Sunday, 20 September 2020

Week to Sep 18th

Fed seen as not dovish enough, DXY inside week, Equities, Gold and bonds consolidate

This week, the Fed’s statement confirmed what would in normal times be seen as dovish, confirmation of the new averaging of inflation and no rate increases until 2023, or inflation is “on-track to moderately exceed 2% for some time.” However, there was no new easing hints at, and thus the report was considered slightly hawkish, or at least, as we have seen recently ‘not as dovish as expected’.

Early equity gains on vaccine hopes were capped to produce a lambda-shaped (inverted V) week, with a slight risk-off bias, seen in tech underperformance (vs DJI), and a rising yen. The dollar had a short-lived spike up immediately after Fed, primarily against the euro, but DXY posted its first inside week since early August, and Gold and Bonds continued in low-volatility consolidation. Ignoring EUR, the dollar was slightly up.

Next week is light on scheduled macro news, with little other than PMIs, and will probably be dominated y the preponderance of CB speakers, topped of course by Fed Chair Powell’s marathon three-day testimony to Congress on the Coronavirus Act, where traders will looking for amplification of detail on the current Fed position. Also of note is TreasSec Mnuchin’s testimony. The week also sees a huge tranche of corporate bond issues, taking advantage of rock-bottom rates.

Mon Sep 14

Markets rose today, reversing Friday’s fall, on news that Oxford University and AZ were recommencing vaccine trials, and PFE said a vaccine by year-end was likely. European indices were flat after currency gains. The dollar fell again across the board. Gold was up on the weaker dollar, whereas bonds and JPY fell in line with market, the yen being the largest mover in the DXY basket. Oil was more or less flat.

Tuesday September 15

Strong economic data in the morning from both China and Europe produced a risk-on day, with NDX and SPX outperforming a flat DJIA. Oil was up in line, and Gold and bonds were down. The dollar was more of less flat overall, with a weak euro contrasting strength elsewhere. JPY continued upwards, against the haven trend.

Wednesday September 16

After fading pre-market, US stocks attempted a small rally, but fell again after the Fed statement was seen as ‘not dovish enough’. The Fed upgraded their long-term economic forecast and said that there would be no rate hikes until inflation reaches 2% under the new averaging rules. The dollar spiked up on the news and ended up against all currencies except EUR (which meant DXY was slightly down). Gold was up in line with the equity pullback. Bonds were flat. Oil rose after the strong EIA stock beat.

Thursday September 17

Equity markets were disappointed with the Fed’s failure to offer anything new, and fell again today, not helped by the continuing Congress deadlock on the next COVID relief bill. The brief ‘hawkish’ dollar rise faded fully today as well. The move was strong (all currencies were up), and completely overshadowed a three-hour 0.86% dip in GBP after the Bank of England mentioned that they had been studying negative rates. Oil was up in line. Gold was down slightly, and bonds were flat.

Friday September 18

Equity markets and Oil fell again today following the trend since the Fed, and Gold and JPY were up in line, the latter only 0.14% up but this was otherwise on a stronger dollar day, particularly against GBP and CAD. Yields were slightly up on the stronger dollar.

Largely a consolidating week when the strongest index move (NDX) is only 1.36% down, although notably FANG considerably underperformed the index, with most of the giants down 5%. Only a slight move in crypto, and the largest forex mover, also slight was CADJPY down 1.69%.

I was right about EURGBP pulling back. The 1% gain puts our running total to 8.12% (17 wins out of 31 and 3 in row).  There’s an almost textbook cup and handle on EURCAD, to take the pair up 367 points from the current 1.533 to 1.6. This is my trade this week, although it probably won’t get there in a 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)

  • Powell three-day testimony with Mnuchin
  • Nine Fed speeches plus two from the BoE
  • Full set of PMIs Wednesday
  • Six weeks to the election

Monday September 21

A new weeks opens, with only six weeks to go to the election which will be increasingly important. Fed Gov Brainard speaks on the Community Reinvestment Act in Washington.

12:30 Chicago Fed National Activity Index

14:00 Fed Chair Powell speech

16:00 Fed Brainard speech

22:00 Fed Williams speech

Tuesday September 22

Fed Chair Powell begins the first of three days testimony to the House on the Coronavirus Aid, Relief, and Economic Security Act. TreasSec Mnuchin appears with him. BoE Governor Bailey speaks to the British Chambers of Commerce.

00:30 RBA Debelle speech

07:30 BoE Governor Bailey speech

10:00 UK CBI Industrial Trends Survey – Orders

14:00 US Existing Home Sales

14:30 Fed Chair Powell testifies

14:00 Eurozone Consumer Confidence

23:00 Aus Commonwealth Bank PMIs

Wednesday September 23

Fed Chair Powell testifies for the second day to the House, and we have a rash of PMIs (all three categories) today. The most important ones are highlighted.

01:30 Australia Retail Sales

02:00 RBNZ Rate Decision/Statement (e0.25% hold)

06:00 Germany Gfk Consumer Confidence Survey

07:30 Germany Markit Mfr Prelim PMI (e52.5 p52.2)

08:00 Eurozone Markit Composite Prelim PMI (e51.7 p51.9)

08:30 UK Markit Services Prelim PMI (e56.0 p58.8)

13:00 Fed Mester speech

13:00 US Housing Price Index

13:45 US Markit Prelim PMIs

14:00 Fed Chair Powell testifies

18:00 Fed Quarles speech

23:50 BoJ Monetary Policy Meeting Minutes

Thursday September 24

Today Fed Chair Powell testifies to the Senate on the Coronavirus Act, again with Mnuchin alongside him. BoE Gov Bailey speaks again to the Chamber of Commerce. 

08:00 Germany IFO Sentiment Indicators

12:30 US Jobless

14:00 Fed Chair Powell testifies

14:00 Treasury Sec Mnuchin speech

14:00 US New Home Sales (MoM)(Aug)

14:00 BoE Governor Bailey speech

18:00 Fed Williams speech

Friday September 25

The only significant US macro prints today with the dual Durable Goods and inelegantly named Non-Defence Capital Goods ex Aircraft. Fed Williams gives the ninth Fed speech of the week.

12:30 US Durable Goods (Aug e1.5% p11.4%)

12:30 US ND Capital Goods (Aug e1.9% p1.9%)

19:10 Fed Williams speech

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