Sunday, 2 August 2020

Week to Jul 31st

Dovish Fed and dollar falls, FANG stocks outperform, Gold ATH

The continuing pressure of COVID-19, and the shocking annualised GDP (-32.9%) and Continuing Jobless claims (17M) contrasted with generally good earnings resulting in a whipsaw consolidation week in equities. The strong results on Thursday night, representing a third of the NDX index reversed the recent tech underperformance. The anticipated dovishness from the Fed sent the dollar to a new 26-month low, and 10-year yields to all time lows. Also counter to equity trend, we saw new all-time highs in Gold and a 7-year high in silver, as Fed stimulus money appears to be reaching all assets classes.

Next week sees rate decisions (and more importantly, statements and Governors’ pressers) from Australia and the UK (the latter at the new pre-market 0600 GMT), and of course Non-farm Payrolls, where the ‘recovery’ estimate of 1.36M is much lower than the near 5M last month. The important part of earnings season is now over, and we are in vacation season in Europe and the US (as far as that is possible these days), so it seems consolidation may be on the menu for equities in the coming week. Other asset classes are more interesting, with Gold and EURUSD the most overbought (and thus DXY the most oversold) since Mar 2008.

Monday July 27
Markets reversed Friday’s fall at climbed again today, with NDX outperforming, helped by several analysts hiking their AMZN price target. On the other hand, the dollar continued to fall, with DXY down 0.9% to a new two-year low, generally blamed on US having the worst COVID problem in the world. All currencies were up. Oil and yields were up in line with equities, but Gold reacted not to risk-on but to the falling dollar and hit a new intraday and closing all-time high.

Tuesday July 28
For weeks now these rallies have not lasted, and today was a Turnaround Tuesday, with SPX down and NDX more so. Oil and yields were down in line. The only exception was FTSE, down as a result of a strong GBP. The dollar continued to fall ahead of the Fed meeting, and so the three haven assets (Gold, Bonds and yen) were all up. Gold spike to a record $1,980 before pulling back. For once, a textbook risk-off day.

Wednesday July 29
The Fed today confirmed they would maintain their stimulus until they are confident that the economy has weathered the crisis. This dovish stance led to a further drop in the dollar and yields, and equities and Oil were back up again. Yet once again, Gold was up, repeating its touch of $1980.

Thursday July 30
Another day, another whipsaw reversal on the news that annualised GDP fell by a shocking record -32.9% for the quarter. Markets initially fell 1.6% before recovering into the close into the ‘Tech Thursday’ event, where AAPL, GOOGL, AMZN and FB, an unprecedented total of 35% of NDX by weight reporting simultaneously. Oil fell with the early move, but didn’t recover, partially because open outcry trading ends 90 minutes before the equity market. Once again all haven assets were up, as the dollar accelerated its fall on the growth (or rather, contraction) print.

Friday July 31
The strong results from FB, AMZN and AAPL pushed NDX up 2% overnight, most of which held during the day. Other indices followed suit except once again FTSE which fell on GBP strength. However, markets fell hard at the open (meaning European indices closed red) on the failure of the House to pass the next COVID-19 relief bill, and of course the increasing second wave of deaths (as seen by a fall in transportation stocks), but fully recovered, along with Oil in the last hour. Nevertheless DJIA was flat on the week, with only NDX showing a substantive gain, and European indices lost around 4% on week.

The dollar and yields rebounded slightly today, although the week ended with DXY at 28-month lows, and 10-year yields at all-time lows, also setting a new low in the real (inflation adjusted) yield, which is now negative. Gold was up again, touching $1,980 for the third time.

An amazing diverse week where NDX rose 4.03% but NKY fell 4.43%, the largest index mover. The biggest forex move this week was GBPNZD up 2.46%. Finally, after many weeks, we saw some activity in crypto, with BTC and ETH both recording sharp rises. FANG stocks all substantially outperformed the NDX as a whole.

My own call, to buy CADJPY was more or less flat. It lost 0.03%, making my running total 6.54% (26wks 11wins). I think the dollar is going to reverse back up next week, so I will take a chance and sell NZDUSD, as NZD seems to be the weakest currency at the moment.

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
  • Non-Farm Payrolls US and CA
  • Earnings season pause
  • UK and Aus rate decisions

Monday August 3
The key print today, as we go into one of the quietest months of the year, is the ISM Manufacturing PMI. There is a rate decision in Romania. Markets are closed in Canada and Turkey.

01:45 China Caixin Manufacturing PMI(Jul)
07:55 Germany Markit Manufacturing PMI(Jul)
08:30 UK Markit Manufacturing PMI(Jul)
13:45 US Markit Manufacturing PMI(Jul)
14:00 US ISM Manufacturing PMI (Jul) (e54 p52.6)
23:30 Tokyo CPI

Tuesday August 4
The main news is for once from Australia today, with trade news (which may reflect their recent spat with China over Huawei) and a rate decision. The only major earnings today are DJIA stalwart DIS after the bell.

00:30 Aus Retail Sales (MoM e2.4% p2.4%) 
01:30 Aus Imports/Exports/TB (TB e8.76B p8.02B)
04:30 RBA Rate Decision/Statement (e0.25% hold)
13:30 Canada Markit Manufacturing PMI(Jul)
14:00 US Factory Orders (MoM)(Jun)

Wednesday August 5
Lots of PMI data today, and the ’NFP preview’ ADP, which is estimated to be 1.25M, lower than the NFP estimate. There are rate decisions in Brazil and Thailand.

01:45 China Caixin Services PMI(Jul)
07:55 Germany Markit PMI Composite(Jul)
08:00 Eurozone Markit PMI Composite(Jul)
09:00 Eurozone Retail Sales (YoY e0.2% p-5.1%)
12:15 US ADP Employment Change
12:30 US Trade Balance
12:30 Canada Trade Balance
13:45 US Markit Services/Composite PMI
14:00 US ISM Non-Manufacturing PMI (e54.8 p57.1)

Thursday August 6
The second rate decision of the week is from the UK, at the new pre-market time of 6am, and therefore several hours before the Governor’s statement. As well as the UK, there are rate decisions in India and Czechia.

06:00 BoE Rate Decision/Statement (e0.1% hold)
06:00 Germany Factory Orders s.a. (MoM)(Jun)
11:30 BoE Governor Bailey speech
12:30 US Jobless Claims

Friday August 7
The week ends with NFP, with a much lower estimate than last month’s figure. The Canadian print is concurrent offering a volatility opportunity in trading USDCAD.

01:30 RBA MPC Minutes
01:45 RBA Ellis speech
02:00 China Imports/Exports/TB
06:00 Germany Trade Balance/Industrial Production
12:30 US NFP/AHE/UnEmp (NFP e1.36M p4.8M)
12:30 Canada NFP/AHE/UnEmp (NFP e653k p953k)
15:00 Canada Ivey PMI

1 comment:

  1. Love your factual insights, as always! Cheers from Canada!


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