Week to Jul 27th

Monday July 23

After falling in early trade, markets advanced to post modest gains for the day as trade war tensions were balanced by an early rise in the price of Oil (lost in late trade) on Iran tension, and a fairly positive outcome from the G20 summit in Argentina. Only NKY was down, reflecting the early strength of JPY and the time the market is open. USD generally had a good day with DXY advancing 0.25%, with all currencies and Gold giving ground. US 10-year bonds yields were particularly strong, up 7bp to a five-week high. GOOGL reported after the bell (a day earlier than we advised last week) and beat estimates, putting on 5% after hours to a new ATH.

Tuesday July 24

Buoyed by the GOOGL beat, a Chinese tax cuts and spending plan, rallying metals (not Gold) and Oil prices, equities continued to advance, shrugging off misses on the Housing Prices (13:00) and PMIs (13:45) prints. All Indices were up again. DXY was more or less flat on the day as a decline in EUR, its largest component, after mixed European PMIs at 08:00 was balanced by gains in all the other major currencies, where the Turnaround Tuesday effect was seen. Yields followed this and gave up some of Monday’s gain. Oil also turned, and put on 0.8%. Gold showed some volatility but ended up flat on the day.

Wednesday July 25

A definite day of two halves today in equities. US auto giants GM and FCAU both cut their forward earnings forecasts because of steel and aluminum tariffs. GM dropped 8.16% (4.6% at the close), and FCAU, who also missed on Q2 earnings fell 15.66% (11.83% at the close). Autos do not really feature in US indices, DJIA has none, GM, the largest in SPX is only 0.2% by weight, and TSLA is only 0.6% of NDX, so the US index effect was minimal. 

However, as we have mentioned before, the four German auto giants DAI, BMW, VOW and CON make up about 20% of DAX. The knock-on effect (sector sentiment) meant DAX was down 1.26% by the European close, despite the beat on all three Business Sentiment indicators at 08:00. 

However, reports of the meeting between President Trump and European Commission President Juncker, released after the European close were much more positive than expected, saying they would “work toward” zero tariffs, ie free trade. Critically, after the meeting Trump said he would not raise tariffs on European cars. Markets swiftly recovered, with SPX reaching a new near five-month high. DAX and NKY futures performed similarly. Only FTSE stayed down, as Britain will of course not benefit from any EU-US trade deal after Brexit.

DJIA leader BA missed on earnings and guidance before the bell. The stock plunged 3.5% in early trading, but had recovered nearly all of it after the Juncker lift. The real shock was when FB reported after the bell. Although they beat, the slowing in subscriber growth caused a rout. The stock fell 20% instantly, dragging TWTR down 2% with it, and shaving 100 points off NDX futures. This was the largest one-day (or instant) disappearance of single-stock market capitalisation ($120Bn) of all time, beating INTC ($91Bn) which fell 22% on Sep 22, 2000. Or to put it another way, $370 for every man, woman and child in the US. (There was an incident in Germany on Oct 28, 2008, where VOW fell 46% ($143Bn) after rising 170% on the previous two days due to a large short position being unwound)) 

Foreign currencies (and Gold) also rallied on the Juncker news, taking 0.4% off DXY. The effect was particularly strong on CAD as traders interpreted the softening to the EU as positive for NAFTA. The loonie was also helped by a 1.7% (sustained) spike up in Oil after the strong (-6.15M vs -2.33M, lower is better) beat on EIA inventory. Yields were up 2bp in line with the risk-on sentiment.

Thursday July 26

The Asian and European markets opened up on the EU trade talk success. FTSE was surprisingly weak given a further advance in Oil on news of a temporary Saudi shipment suspension, and a sharp fall in GBP. However, despite a $25Bn buyback announcement, oil giant Shell (the largest FTSE component weighing 10.35% across the RDSA.L and RDSB.L shares) fell 3.6% on its earnings miss, leaving the London index virtually flat on the day.

TWTR reported before the bell, and it was a similar story to Facebook. EPS and Revenue were fine, but a drop in users caused the stock to sink over 20%.

To complete the FANG earnings season, AMZN reported at the end of the day, and doubled the estimate ($5.07 EPS vs $2.50 est). Shares rose a moderate 3%. A clear pattern is now emerging with these FANG stocks. If every metric is positive, there is a moderate gain. If any metric (not just EPS and Revenue) disappoints, the stock falls heavily.

Note that TWTR and FB results had a strong effect on the FANG+ index (ICE:NYFANG), which broke through an upward trendline for the first time since the index was created in late 2017.

On the positive trade news, and anticipation of the GDP figure on Friday, talked up by Larry Kudlow, Trump’s economic advisor. the dollar had its best day of the week, with DXY putting on 0.66%. A lacklustre ECB press conference did not really move EUR, as it simply fell in line with all the other currencies and Gold. Yields were up 3bp in line with the stronger dollar.

Friday July 27

Friday’s GDP print had been widely anticipated, but in the end came in at 12:30 as estimated at 4.1%, and the PCE (inflation proxy) figure missed. A clear case of buy the rumor sell the news, and that’s what the market did. The DAX had already been selling off in the European morning and accelerated in the US session (although once again, FTSE was out of sync, and only sold off after Europe closed.) Also NKY only started selling after the print. Both XOM and CVX missed estimates. XOM duly fell, but CVX rallied as the report included a $3 billion buyback.

The dollar had rallied earlier, but gave up ground after the release, in line with indices. Most currencies were up, although Gold and GBP were flat. Oil was also down after advancing all week. Yields were down 1bp in line with the weaker dollar.

Please note all figures and percentages given for daily movement on indices cover the entire cash and futures period in that day.

WEEKLY PRICE MOVEMENT

A second quiet week overall for currencies, with a slight USD upward bias (DXY added 0.25%). Without any more Brexit news, GBPUSD had an inside week. Note whilst all percentages are negative, this means CAD and JPY were up. Selling EURCAD would have netted you 1.18%. Indices had performed well until the sell-off on Friday.

NIFTY did not sell off, posting a marubozu weekly candle, and its best week since January 2017. This was the best index trade. BTC continued to recover strongly, and for the second week well outperformed ETH. ETHBTC has fallen over 20% in the last two weeks. 

AUDUSD 0.7401 (-0.23%)

EURGBP 0.8891 (-0.36%)

EURUSD 1.1653 (-0.56%)

GBPUSD 1.3107 (-0.15%)

NZDUSD 0.6790 (-0.24%)

USDCAD 1.3059 (-0.62%)

USDJPY 110.97 (-0.40%)

DAX     12811 (+1.99%)

FTSE     7674 (+0.10%)

NIFTY   11278 (+2.43%)

NKY     22631 (+0.41%)

SPX    2815.0 (+0.60%)

GOLD  1223.78 (-0.61%)

OIL     68.97 (+1.26%)

BTCUSD   8188 (+11.66%)

ETHUSD 470.24 (+4.71%)

(Crypto prices are given as at 0000GMT Saturday, two hours after the other markets close.)

NEXT WEEK (High volatility items are in bold)

A packed week offers three major rate decisions as well as NFP, and a larger than usual number of economic releases.

Monday July 30

With a light schedule, attention will probably turn again to the trade war. The only news of note is the bi-monthly German inflation figure, which is expected to remain the same as two weeks ago. Although we are in the peak of earnings season, there are no significant (to indices) releases today. Look out also for any hints from China of retaliatory tariffs and/or internal policy stimulus.

23:50 JPY Japan Retail Sales (Sunday)

08:30 GBP UK Mortgage Approvals

09:00 EUR Eurozone Business Climate

12:00 EUR Germany CPI (est 2.1% prev 2.1%)

14:00 USD US Pending Home Sales (MoM)

22:45 NZD NZ Building Permits s.a. (MoM)

23:00 GBP UK Gfk Consumer Confidence

23:30 JPY Jobs/Unemployment

Tuesday July 31

The first rate decision of the week comes at 02:00. Although a rate hold is virtually a certainty, traders will be looking to see if any change in policy is announced, given the recent sharp upturn in JGB 10-year yields which hit an 18-month high last week. The Eurozone GDP, inflation and unemployment figures are, unusually, released concurrently. Normally these do not move EUR much, but all three in the same direction might. In the US, the final comments for the second tranche of tariffs on $16bn of Chinese imports are due. Trump may well say something about how he wishes to USTR to act.

High-flyer SHOP reports before the bell, but the central event of the entire earnings calendar, AAPL, the largest company in the world, reports after the close, usually a good 30 minutes after. They have only missed once in the last 22 quarters, and the EPS estimate at $2.18 is 51c lower than the Q1 actual. However, as we have seen recently, forward guidance and subsidiary metrics will also have to be good for the stock to rise.

01:00 AUD Australia HIA New Home Sales (time approx)

01:00 CNY China NBS PMIs

01:30 AUD Australia Building Permits (MoM)

02:00 JPY BoJ Rate Decision/Statement (est -0.1% hold)

04:00 JPY BoJ Press Conference

06:00 EUR Germany Retail Sales (MoM)

08:00 EUR Germany Unemployment

09:00 EUR Eurozone GDP/CPI/Unemployment Rate

12:30 USD US PCE

12:30 CAD Canada GDP

13:00 USD S&P/Case-Shiller Home Price Indices (YoY)

13:45 USD Chicago Purchasing Managers' Index

20:30 WTI API Stock

22:45 NZD NZ Employment/Unemployment/Participation

23:30 AUD Australia AiG Performance of Mfg Index

Wednesday August 1

We may see the USTR decision on the $16Bn tariff package as early as today. Otherwise, after a raft of PMIs, the all-important Fed rate set meeting minutes are published at 18:00. A hold is priced by CME Fedwatch at 97.5% likelihood. Commentators will be looking for signs of dovishness, even as far as lowering the dot plot from two to one additional hike this year, given the subdued inflation levels, the tariff effect on the economy, and of course the recent comments from Trump about the hikes and the dollar. If this does happen, USD will start to fall again, but history tells us this will not be instant.

Today is the peak of earnings season with 402 companies reporting. Of interest are loss making TSLA, already down 20% from its June high, and extremely vulnerable on the downside should anything negative transpire, given the very recent change in tech stock sentiment. X is another interesting stock. Theoretically a beneficiary of tariffs, it will be interesting to see if their guidance reflects that.

01:45 CNY China Caixin Manufacturing PMI

07:00 EUR ECB non-MPC Minutes

07:55 EUR Germany Markit Manufacturing PMI

08:00 EUR Eurozone Markit Manufacturing PMI

08:30 GBP UK Markit Manufacturing PMI

10:00 EUR Germany 10-y Bond Auction

12:15 USD US ADP Employment Change

13:30 USD US Markit Manufacturing PMI

14:00 USD ISM Manufacturing/Prices Paid

14:30 WTI EIA Stock

18:00 USD Fed Rate Decision/Statement (est 2.0% hold)

Thursday August 2

Attention moves to the UK on Thursday, where a delayed rate hike is finally expected, the first to rise above the 0.50% set ten years ago. Or is it? GBP is about where it was on Jul 18, the day of the inflation miss, and Brexit concerns have not gone away. Watch also for the votes, which often have as much effect as the rate. Other data today is light, although in Japan we have BoJ Deputy Governor Amamiya speaking at 01:30, and at the other end of the day, the BoJ MPC Minutes, although these are unlikely have much effect, given the rate decision presser two days earlier.

01:30 AUD Australia Imports/Exports/Trade Balance

08:30 GBP UK PMI Construction

11:00 GBP BoE Rate Decision/Statement (est 0.75%, prev 0.50%)

12:30 USD US Jobless Claims

23:50 JPY BoJ MPC Minutes

Friday August 3

The pace of data continues unabated on Friday, (mostly PMIs again) but the main print is of course NFP, and the equally important AHE. The unemployment rate (est 3.9%, prev 4.0%) is now at what some economists call the ‘natural rate’, and comfortably inside the Fed’s own target. The statistic therefore becomes less important. On the other hand, the AHE must continue to outpace inflation, for the public to be able to afford rate hikes. In fact, it is arguable that AHE may have more effect than the jobs figure. The US trade balance figure is also published at the same time, of greater interest given the tariff wars. Note there is so simultaneous Canadian print this month.

01:30 AUD Australia Retail Sales s.a. (MoM)

01:45 CNY Caixin China Services PMI

07:55 EUR Germany Markit Services/Composite PMI

08:00 EUR Eurozone Markit Services/Composite PMI

08:30 GBP UK Markit Services PMI

12:30 USD NFP/AHE/Unemployment (NFP est 195k prev 213k, AHE est 2.7% prev 2.7%)

12:30 USD US Trade Balance

12:30 CAD Canada International Merchandise Trade

13:45 USD US Markit Services/Composite PMI

14:00 USD US ISM Non-Manufacturing PMI

17:00 WTI Baker Hughes US Oil Rig Count

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