Week to Sep 8th

LAST WEEK (all times GMT)

As the new month got underway, Monday saw NK tensions again after the nuclear bomb test, and markets gapped down. However, it was Labor Day, with only futures open in the US. Volatility and losses were therefore moderate, and DAX had closed the gap before the US bell. Other indices also rose after the gap, and all ended moderately down on the day. Other news had little effect. USD reflected the tension and fell against most currencies except AUD, surprisingly as Gold rose to $1,339 at one point, its highest Trump-era price. As the day continued USD recovered slightly, and DXY finished only slightly down. 10-year US bond yields gapped down 6bp, and then only moved 1bp during the day, to close where they opened at 2.167%.

Tuesday saw US markets open again, and the reaction to the NK nuclear test kicked in. After the US Factory Orders miss at 1400 SPX fell 0.8% on the day, and even more in financials and technicals (NDX fell 0.92% including the gap). Only energy stocks held up, buoyed by the sharp 2.55% rise in Oil. Non-US indices were also down sharply. USD followed suit and was down again all currencies, particularly JPY, and gold was up to a new 2017 high. Yields fell sharply. Altogether, a risk-off day. The RBA rate hold at 1.5% (0430) had little effect, although the psychological 0.80 level was briefly breached.

We often talk about Turnaround Tuesday, but with Labor Day being a holiday, Tuesday’s pessimism was turned around on Wednesday. News that the US debt ceiling would be extended helped all markets up, despite US PMI misses) DAX was the standout instrument. It put on 1.77% as EUR recorded a flat day for once. The big news of the day was the surprise Canadian rate hike from 0.75% to 1%. The loonie immediately rallied 270 pips (2.17%) to touch a 28-month low. It then recovered a cent and finished 1.2% up on the day. Otherwise, as with EUR, USD had a flat day against AUD and GBP, but took assumed some risk again as gold, JPY, and bond prices were down. Oil extended Tuesday’s gains a little further, putting on 1.15%, the API stock print of 2.97M vs -5.78M previous being after the pit closed.

Equities took a rest on Thursday, with the negative potential effects of Hurricane Irma balancing relief about the debt ceiling. After some volatility following the big Initial Jobless Claims miss (298k vs 241k) caused by Hurricane Harvey, most indices ended the day flat, as did Oil, not really reacting to the EIA stock miss at 1430. Only FTSE showed some life rising 30 points (0.40%) despite GBP also appreciating.

All eyes were of course on ECB President Draghi’s speech at 1230. Despite alluding to fears about the strength of the Euro on European competitiveness, he did in the end have to say something about tapering – it would be discussed in October. This was all traders needed. As we predicted last week, EUR promptly put on 92 pips (0.77%) to go back above $1.20. Unusually, the spike took 30 minutes to unfold as traders digested the speech.

USD had a bad day all round. DXY touched 91.41, a level not seen since January 2015, as it gave up ground against all currencies, not just the Euro. CAD continued its rate hike gains, and non-DXY component AUD roses, Gold hit a new 2017 high up 1.10% to $1348.17. Yields were down again at a 2017 low.

The week was more volatile for currencies than indices and Friday saw a flat close in SPX and DAX, and a fade on X% in FTSE. SPX and FTSE completed a rare inside week. NKY however was down 0.6% on yen strength. USD gave up ground across the board, EUR briefly hit a new high of $1.2087, and DXY hit another 33-month low, on a mix of Hurricane Irma and North Korea National Day risk aversion. Also contributing to dollar decline this week were the resignation of Fed Fischer (centrist), and dovish speeches from (to be fair, known doves) Fed Dudley and Brainard.

Gold hit another new high of $1357.57 before some profit taking took it marginally down on the day. Similarly CAD hit a new high on the jobs beat at 1230, but again finished the day slightly down. In a possible delayed reaction to the EIA miss on Thursday, Oil fell sharply by 3.34% giving up virtually all its gains for the week.

WEEKLY PRICE MOVEMENT

These are the prices movements for the week on the instruments we cover. Every currency was up against USD, so the best forex trade of the week, for once not a cross, would have been short USDJPY, a gain of 2.41%. The strongest index movement was therefore unsurprisingly NKY, down 2%.

AUDNZD 1.1092 (-0.36%)

AUDUSD 0.8054 (+1.07%)

EURGBP 0.9122 (-0.37%)

EURUSD 1.2035 (+1.47%)

GBPUSD 1.3194 (+1.86%)

USDCAD 1.2156 (-1.94%) 

USDJPY 107.85 (-2.19%) 

DAX     12291 (-0.20%)

FTSE     7365 (-1.10%)

NIFTY    9914 (-0.76%)

NKY     19303 (-2.00%)

SPX    2463.4 (-0.47%)

GOLD  1346.56 (+1.61%)

OIL     47.56 (+0.44%)

NEXT WEEK (all times are GMT)

Over the weekend we have Chinese inflation and PPI figures and an increase is expected. Saturday was National Day in North Korea, and another missile launch was expected – and priced in. No launch happened so this might be a boost for markets, although a gap up like last week’s gap down might be a stretch.

Of more concern is Hurricane Irma which has battered the Caribbean and will make landfall in Florida. We already saw a huge spike in Initial Jobless Claims last week.  The Wall Street Journal predicts a reduction of 27,000 (against normal) in the next few NFP prints, and as much as 0.3% off US GDP. We cannot help remembering that it was a the largest storm of the century in Britain that immediately preceded the October 1987 crash.

Monday is a solemn day for our finance profession as we remember the thousands who lost their lives in New York 26 years ago.

The day has little of interest in economic releases, only the forward looking Canadian housing starts which may or may not keep the momentum going. CAD is well-extended (we try to avoid the word overbought in trending markets) and being ‘close’ to the US, has a strong tendency to revert to mean. However CAD has a tendency not to slowly fade a spike, but to wait for the next news item and spike back. We currently have a rate hike spike, followed by another good jobs report. A poor print may have disproportionate effect. An ECB workshop “Monetary Policy on Non-Standard Times” opens, with a welcome speech by Couere at 0700GMT

Tuesday is light on reports. Only UK inflation at 0830 is of note. The estimate is 2.8% in line with the Consumer Inflation Expectations print last Friday. As usual we will be monitoring whether GBP is bid or sold into the release. ECB Vice-President Constancio speaks at the workshop at 1345.

Wednesday lets us play the UK ONS leak game again with UK Average Earnings and Unemployment figures at the usual 0830, although the main print of the day is the US Producer Price Index. Not normally marked as a high volatility release, this may give an indicator to the all-important inflation print the next day.

Thursday is the big day of this quiet week. The Asian session sees the Australian version of NFP. The estimate of 19k translates into the equivalent of 255k in US terms (The US population is 13.5 times larger). This is lower than last month’s 27.5k, but still good growth.

The UK rate decision at 1200 is always important. Cable’s recent rise above $1.30 is probably more to do with a depressed dollar than any great confidence in sterling. The hawkish noises we heard in early summer seem to have gone silent. EURGBP tells you a lot about the progress, or lack thereof, being made by UK Brexit Minister Davis. And yet undoubtedly inflation [and its various proxies] are well above the ‘old’ BoE 2% target. However, commentators consensus is for a hold, which could arrest sterling’s recent strong run.

The US inflation print is expected at 1.8%, more than last month’s 1.7%, but still below the Fed’s long-standing inflation target. The MoM target at 0.3% is considerably above last month’s 0.1%. With USD at two and half year lows, this release could potentially unleash some volatility. A miss, and worse still a contraction, i.e. below 1.7% YoY could produce a strong downside USD reaction where there is little technical support. Note that this is the first important US release of the week.

Friday’s main event is US Retail Sales, followed by the less significant NY Manufacturing Index, and Michigan Sentiment Index. Our comments on Thursday’s inflation apply. Of course each day we move toward the new extended debt ceiling continues to add concern.

CALENDAR (all times are GMT). High volatility items are in bold

Mon Sep 11

0045 NZD NZ Electronic Card Retail Sales

0150 JPY Japan Machinery Orders

0430 JPY Japan Tertiary Index

1215 CAD Canada Housing Starts

Tue Sep 12
0200 CNY China FDI

0830 GBP UK Producer Price Index

0830 GBP UK Inflation (est 2.8%, prev 2.6%)

2030 WTI API Stock

Wed Sep 13

0030 AUD Australia Westpac Consumer Confidence

0830 GBP UK Average Earnings/Unemployment

1000 EUR Eurozone Industrial Production

1330 USD US Producer Price Index (est 0.3%, prev 0.1%)

1430 WTI EIA Stocks

1800 USD US Monthly Budget Statement

2350 JPY Japan FDI

Thu Sep 14

0100 AUD Australia Consumer Inflation Expectations

0130 AUD Australia Employment/Unemployment

0200 CNY China Retail Sales/Industrial Production

1100 GBP UK Rate Decision (est 0.25%, prev 0.25%, vote est 7-2)

1230 USD Initial/Continuing Jobless Claims

1230 USD inflation (CPI) (est 1.8% prev 1.7%)

2230 NZD New Zealand PMI

Fri Sep 15

0000 GBP UK RICS Housing Price Balance

0600 EUR German Wholesale Price Index

1000 EUR Eurozone Trade Balance/Labour Cost

1230 USD US Retail Sales

1230 USD NY Empire State Manuf Index

1315 USD US Capacity Utilization/Industrial Production

1400 USD Michigan Consumer Sentiment