LAST WEEK
Monday saw the DJIA make
its ninth successive ATH, although other indices, SPX, DAX, FTSE and NKY were
flat. In currencies, USD continued to fade, although less aggressively than
last week. DXY was down 0.1%. EUR and JPY were slightly up, but AUD CAD and GBP
were down, as was the 10-year bond yield. Gold was also slightly up, whereas
oil was slightly down as the OPEC conference continued.
On Tuesday,
President Trump reacted to North Korea’s latest provocation with language not
dissimilar to that used by the Kim regime, promising ‘fire and fury’ if NK continued
its path. Nevertheless, after the normally unimportant JOLTS Job Openings beat
at 1400, the SPX and DJIA briefly made another ATH of 2490 and 22178 respectively,
before pulling back quickly to end the day down. The beat was substantial,
(6.16M vs 5.77M) which validates what we always say about minor releases.
Finally, the VIX reacted, and was up 11% on the day at 11.03. The pattern was
repeated to a certain extent in DAX, FTSE and NKY, after the German Trade
Balance beat at 0600. The JOLTS print also helped USD, which was looking for an
excuse to rally, and in any event, still buoyed by last week’s NFP beat. The
dollar was up strongly against EUR, GBP and AUD, but flat against CAD, and
actually gave up ground to JPY. (GBPJPY faded 100 pips on the day). Gold fell
on the JOLTS report, but finished the day up. Yields did the exact reverse
(i.e. bond prices correlated with Gold). As JPY was the only currency gainer,
we can safely assume the Trump remarks caused traders to take risk off. Oil was
down on the day as the OPEC meeting failed to deliver a definitive answer on
cuts. The API stock beat at 2030 (-7.84M, prev +1.78M) of course came after the
open outcry market closes.
Wednesday saw further negative
sentiment as the war of words between Kim and Trump continued. However, the
reaction from US stocks was relatively muted, with SPX DJIA and NDX only
slightly down. The reaction was stronger elsewhere. DAX futures had fallen
after Tuesday’s cash close, so although trading was fairly flat, the gap down
was not recovered and the index closed 1.1% down, partly because EUR clawed
back some of Tuesday’s losses. NKY was well down on NK tension, and of course
Tuesday’s yen strength. FTSE was also down as GBP recovered. In currencies, JPY
continued to hold up and gold rose as risk-off sentiment continued. Otherwise
USD was down against EUR AUD and GBP. Surprisingly, CAD was down despite the
EIA Oil stock release at 1430 (-6.45M vs -2.72M) confirming the API beat, and
Oil’s expected response, up 1.39% on the day. The Oil price action this week
was unusual. The future moved from 49.00 to 49.60 in the European session, in
advance of the EIA print, gave it all up on the print, despite the beat, and
put it all back on (and another 10c) by the pit close at 1830. Bond yields did
their own thing, fading hard into the Labor Costs (strong miss) and Non-Farm
Productivity (beat) reports at 1230, and rebounding straight afterwards to end
the day flat. The NZD rate hold at 2200 did not have an instant reaction, but
the Kiwi dollar had given up a massive 1.58% to hit a one-month low by the end
of Thursday’s Asian session.
Thursday saw no resolution of
the North Korea issue, and risk off intensified. SPX fell 1.5% to a one-month
low and below its 50-day moving average. VIX was up 40% on the day, NDX fell an
even bigger 2.1% (although this was partly on tech news/earnings). DJIA was
relatively unscathed down 0.9%. Similar losses were seen in other indices
around the world. Once again, USD was strong against AUD, CAD, GBP and EUR
(although this rallied later in the day), but down sharply against JPY losing
0.8% on the day. Gold and bonds were up again (yields were down) as investors
sought safe havens. After breaking the psychological $50 point briefly, Oil
fell $1.50 on reports that OPEC had increased output, something not mentioned
in the earlier meeting. The day’s news was low-key and with mixed results and
had little effect.
After
falling for the most of the week, some equities staged a slight recovery on Friday.
SPX and DAX made small gains, NKY was flat. Only FTSE continued to fall after a
strong performance from GBP which recovered two days of losses. USD was down
across the board after the inflation (CPI) miss at 1230. However, risk was
still off, as JPY held steady and Gold rose again. Bond yields briefly spiked
up on the CPI print, but ended the day flat, and Oil made a slight recovery.
WEEKLY
PRICE MOVEMENT
These
are the prices movements for the week on the instruments we cover. The best
forex trade of the week would have been short AUDJPY, down 1.76%. The strongest
index movement was NIFTY, down 3.58%
AUDNZD
1.0783 (+0.84%)
AUDUSD
0.7893 (-0.45%)
EURGBP
0.9087 (+0.62%)
EURUSD
1.1821 (+0.40%)
GBPUSD
1.3009 (-0.21%)
USDCAD
1.2680 (+0.23%)
USDJPY
110.68 (-1.34%)
DAX
12003 (-2.30%)
FTSE
7301 (-2.85%)
NIFTY
9710 (-3.58%)
NKY
19427 (-3.10%)
SPX
2442.1 (-1.31%)
GOLD
1289.08 (+2.41%)
OIL
48.79 (-1.47%)
NEXT
WEEK (all
times are GMT)
Campaigning
starts for the German Federal Elections this weekend. The incumbent CDU
(Merkel) party have a 16-point poll lead, and so the market is pricing in
continuity. At least we think so, the DAX is down 650 points against this time
last month, but this is largely to do with EUR strength. We think that the
North Korea situation, along with Russiagate, is still the biggest damper on
the market. However, negative sentiment tends to fade, and if nothing further
is heard this week, we may well be back to business (equities rising) as usual.
Monday’s news is all at the
beginning, with the RBA meeting minutes at 0130, and Chinese Retail Sales and
Industrial Production at 0200. Mondays have been quiet the last few weeks, and
we expect this to be no exception.
Tuesday is Indian
Independence Day, and Assumption Day in France and Southern Europe. We will be
watching GBP from the London futures open (0600) to see if the price/action
indicates whether the inflation (CPI) print at 0830 is a beat or miss against
the 2.7% estimate. There has been much speculation about whether these figures
are leaked in advance, or whether ‘buy the rumor, sell the news’ applies.
However, we have called the UK release beats/misses about 80% of the time based
on the early morning action. The release is important because a miss will
definitely be seen as dismissing hopes of an early rate hike, and sterling is
likely to fall. USD Retail Sales at 1230 is also important (to USD recovery).
The estimate is ambitious at 0.3% after last month’s -0.2%. Even a small beat
should help USD rise against EUR and GBP. Whether USDJPY rises depends on the
ongoing NK situation. Don’t forget the milk auction (prev -1.6%), which will
help NZD if the figure turns positive.
Wednesday has UK unemployment
statistics. Despite the figures being produced by the International Labour
Organisation, these are ONS (UK Government) statistics so our caveat about
leaks also applies. Unusually, Canadian and US Housing Starts come in within 15
minutes of each other at 1215 and 1230. If the first spikes USDCAD, the second
may well revert it. The EIA Oil Stock arrives on time at 1430, and this week we
have an estimate, -2.72M, a lower figure than last week’s -6.45M. As usual,
follow the previous day’s API print. However, the big news is the FOMC Minutes,
in particular, the Fed view on balance sheet reduction/tightening. This may be
the trigger for the beleaguered dollar to rise, particularly against EUR.
Thursday’s focus is away from
the US. First, we have the Australian employment/unemployment data, their
version of NFP at 0130. We don’t have an estimate yet, but last month’s figure
of 14k was modest (after 61k in April and 42k in June). The figure is, like
last month, regarded as high volatility. In the European session, there is
first UK Retail Sales for July (est 1.4%, follow previous comments re leaks).
Then the key releases of the day are the Eurozone inflation print at 0900,
followed by the ECB MPC accounts at 1130. We have discussed in subscriber news
how EUR is out of sync with bond prices (too high). Traders need a reason to
sell, and this could be it. The day continues with various low-level US
releases.
Friday is light, the main
news being Canadian inflation. A beat on the 1% YoY estimate will strengthen
the case for a rate hike, Canada being behind the US curve, and may stop the
recent USDCAD recovery in its tracks.
CALENDAR (high volatility
items in bold)
Mon
Aug 14
0130
AUD RBA Meeting Minutes
0200
CNY Retail Sales
0200
CNY Industrial Production
0900
EUR €Z Industrial Production
Tue
Aug 15
0600
EUR Germany GDP
0830
GBP UK PPI
0830
GBP UK inflation (CPI)
1230
USD Retail Sales
1230
USD Import/Export Price Indices
1400
USD NAHB Housing Market Index
1430
NZD GDT Milk Auction (time approx.)
2030
WTI API Stock
Wed
Aug 16
0830
GBP ILO Unemployment/Claimant Count Change
0900
EUR €Z GDP
1215
CAD Housing Starts
1230
USD Housing Starts/Building Permits
1430
WTI EIA Stock
1800
USD FOMC Minutes
2350
JPY Imports/Exports/Trade Balance
Thu
Aug 17
0130
AUD Employment/Unemployment
0600
EUR Germany Wholesale Price Index
0830
GBP UK Retail Sales
0900
EUR €Z inflation (CPI)
1130
EUR ECB MPC Accounts
1230
USD Initial/Continuing Jobless
1230
USD Philadelphia Fed Manuf Survey
1315
USD Capacity Utilisation
1315
USD Industrial Production
Fri
Aug 18
0600
EUR Germany PPI
1230
CAD Canada inflation (CPI)
1700
WTI Baker Hughes Rig Count
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