Sunday 2 September 2018

Week to Aug 31st

Monday August 27
Monday was a similar story to last week, the equities rally continued from Friday, on US-Mexico NAFTA deal expectations. The dollar decline also continued from Friday, with DXY fading 0.43% to 94.71, a four-week low, and all major currencies, and Gold up. Oil was up in line, and US 10-year yields were up. The FAANG stocks were up except for NFLX. The UK was closed for a public holiday.

Tuesday August 28
A mixed picture today on stocks, with SPX making further slight advances, as the trade deal was announced. MXN put on 1.7% on the news, even though the deal, as expected, is less favorable to Mexico than before. Nevertheless, it’s some kind of free trade deal from a protectionist White House, hence CAD also rallied, although the Canadian part of the deal has yet to be finalised. The yen and euro were slightly up, but GBP was slightly down, after its rally last week ran out of steam. Oil also rallied last week and Monday, and it was a similar story today. The net result was a flat DXY. Gold was down $10, but still remains $40 up from its Aug 16 low. Yields reacted for a second day to the risk-on mood, by rising 3bp (ie bond prices fell as money rotated from fixed income to equities).

Wednesday August 29
We said last week that Wednesday would be a big day, and at 12:30, GDP didn’t disappoint at 4.2% beating the estimate, and the highest print since Q3/2014. SPX, IXIC (the Nasdaq Composite, not the Tech 100), and RUT all set intraday and closing all-time highs. Tech stocks also rose, particularly AMZN adding 2.29% to close just shy of the psychological $2,000 barrier. DAX and NKY followed suit. Only FTSE posted a red candle due to GBP strength.

The forex picture was mixed. The small DXY move (-0.20%) belied a 1.21% gain in GBP, after EU Brexit negotiator Barnier said he was close to offering the UK a deal. On the other hand, JPY fell sharply on the risk on mood, giving up 0.44%. AUD also fell, but EUR and CAD were slightly up. Gold recovered $5 in line with DXY, and yields were flat. Oil had its best day of the week, adding 1.68% on the EIA Stock beat at 14:30.

Thursday August 30
The mood changed on Thursday after reports on fresh tariffs to be applied as soon as next week, which in turn faded hopes of a swift Canadian NAFTA deal. So we got the usual reaction we have been seeing these days, indices turning down (SPX -0.4%) and the dollar turning back up (DXY +0.18%). DAX and NKY fell particularly hard, the former on rising (up 7bp) Italian bond yields, and the latter on a reversal of yesterday’s JPY weakness, and late in futures on the tariff reports. Notwithstanding all this, AMZN ploughed ahead to make an all-time high of $2002.38. AAPL also made an ATH. 

The currency picture was uniformly dollar strength, except with JPY, which rose by 0.62%, recovering the previous day’s losses and then some. Gold was $6 down in line, and yields fell due to equity rotation back into bonds. Oil added another 0.9% to yesterday’s gains, making a close above $70 for the first time in August.

Friday August 31
The end of the week and month, and the last day before the Labor Day holiday saw NKY advance in Asia, but then all indices fell during the European session on trade war sentiment, and Trump’s latest comments that he would withdraw from the WTO unless terms were changed. A recovery came late in the US session, probably due to end of month rotation allowed SPX to post a small (+0.11%) green candle. AMZN and AAPL made new ATHs again. The other indices had of course closed, and were finished red on the day.

Another strong day for USD, with DXY (+0.42%) having its best day of the week, mainly because EUR gave up 0.6% losing all its gains for the week. The gains were consistent across all currencies, with even JPY giving a little ground. Gold was surprisingly flat as were bond yields. Oil slid back slightly to close at $69.87.

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


DXY was virtually flat this week (down 0.08%), giving visibility to fundamentals in foreign countries. Australia appointed its seventh prime minister in 11 years on August 24th, adding to uncertainty, whereas the UK finally got something positive on Brexit. GBPAUD had its best week for nearly a year, adding 2.74% and was this week’s best forex trade. A direct consequence of the GBP rally was the fall in FTSE, this week’s worst performing index.

Cryptos stabilised somewhat, but the gap between BTC and ETH widened for a fourth week. Last week, NFLX was the star FAANG performer, this week it was AMZN, with AAPL close behind.

AUDUSD 0.7189 (-1.83%)
EURGBP 0.8952 (-1.00%)
EURUSD 1.1601 (-0.15%)
GBPUSD 1.2951 (+0.83%)
NZDUSD 0.6619 (-1.03%)
USDCAD 1.3042 (+0.13%)
USDJPY 111.05 (-0.15%)
DAX     12363 (-0.35%)
FTSE     7442 (-1.72%)
NIFTY   11680 (+1.06%)
NKY     22821 (+0.88%)
SPX      2906 (+1.05%)
GOLD  1201.47 (-0.29%)
OIL     69.87 (+2.00%)
BTCUSD   7014 (+4.80%)
ETHUSD 281.63 (+0.12%)
FB     175.73 (+0.62%)
AAPL   227.63 (+5.33%)
AMZN  2012.71 (+5.63%)
NFLX   367.68 (+2.47%)
GOOGL 1231.80 (-0.40%)

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

NEXT WEEK (High volatility items are in bold)

Monday September 03
Today is Labor Day in the US and Canada, and although Asian and European markets are open as normal, there is no important economic news (and none from the US). Trade is therefore expected to be muted. Fed Evans (dovish, non-voter) speaks at 08:30, BoJ Governor Kuroda speaks at 05:40 and ECB Mersch is on at 18:30. The new Mexican government takes office.

01:30 AUD Australia Retail Sales s.a. (MoM)
01:45 CNY Caixin China Manufacturing PMI
07:55 EUR Germany Markit Manufacturing PMI
08:00 EUR Eurozone Markit Manufacturing PMI
08:30 GBP UK Markit Manufacturing PMI
23:01 GBP BRC Like-For-Like Retail Sales (YoY)

Tuesday September 04
Back to work in North America. Labor Day traditionally marks the end of the summer vacation period, volumes normally increase, and risk on returns. The day kicks off with the RBA rate decision. A hold is expected, but the statement, and the Governor’s speech five hours later may give a clue to whether the RBA is happy with the current 20-month low (only 50 pips from a 29-month low, and down 11.65% in seven months), or will confirm that rate increases must be dependent on wage growth.

The only US news is the ISM Manufacturing PMI, traditionally the most important PMI but increasingly less influential these days. Attention will therefore probably turn to trade wars and in Europe, the Italian bond yield. Fed Evans is on again today at 14:30. BoE Governor Carney testifies to the UK Parliament at 12:15.

04:30 AUD RBA Rate Decision/Statement (1.5% hold est)
08:30 GBP UK PMI Construction
09:30 AUD RBA Governor Lowe Speech
12:15 GBP UK Inflation Report Hearings
13:30 CAD Canada Markit Manufacturing PMI
14:00 USD US ISM Manufacturing PMI/Prices Paid
14:00 NZD NZ GDT Price Index (time approx.)

Wednesday September 05
More Fed speakers today than we have seen for many months on a single day. All come towards the end of the day, with Williams (centrist, voter) at 19:00, Kashkari (dove, non-voter) at 20:00, Williams again at 20:15, and finally Bostic (hawkish, voter) at 22:30. We also have ECB Praet at 20:30.

The most important news of the day is the BoC rate decision. Commentators are expecting (and markets have priced in) a hold this month, with a rate hike on October, after dovish comments from Governor Poloz at Jackson Hole.

01:30 AUD Australia GDP
01:45 CNY Caixin China Services PMI
07:55 EUR Germany Markit Services/Composite PMIs
08:00 EUR Eurozone Markit Services/Composite PMIs
08:30 GBP UK Markit Services PMI
12:30 USD US Trade Balance
12:30 CAD Canada International Merchandise Trade
14:00 CAD BoC Rate Decision/Statement (1.5% hold est)
20:30 WTI API Stock

Thursday September 06
Another heavy CB speaker day, kicking off with BoJ member Kataoka 01:30, and then Fed Williams (centrist, voter) at 14:00, SNB Zurbrugg at 16:30 and BoC Wilkins at 18:30. There is a rate decision in Sweden (SEK is 4.2% of DXY), and we have the ADP jobs report (the NFP ‘preview’) and EIA Oil stock reports, both one day later this week due to Labor Day. The ADP estimate is identical to the NFP estimate at 187k. Note that the Oil report has moved the market in line with the result for the last few weeks, but the effect does not last long.

01:30 AUD Australia Imports/Exports/Trade Balance
12:15 USD US ADP Employment Change
12:30 USD US Jobless Claims/Unit Labor Costs/Productivity
13:45 USD US Markit PMI Services/Composite PMIs
14:00 USD US ISM Non-Manufacturing PMI/Factory Orders
14:30 WTI EIA Stock
22:30 AUD Australia AiG Performance of Construction Index
23:30 AUD Australia Overall Household Spending (YoY)

Friday September 07
It’s the first Friday of the month, so it’s NFP day for both the US and Canada. Check the estimates on the day—this was written five day before, and these do change. The Canadian estimate is very modesty at 3.3k, so there is some potential for USDCAD downside. The best USDCAD volatility is, of course, when one side of the 49th parallel misses and the other one beats. We have often mentioned before that CAD likes to more or less exactly reverse sharp previous moves, so if such a move occurs on the rate decision on Wednesday, you have a likely target. Whilst we are on the subject of USDCAD tactics, the pair is well-known for extending its move after the initial news spike, rather than quickly retracing as say, GBP, does.

There’s another big list of Fed speakers today. We have Rosengren (hawk, non-voter) at 12:30, Mester (hawk, voter) at 13:30, Rosengren again at 14:45, and finally Kaplan (dove, non-voter) at 16:45. Today is also when the USTR is expected to announce a final decision on the $200Bn China tariffs. China publish their FX Reserves today.

Next weekend is a general election in Sweden. It’s a similar story to other European elections, the rise of the anti-immigrant eurosceptics, in this case SD, the Sweden Democrats. They are currently polling third at 12.9% and could easily become part of the ruling coalition (most European countries have too many parties to elect an outright winner). This has strong implications for SEK, and by extension, some effect on EUR, and DXY.

01:30 AUD Australia Home Loans/Investment Lending for Homes
05:00 JPY Japan Leading Economic Index/Coincident Index
06:00 EUR Germany Industrial Production/Trade Balance s.a.
09:00 EUR Eurozone GDP (0.4% est, 0.4% prev)
12:30 USD US NFP/AHE/Unemployment/Participation (NFP 187k est 157k prev)
12:30 CAD Canada NFP/Unemployment/Participation (NFP 3.3k est 54.1k prev)
14:00 CAD Ivey PMI
17:00 WTI Baker Hughes US Oil Rig Count
02:00 CNY China Imports/Exports/Trade Balance (Saturday)

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