Saturday, 15 August 2020

Week to Aug 14th

Bond yields rise all week, SPX misses ATH, Gold Rally reverses

We have been saying for weeks that the action at the moment is not in equities and so it was proven this week, with indices consolidating, with the exception of NKY which followed the move down in JPY, and perhaps was attractive as a growth market, as SPX came close to new highs, fully erasing the COVID crash. Indeed the historically weaker DJIA was the best performer. The main news was a reversal in bonds, with yields rising all week, but particularly on Tuesday when a 6bp spike caused a notable fade in Gold (-5.4%) and Bitcoin (-4.23%). As we have also said before, the effect cannot be seen so easily in DXY itself, as the problems affecting the dollar are affecting other currencies as well. 

Next week’s scheduled news is routine again, but the earnings pause is over, and the retail sector reports this week, starting with WMT on Tuesday. The FOMC minutes are published on Wednesday, and all eyes will be on yields and Gold to determine whether the reversals are confirmed. Also, the Democratic National Convention starts on Monday, the official start of the campaign. (The GOP are next week). Joe Biden’s speeches will clearly be scrutinised both in style and substance.

Mon Aug 10
Today saw good news in that the President signed an executive order expanding COVID relief, but China tensions rose as Beijing sanctions 11 US senators and officials. The net result was a weak rally, with the rotation out of tech into industrials that we have seen recently. DJIA was up 1.3% whereas NDX was down 0.49%. Oil was up slightly, in line. The haven trio (Gold, Bonds and JPY) dipped very slightly, although this may have been driven by an uptick in DXY (+0.23%) continuing Friday’s reversal. It was all weak, with GBP and CAD outperforming.

Tuesday August 11
Sentiment was positive to open today, on news of a possible Russian vaccine. However later skepticism, and announcement from the Senate that there had been no progress on the latest COVID package prevented SPX from making a new all-time high (it reached 3380, 0.38% away) as markets tumbled sharply into the close. Again we saw industrial outperformance with NDX falling 1.3% more than DJIA. Oil fell in line. European markets closed earlier and were therefore up

The earlier rally finally broke the inexorable rise in Gold which tumbled 5.7%, its worst day for 7 years (Silver fell 15%, its worst day since the 2008 crisis), as yields rose 6%. The dollar was only slightly up, but JPY was the strongest currency of the day. NZD was particularly weak as coronavirus was detected after several weeks of no new cases.

Wednesday August 12
The mood was reversed today after the US CPI strong beat (double the figures expected). In a clear risk-on day, helped by dip buyers, NDX outperformed, up 2.1%, and SPX exceeded the Feb 19 closing all-time high, and came within 5.63 points (0.17%) of the intraday high of the same day. Oil was up 2.48%, and only JPY was down against a notably weaker dollar. Despite risk-on, yields advanced again and Gold was up, a bounce from Tuesday’s sharp sub-$2000 fall.

Thursday August 13
News today was a beat on Jobless Claims, but another day of stimulus deadlock. Another day of NDX outperformance saw the tech index slightly up and SPX and DJIA slightly down (so no new high) on what was generally a flat day, although European indices fell, notably FTSE on GBP performance following Wednesday’s GDP beat. Oil slipped slightly, and the dollar was directionless, with AUD, NZD, and JPY down, but EUR, GBP and CAD up. Gold continued its bounce back and yields continued to climb. This week, these assets are being driven by a longer-term trend as the dollar flattens.

Friday August 14
Poor Chinese Industrial Production and Retail Sales figures triggered a sell-off in the European morning, although this recovered in the US session, to produce the oft-seen pattern of recovery after the European close. FTSE was down sharply on another GBP rally (which came off, when London closed!). So US markets were flat overall, and closed another consolidating weekk. All US and European indices had larger daily moves than their total for the week. The dollar faded again, this time across the board, as the yields rally stalled, and Bonds were flat on the day. Gold also came off slightly, as did Oil.

WEEKLY PRICE MOVEMENTEuropean and US indices consolidated this week, but the picture was completely different on NKY which was our largest index mover, up 4.29%. The weakest currency was NZD and the strongest was CAD. Selling NZDCAD would have made 1.98%. Yet another week where ETH advanced but BTC was flatter than forex, and a very mixed performance from FANGs.

Selling NZDUSD for a second week paid off, making 1.05% and my running total 7.91% (28 weeks, 13 wins). I think GBP is probably overextended and CAD’s recent strength looks like it will go another week, so I will sell GBPCAD this week.

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)

  • DNC due to confirm Biden/Harris
  • Retail earnings phase
  • OpEx on Friday
  • UK, EU and Canada inflation

Monday August 17 
The Democratic National Convention starts today, where Joe Biden and Kamala Harris will be confirmed as candidates. Traders will be watching all week for signs of policy given that Biden is the front runner in the polls.

23:50 Japan Prelim Q2 GDP (e-7.6% p-0.6%) (Sun)
04:30 Japan Industrial Production (YoY)(Jun)

Tuesday August 18 
Retail earnings season opens today with DJIA components WMT and HD reporting before the bell. Like yesterday, macro news is thin.

01:30 RBA Meeting Minutes
08:00 Fed Brainard speech
12:30 US Housing Starts/Building Permits
23:50 Japan Imports/Exports/TB

Wednesday August 19 
A raft of inflation data today, and earnings from many SPX component retailers. Tech giant NVDA reports after the bell. Also important are the FOMC minutes from the last meeting.

06:00 UK CPI (YoY Jul e0.7% p0.6%)
06:30 UK CPI MoM
09:00 Eurozone CPI
12:30 Canada BoC CPI
18:00 FOMC Minutes

Thursday August 20 
A lot of low-level economic releases today, with Jobless Claims being the most important. Chinese giant BABA reports before the bell.

06:00 Germany PPI
06:00 Germany Gfk Consumer Confidence Survey
10:00 UK CBI Industrial Trends Survey – Orders
11:30 ECB MPC Minutes
12:30 US Jobless Claims
12:30 Philly Fed Mfr Survey (Aug)
16:00 BoC Beaudry speech
23:00 Aus Commonwealth Bank Prelim PMIs (Aug)
23:30 Japan National CPI

Friday August 21 
Today is August option expiration date, so additional volatility may be seen. European PMIs dominate the early day. Agricultural proxy DE reports before the bell.

06:00 UK Retail Sales
07:30 Germany Prelim Markit Mfr PMI (Aug e52.5 p51.0)
08:00 Eurozone Prelim Markit Composite PMI (Aug e54.7 p54.9))
08:30 UK Prelim Markit Svcs PMI (Aug e57.0 p56.5)
12:30 Canada Retail Sales (MoM Jun p24.5%)
13:45 US Markit Prelim PMIs (Aug)
14:00 US Existing Home Sales
14:00 Eurozone Prelim Consumer Confidence

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