Sunday, 28 June 2020

Week to Jun 26th

COVID-19 second wave in places, Changes in bank rules, Inside week for stocks

This week, markets rallied for the first couple of days, partly on positive PMIs, but then fell sharply as a second wave became clear from case reports, reflected in inter-state arrival quarantines, the ‘re-opening rollback’. Volatility was, however down, with SPX, DJIA and Oil all posting inside weeks.

Risk currencies broadly followed equities and Oil, giving a V-shaped week to the dollar chart. Nevertheless the underlying fragility was once again shown by Gold which hit a new 7-year high.

Next week, Fed Chair Powell and TreasSec Mnuchin both testify to Congress on coronavirus on Tuesday, and there are a raft of manufacturing releases, but due to the foreshortened week, the big event is NFP day on Thursday, giving the strange spectacle of millions of new jobs at the same time as millions of Initial Jobless Claims.

The week also sees us move into July, H2 and Q3 of the year, with the next batch of earnings less than two weeks away.

Mon Jun 22
Markets rose on Monday, as always on stimulus hopes, although with less enthusiasm than in previous weeks as volatility dissipates, but the move was mainly led by (virus-immune) tech, and although bonds and JPY managed to stay flat, Gold was up in line with the noticeably weaker dollar.

Tuesday June 23
After a brief but sharp dip in the Asian session after trade advisor Peter Navarro said the US-China trade deal was ‘over’, a statement that was quickly retracted, markets again advanced cautiously, and ended less than 1% up on the day, and Oil was flat (down -0.9%, which is flat for Oil). The dollar continued to fall down against all currencies except CAD, with a sharp appreciation in JPY Bonds were also flat again, although Gold advanced for a second day.

Wednesday June 24
The fear of the second wave of COVID-19 finally broke today, as Governors in New York, New Jersey and Connecticut enacted quarantine rules for intra-state visitors from high infection rate states. Global markets fell, with SPX down 2.6% and Oil over 5%. Notably, there was no reaction from the haven trio, which were all down, however the dollar reversed up, exactly in line with the top in equities and Oil.

Thursday June 25
Equities and Oil recovered about half of Wednesday’s drop today, on news of changes to FDIC rules to allow banks to invest in VC funds. Although banking stocks rose (XLF +2.65%, BAC +3.28%). However, an uptick in the number of COVID-19 cases in the US capped enthusiasm. The dollar rose again, although less vigorously, and JPY, Gold and bonds were flat.

Friday June 26
Today the Fed said it would cap buybacks and dividends from America’s biggest banks, prompting XLF to pull back 4.5% (WFC fell 7.42%). A further increase in new cases, coupled with re-opening rollbacks in Texas and Florida. Overall SPX fell by nearly 2.5%. All other indices and Oil followed suit, although for most markets it was an inside week.

The dollar was up, but mainly because of a sharp fall in GBP to a four-week low, as concerns about the government’s COVID-19 management were raised. The UK has one of the highest case/fatality ratios in the world. Bonds and Gold were notably up, but not JPY which, like most currencies was flat against USD.

All indices were down this week with bank-heavy DJIA the weakest. The biggest forex mover was AUDCAD, up 1.09%. Yet another week of crypto flatness, and a variable result in FANGs, with FB hit hard, down 9.51% after an advertiser backlash against its perceived refusal to police hate speech.

It’s a good job I didn’t follow my instinct last week to short AUDCAD. It’s unfortunate that despite markets falling materially, for some reason JPY did not follow this week, so my AUDJPY short actually lost 0.13%. 21 weeks, 10 wins and a total of 7.83% to date. This week I will try and dollar pair, and sell NZDUSD.

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)

  • New month, quarter, half year
  • Foreshortened for Independence Day
  • Non-Farm Payrolls
  • Heavy on CB speeches

Monday June 29
As often is the case, a quiet start to the week. Plenty of data, but not very significant. Markets are closed in Malta and many South American countries from the Feast of St Peter and St Paul.
22:45 NZ Total Filled Jobs(Sunday)
23:50 Japan Retail Sales (Sunday)
09:00 Eurozone Business Climate (Jun)
12:00 Germany CPI (e0.6% p0.5%)
12:30 BoE Vlieghe speech
14:00 US Pending Home Sales(MoM)(May)
14:30 Dallas Fed Mfg Business Index (Jun)
19:00 Fed Williams speech
23:30 Japan Jobs/Unemployment (May)
23:50 Japan Industrial Production(YoY)(May) Prelim

Tuesday June 30
Fed Chair Powell and TreasSec Mnuchin both testify today before the House Financial Services Committee on the COVID-19 crisis, and the government’s response. The month, second quarter and half year ends today, which may heighten volatility as fund managers rotate.

01:00 China PMIs
02:30 RBA Debelle speech
06:00 UK 20Q1 Final GDP (e-2.0% p-2.0%)
09:00 Eurozone CPI (Core YoY e0.8% p0.9%)
12:30 Canada GDP (MoM e-12.3% p-7.2%)
13:00 US Home Price Indices (YoY)(Apr)
13:45 Chicago PMI (Jun)
14:00 Fed Chair Powell testifies (time approx.)
14:00 Treasury Sec Mnuchin testifies (time approx.)
14:00 US Consumer Confidence
15:05 Fed Brainard speech
22:30 Aus AiG Performance of Mfg Index(Jun)
23:00 Aus Commonwealth Bank Mfg PMI(Jun)
23:50 Japan Tankan Large Mfg Index (Q2)

Wednesday July 1
The new month, quarter and half year starts today. There is a rate decision in Colombia. Markets are closed in Canada and Hong Kong. There is a rate decision in Sweden. SEK is 4.2% of the DXY dollar basket

01:45 China Caixin Mfg PMI(Jun)(e50.5 p50.7)
06:00 Germany Retail Sales(MoM)(May)
07:55 Germany Unemployment Rate/Change (Jun Change e120k p238k)
07:55 Germany Markit Mfg PMI (Jun)
08:30 UK Markit Mfg PMI(Jun)
11:00 BoE Haskel speech
12:15 US ADP Employment Change (e+3.5M p-2.76M)
13:45 US Markit Mfg PMI (Jun)
14:00 ISM Mfg PMI (e49.0 p43.1)
18:00 FOMC Minutes

Thursday July 2
Due to the holiday on Friday, NFP is released today, only one day after the ADP figure and at the same time as the Initial Jobless Claims figure. Both are expected to be large positive numbers, which is unusual, to say the least. Given new quarter positioning as well, and the ongoing re-opening rollback, volatility seems likely.

01:30 Aus Imports/Exports/TB
09:00 Eurozone Unemployment Rate (May)
12:30 US NFP/AHE/UnEmp (NFP e3M p2.5M)
12:30 US Initial Jobless Claims (Jun 26) (p1.48M)
12:30 US Trade Balance (May)
12:30 Canada International Merchandise Trade (May)
13:30 Canada Markit Mfg PMI(Jun)
14:00 US Factory Orders (May)

Friday July 3
Markets are closed in the US today for observed Independence Day, so expected everything to be very quiet. Italy releases its budget.

00:30 Aus Retail Sales
01:45 China Caixin Services PMI
07:55 Germany Markit PMI Composite
08:00 Eurozone Markit PMI Composite
08:30 UK Markit Services PMI

1 comment:

  1. Wow, a very informative blog, thank you for taking the time to write this, it really helps explain why the markets acted the way they did as well as a review for the week ahead.


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