Saturday 25 November 2017

Week to Nov 24th

The German coalition problems weighed on Monday, causing pressure on EUR during the Asian session. It rebounded sharply at the European open, only to fade again and end the day roughly flat from Friday’s close. DAX reacted inversely and was up 0.5% on the day. It was risk-on as Gold, JPY and US 10-year bond prices (inverse to yields) fell heavily. The Bund was flat. SPX NKY and FTSE were also up on the day, the latter being in spite of GBP also being up on positive Brexit news. In a similar pattern to last week AUD was down with Gold, and CAD was down with Oil, which took a slight rest from its upward trajectory.

Tuesday was another good day for equities with SPX ramping to touching another all-time high, briefly breaking the 2600 roundpoint. DJIA, NDX and RUT closed at fresh records. DAX added 1% on a flat Euro, and FTSE and NKY added to Monday’s gains. Yields were down as was USD against all other currencies, and so was Gold and Oil, the latter making another two-year high after the API beat at 2135.

Something very strange happened in Hong Kong. The HSI cash had just closed at 0900, touching a record and roundpoint 30,000. When the futures opened at 0915, there was a huge 4.5% momentary spike (to 31339) which immediately retraced. This then induced volatility and the index traded between 30,200 and 29,600 for the rest of the week, completely unlinked to other indices.

Wednesday saw the UK budget, and as we predicted last week, housebuilding stocks moved sharply downwards on news that the government is going to investigate their land-banking policies. FTSE had spiked up in the morning, but gave all that up after the Budget to end the day a mere 0.1% up. SPX showed its strength by only falling 0.1%. However, NKY was down sharply as JPY rose, as was DAX, giving up the gains earlier in the week on continued German political uncertainty, but partly on a rising Euro, which in turn was the effect of USD which had been falling all day again (against all currencies) and was accelerated by dovish FOMC minutes. The December hike is fully priced in (in fact, CME Fedwatch now has an 8.5% chance of a 50bp hike rather than 25bp) , but the minutes showed concern about low inflation. DXY hit its lowest level for a month. As you would expect Gold and bond prices rose quite significantly. Risk-off again, and Wednesday turned around Tuesday. Oil was flat, despite the EIA miss at 1530. 

Thursday was Thanksgiving and US and Japanese markets were closed. Of course futures were still traded around the world, but volume was thin, and so were the price movements. Indices were all slightly up, despite a heavy sell-off in China (see HSI note above). DAX had an early rally despite the GDP miss at 0700, mixed PMIs at 0830, and a climbing Euro. SPX futures were active around this time, but stopped moving around the time the US session would have opened.

Currencies were directionless on this holiday, with EUR (after the Eurozone PMI beat), and AUD slightly up, but GBP (after UK GDP came in as expected), JPY and CAD slightly down. The Canadian Retail Sales print was interesting. It missed, but it is not normally regarded as a high-volatility event. However on this day of thin trading, the miss caused CAD to drop an instant 42 pips (0.33%), and continue to fall until Friday morning. The overall effect was that DXY edged down another 0.1%, Oil continued its advance to new (two year) highs, and Gold was flat. The bond market was closed.

Friday was a half-holiday in the US, and of course the famous Black Friday shopping day. Even without any instant sales results, AMZN traders just assumed they would perform, and the shares rose throughout the short session to finish 2.67% up on the day and 5.37% on the week. Similar enthusiasm was shown across the board, with all indices rising again, SPX and NDX closing at record highs, and the VIX at an all-time low. DAX and EUR rose in unison (the latter to a two-month high). following the upbeat IFO sentiment prints at 0900, and some progress on German coalition talks. NKY was also up as JPY fell (with Gold - risk-on again), and only FTSE struggled with rising GBP to end flat.

Surprisingly, despite USD falling against all currencies except AUD (a Gold proxy), and particularly against EUR, leading to a 0.4% fade in DXY to a now two-month low, bond yield were actually up, although this was a gap-up following Thursday’s holiday.

Oil was up again, this time following news of a leak in the Keystone pipeline, and expectations that cuts will be extended at next week’s OPEC meeting.


These are the prices movements for the week on the instruments we cover, with USD down across the board. The best forex trade would have been to buy EURUSD, up 1.20%. Once again NKY was the most volatile index, but the overall winner was, as is often the case, WTI, with the January contract rising 3.82%

AUDUSD 0.7610 (+0.61%)
EURGBP 0.8946 (+0.36%)
EURUSD 1.1929 (+1.20%)
GBPUSD 1.3338 (+0.94%)
NZDUSD 0.6875 (+0.94%)
USDCAD 1.2709 (-0.47%)
USDJPY 111.48 (-0.54%)
DAX     13067 (+0.69%)
FTSE     7409 (+0.34%)
NIFTY   10389 (+1.03%)
NKY     22641 (+1.09%)
SPX    2602.4 (+1.00%)
GOLD  1288.29 (-0.41%)
OIL     58.97 (+3.82%)

NEXT WEEK (all times are GMT)

As we move into the final week of November, and the holiday season, the question is are we poised for the Santa rally, covered in our email earlier this week. 

Monday is a quiet day, as is the weekend. However, there may be some delayed volatility following the holiday on Thursday and half-holiday on Friday. In particular retail stocks which report a bumper Black Friday should see movement, although retail leader AMZN already rose over 2% on the day.

Tuesday’s highlight is the confirmation hearing for Jay Powell, the new Fed chair at the Senate Banking committee at 1445. Traders will be looking for any variance from Janet Yellen’s views. There is also a BoC press conference at 1615, with Governor Poloz and Senior Deputy Governor Wilkins. Economic data is light.

Wednesday is stronger on data, with German inflation (giving a hint to Eurozone inflation the next day), followed by US GDP and QoQ Personal Consumption Expenditure, the latter being a strong inflation proxy.  Fed Williams (centrist) is speaking at 1745 after Janet Yellen.

Thursday is month end, and some volatility should be seen for month-end rotation. Main news is German unemployment and Eurozone inflation. The MoM and YoY PCE figures are important, but any serious change will have been shown in the QoQ on Wednesday. OPEC hold a one-day meeting in Vienna, and are expected to discuss cut extensions, which have been working well, and of course have driven up the price of Oil 28% in under five months. A six-month extension is the consensus, so a longer or shorter period would most likely produce a noticeable move in the price. There is also a minor speech from Fed Kaplan.

Friday sees a new month, and a raft of Markit Manufacturing PMIs. These don’t in themselves tend to move currencies much, but as always, a big miss from one and a strong beat from another could move the pair in question. The final Manufacturing PMI of the day is the US ISM at 1500. This is more important, although no large variation is expected. Although it is the first Friday of the month, the US NFP data is not until next week. However, the Canadian jobs report is today, with a modest 10k estimate, along with Canadian GDP at the same time, so volatility in CAD is very likely.

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

Mon Nov 27
0900 EUR EU Financial Stability Review
1500 USD US New Home Sales
1530 USD Dallas Fed Manuf Business Index

Tue Nov 28
0700 EUR Germany Gfk Consumer Confidence
1400 USD US Home Price Indices
1445 USD New Fed Chair Powell testifies
2350 JPY Japan Retail Trade

Wed Nov 29
0930 GBP UK Consumer Credit/Mortgage Approvals
1000 EUR Eurozone Sentiment Indicators
1300 EUR Germany Harmonised Index of Consumer Prices
1330 USD US PCE QoQ (CPI proxy)
1500 USD Pending Home Sales
1530 (approx) Fed Yellen speaks
1530 WTI EIA Stocks
1800 USD Fed Beige Book
2000 NZD RBNZ Financial Stability Report
2145 NZD NZ Building Permits
2350 JPY Japan FDI

Thu Nov 30
0000 AUD Australia HIA New Home Sales
0001 GBP UK Gfk Consumer Confidence
0100 CNY China PMIs
0700 EUR Germany Retail Sales
0900 EUR Germany Unemployment Rate/Change
1000 EUR Eurozone Unemployment Rate
1000 EUR Eurozone CPI
1330 USD US Personal Income
1330 USD US PCE MoM and YoY (CPI proxy)
1330 USD US Jobless Claims
1330 CAD Canada Current Account Q3
1445 USD Chicago PMI
2230 AUD Australia AiG Performance of Manuf Index
2330 JPY Japan CPI/Overall Household Spending
2330 JPY Japan Job/Applicants, Unemployment

Fri Dec 01
0145 CNY Caixin Manuf PMI
0855 EUR Germany Markit Manuf PMI
0900 EUR Eurozone Markit Manuf PMI
0930 GBP UK Markit Manuf PMI
1330 CAD Canada GDP
1330 CAD Canada Employment/Unemployment
1430 CAD Canada Markit Manuf PMI
1445 USD US Markit Manuf PMI
1500 USD ISM Manuf PMI/Prices Paid
1500 USD US Construction Spending

1700 WTI Baker Hughes Rig Count

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