Saturday, 29 August 2020

Week to Aug 29th

Fed dovishly redefines inflation, New SPX/NDX ATH, Japan PM Abe resigns

The week’s main event was the speech from Fed Chair Powell at the virtual Jackson Hole conference, stating that the rules for calculating inflation would be changed, which ultimately would lead to more stimulus or easing. This was more dovish than expected, and stocks rose and the dollar fell. Indeed that was the pattern all week, as the move had been anticipated, although the dollar fade accelerated after the announcement. Otherwise positive vaccine news from MRNA and AZ, and a continued decline of second wave cases and deaths produced straight line gains and new highs in SPX and NDX, with strong FANG outperformance agains.

Non-US indices did not follow the trend, being pushed back by currency gains. Japan came to the fore on Friday with the shock news of Premier Abe’s resignation on health grounds. The popular leader has widely been seen as the architect of recent Japanese growth (anaemic by US standards, but still an improvement on a decade ago). NKY dropped 3% instantly on the news, wiping out the week’s gains.

Next week’s main event, as always for a new month is the Non-farm Payrolls report, with another bumper estimate as furloughed workers return. The report leads into the long Labor Day weekend. Also of interest are the Trade Balance and ISM PMIs, although the week is richer in non-US news. A small sideshow is the DJIA recomposition, now headed by UNH, and with AAPL moving from nearly 12% to under 3% weight. This can only increase future DJIA/NDX divergence. The UK is closed on Monday, which will dampen forex volatility.

Monday August 24
With positive news on the vaccine from AstraZeneca, and the COVID-19 second wave continuing to recede, lockdown affected stocks (airlines, retail etc.) surged powering SPX to a new closing high, with breadth, over 400 of the index components rose. NDX underperformed. Bonds and Gold fell, and Oil rose in line with equity move. The dollar had flat day (but JPY fell), the calm before the Jackson Hole storm. As expected the RNC confirmed the Trump/Pence second term ticket. A classic risk-on day.

Tuesday August 25
With mixed economic data, but some positive China news (the ‘Phase 1 deal’ was confirmed), the market took a rotation breather, with DJIA down, and NDX outperforming SPX, but both of these edging up to new highs. Other assets were directionless, with Gold and Bonds up, but JPY down. Oil was also noticeably up (+1.88%). FTSE was down, mostly on currency moves, as USD rose against the yen, but faded against other currencies, driven by strong German sentiment data which lifted EUR.

Today the new composition of the DJIA was announced, following AAPL’s 4:1 split. RTX (formerly UTX), XOM, and PFE leave the index, and are replaced by CRM, AMGN and HON. The removal of XOM was reminiscent of the fate of GE in 2018. Like GE, XOM was once the largest company in the index, and indeed for many years the largest by market cap in the world. Founded as Standard Oil by John D Rockefeller in 1870, it has been in the index since 1928. HON was previously in DJIA, leaving in Feb 2008. All three stocks were sharply up (although CRM +26% was on earnings), although the other entrants have more weight, and thus are more important in the new composition.

Wednesday August 26
MRNA gave another promising vaccine report today and rose 6.42%, and the Durable Goods report was a strong beat, and notably today, the FTSE All World Index set a new all-time high. Note this index is still heavily American, with AAPL, MSFT and AMZN the largest components. This led to new SPX and NDX records. Oil was up in line. However bonds were flat, and Gold and JPY advanced following a weaker dollar, falling in anticipation of the Jackson Hole speeches.

Thursday August 27
Today’s main news was of course Fed Chair Powell’s speech at Jackson Hole, where he announced plans to redefine the Fed’s measure of inflation, averaging out the releases, which would ultimately mean stimulation could last longer. The latest GDP print also beat estimates, as did Pending Home Sales. Also today it was confirmed that Hurricane Laura will bypass the important oil installations in Louisiana and Texas, which depressed Oil, a rare fundamental response. Markets rose, but not in Europe (despite, for the day, a strong dollar). Gold, Bonds and JPY were all quite sharply down in line with the US equity gains.

Friday August 28
The day started just after 0500 with the shock resignation of highly-regarded Japanese Prime Minister Shinzo Abe, where NKY immediately dropped 3%, and USDJPY dropped 0.57%, and eventually 1.42% on the day. The effect continued into Europe, where indices were notably down on the day, more so than NKY which had been well 1.4% up prior to the news.

The mood changed after the PCE and Michigan CSI beats in the US session, and all US markets closed green, with DJIA going into positive territory for the year (although not a new all-time high). Of course part of the effect was the Fed announcement on Thursday. Oil was up in line.

The dollar came off sharply today after the Fed announcement, down against all currencies. EURUSD made a two-year high. Yields followed the dollar down, which also drove Gold back up.

NDX was the top mover in this bullish week, up 3.81%. The largest forex move was NZDUSD, up 3.06%. Cryptos went back to sleep. BTC is now routinely less volatile than stocks. FANGs of course outperformed NDX, specially FB, up nearly 10%.

A very bad week for me. My choice to short NZDJPY cost me 2.67%, moving running gains back to 5.91%, 14 wins out of 30. I’m going to try again through, this time selling NZDCAD

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)
  • Non-Farm Payrolls
  • New month
  • DJIA component change
  • RBA Rate Decision

Monday August 31
The last day of the month is also a market holiday in the UK. The main news is German inflation. There is a rate decision in Colombia. It is also the first day of the AAPL split and DJIA component change. TSLA is also splitting its share 5:1 to a price of $442.68. Amazing the this was the pre-split price only five months. Note that previous AAPL splits showed no particular advantage.

23:50 Japan Retail Sales (Sun)
01:00 China PMIs (Mfr e48.7 p51.1)
01:00 Aus TD Securities Inflation
12:00 Germany CPI (e0.4% p0.0%)
13:00 Fed Clarida speech
23:00 Aus Commonwealth Bank Mfr PMI
23:30 Japan Jobs/Unemp

Tuesday September 1
The new month sees an Australian rate decision and European inflation print. There is a rate decision in Chile, and markets are closed in Slovakia.

01:45 China Caixin Mfr PMI
04:30 RBA Rate Decision
07:55 Germany Unemployment
07:55 Germany Markit Mfr PMI
08:30 UK Markit Mfr PMI
09:00 Eurozone CPI (YoY e1%)
09:00 Eurozone Unemployment
13:30 Canada Markit Mfr PMI
13:45 US Markit Mfr PMI
14:00 ISM Mfr PMI (e54.0 p54.2)
17:00 Fed Brainard speech

Wednesday September 2
In the wildly variable jobs report days, the ADP print may be significant. Otherwise a thin day for US news.

01:30 Australia Q2 Final GDP (e-0.3% p-0.3%)
06:00 Germany Retail Sales (YoY e3.0% p5.9%)
12:15 US ADP Employment Change
14:00 US Factory Orders
14:30 BoE Haldane speech
14:30 BoE Broadbent speech
18:00 Fed Beige Book
23:00 Aus Commonwealth Bank Svcs PMI

Thursday September 3
The busiest US news day is not that busy, with the ISM Services PMI the most important, and probably the Trade Balance after that.

01:30 Aus Imports/Exports/TB (TB e8.8B, p8.2B)
01:45 China Caixin Svcs PMI
07:55 Germany Markit PMI Composite
08:00 Eurozone Markit PMI Composite
09:00 Eurozone Retail Sales (YoY e-0.5% p1.3%)
12:30 US Trade Balance
12:30 US Jobless Claims
13:45 US Markit PMIs
14:00 US ISM Services PMI (e57.1 p58.1)
14:00 BoE Governor Bailey speech

Friday September 4
The jobs report is the key takeaway for today as we go into the long Labor Day weekend.

00:30 Aus Retail Sales (e3.3% p3.3%)
06:00 Germany Factory Orders
12:30 US NFP/AHE/UnEmp (NFP e1.55M p1.76M)
12:30 Canada NFP/AHE/UnEmp (NFP e400k p418.5k)
14:00 Canada Ivey PMI

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