight CSCO and “BAT” stock (Chinese FANG) TCEHY report after the bell.

00:30 AUD Aus Westpac Consumer Confidence( May)
01:30 AUD Aus Wage Price Index (QoQ e0.5% p0.5%)  
02:00 NZD RBNZ Rate Decision/Statement (e0.25% hold)
03:00 NZD RBNZ Press Conference
06:00 GBP UK Industrial Production (Mar) (MoM e-5.8% p0.1%)
06:00 GBP UK 20Q1 Prelim GDP (QoQ e-2.0% p0.0%)
09:00 EUR Eurozone Industrial Production
12:30 USD US PPI
14:30 WTI EIA Crude Oil Stocks Change (May 8)

Thursday May 14
The Australian NFP estimate of minus 575k is only one third (population adjusted) of the US or Canadian figure. It will be interesting to see if this estimate is met. Otherwise the key print today is the US Initial Jobless Claims. There are rate decisions in Egypt and Mexico.

01:00 NZD NZ Budget Release
01:00 AUD Aus Consumer Inflation Expectations (May)
01:30 AUD Aus NFP/Unemp (NFP e-575k p5.9k) 
06:00 EUR Germany CPI (Apr) (YoY e0.8% p0.8%)
08:00 EUR Eurozone Economic Bulletin
12:30 USD US Initial Jobless Claims (May 8) (e2.5M p3.17M)
22:30 NZD Business NZ PMI(Mar)

Friday May 15
Monthly Option Expiration provides additional volatility today, but the key release is US Retail Sales.
02:00 CNY China NBS Press Conference/Ind Production/Retail Sales
06:00 EUR Germany 20Q1 Prelim GDP (e-3.8% p-3.8%)
09:00 EUR Eurozone Employment Change (YoY)(Q1) Prel
09:00 EUR Eurozone 20Q1 Prelim GDP (e-3.3% p-3.3%)
12:30 USD US Retail Sales (Apr) (Control Group e-3.9% p1.7%)
12:30 CAD Canada Retail Sales (Mar) (p0.3%)
13:15 USD US Industrial Production (MoM)(Apr)
14:00 USD US Prelim Michigan CSI (e68.0 p71.8)

No comments:

Post a comment

Please leave a comment. They are moderated and spam (links to your site) will not be published.