Week to Oct 5th

Monday Oct 01

A new week, month and quarter, and a successful NAFTA deal. Also, after Friday’s sharp rise, Oil was up again. It added 3.3% today, to touch a new four-year high, based on continuing tensions between the US and Iran. Both factors contributed to CAD adding 0.74%, making a two-day move of 1.76% (despite a PMI miss at 13:30). Energy stocks were of course up, and together with buying for the new quarter, most indices were up. FTSE was down 0.21% (despite a flat GBP) after a profit warning from RM.L which fell 18%, and oil-insensitive NDX was down 0.36%.

In forex only CAD advanced, as stated, and GBP was flat as upbeat Conservative party conference sentiment balanced a generally stronger dollar (DXY up 0.18%, and up against all other currencies and Gold). EUR was hit by Italian 10-year bond concerns. The BTP yield rose by 15bp. US yields were up 2bp in line with the stronger dollar.

Tuesday October 02

Not really a Turnaround Tuesday this week, as US indices continued to move as Monday (SPX slightly up NDX down, DJIA slightly up to a new record close). BTP yields added another 15bp, their highest level in four years, which kept DAX in the red (as did negative sentiment about the Paris Motor Show), and FTSE was also down again, today’s casualty being TSCO.L, down 8.6% on an earnings miss. NKY fell on a stronger yen.

One noticeable reaction to Italy was Gold which added 1.2%, its best day in six weeks. This is unusual, as Gold has not been a strong risk-off indicator for a couple of years now. However, that was the message as JPY was up today, with all other currencies down, as DXY added 0.19%. Surprisingly yields were down 1.4bp, giving up Monday’s gain. Oil slipped slightly.

Wednesday October 03

The big story today was US bond yields, which soared 11.8bp, the largest one-day rise since the day after the Trump election nearly two years ago. This has of course been the trend, but the trigger was attributed to a strong beat, and 20-year record (61.6 vs 58 est, prev 58.5) in the ISM Services PMI at 14:00. This is not normally a very important indicator, but a large and record beat is another matter, as we have often said about PMIs.

Clearly this was going to have an effect on USD, with DXY adding 0.56%, its best day of the week. Notably USDJPY added 0.81%, its best day since Jul 11th. The effect was also seen in sharp falls in EUR, AUD and NZD. CAD retreated to a lesser extent, buoyed by Oil adding 1.5% to a new high on Iran fears, despite the EIA miss at 14:30. Also GBP’s fade was modest, after a well-received speech by UK PM May to close the party conference. She came on to Abba’s “Dancing Queen”, although commentators immediately pointed to the Swedish group’s first hit “Waterloo”. Gold also gave up some of the previous day’s gains, and INR hit a new all-time low, and IDR a 20-year low.

SPX was down on the day, as was DJIA, although the latter hit an intraday record high of 26,950. before pulling back. DAX was closed for a public holiday, although you can see in our chart that the futures market rallied then ended flat. FTSE was slightly up after two days of underperforming and NKY inevitably advanced on the yen fade. Note that the normal risk-off indicators were overwhelmed by the strong dollar following yields.

Thursday October 04

Bond yields did not pull back after the exceptional move on Wednesday. Although they only added 0.4bp, today saw contagion, with UK 10-year gilts adding 9.2bp (its highest level in 29 months), German Bunds adding 5.6bp, Australian 10-year 6.8bp, NZ 5bp, and JGB adding 1.8bp to 0.159%. (BTPs were surprisingly stable). The fact that yesterday’s US leap was not a flash in the pan caused a much stronger move down in equities, with SPX and DJIA each giving up 0.8% and NDX 1.8%, their worst days in over two months. FTSE and STOXX also fell over 1%, with DAXs losses surprisingly light at 0.4%, due perhaps to the stable BTP. NIFTY was also sharply down. Big bank stocks, of course, love increased interest rates, and XLF was up 0.72%. Notably RUT, of which 17.2% is smaller financial institutions was down 1.44%

As foreign yields rose and US yields didn’t it stands to reason that USD would give up ground to other currencies, and this is what happened, with the leading currencies; EUR, GBP and JPY were all sharply up. Canadian yields were not affected, they fell 1.4bp, and CAD duly followed down, possibly also affected by the Ivey PMI miss at 14:00. Despite their yield increases, the Antipodean pair could not overcome the risk-off sentiment, and both fell to new 32-month lows. Gold was up in line with the weaker dollar. On no further news about Iran, Oil gave up Wednesday’s gains and was down 2.7%, maybe also a delayed reaction to the EIA miss—we have seen that before.

Friday October 05

After Thursday’s pause, yields rose again today by 4bp, to close the worst week for bond prices since the mini-crash in February. UK and German yields rose by a similar amount. More pain in indices, which were all down over 1% again at the European close, although SPX clawed back half of that before the final bell, a Friday pattern we have seen many times. The only green was seen in China, where the CSI300 added 1%, opening after the four-day holiday. The FTSE EM index lost 1.1%, making a 4.3% decline for the week. Of course all this was not helped by the large NFP miss (134k vs 185k), which commentators attribute to Hurricane Florence. FTSE was hit particularly hard by a very strong showing from GBP (on positive Brexit sentiment), which put on 0.7% on the day, taking EURGBP to a three-month low.

In any event, when yields are rising everywhere, their effect is lessened. DXY gave up 0.18% today, with EUR, GBP and JPY advancing. As Oil faded, so did CAD, despite beating on NFP when the US missed, and beat on Trade Balance, all at 12:30. Canadian bonds hardly sold off at all. AUD and NZD fell to new lows, not gaining any confidence from either China or the possible bottom in Gold prices.

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

Another strong week for DXY, which was up 0.51%. We are starting to see fading at the periphery. AUD and NZD were sharply down, and shorting NZDCAD was the week’s best forex trade. The same thing in indices, with NIFTY giving up 5.62%, its worst week for 32 months. Shorting this was the week’s best index trade. Cryptos had their flattest week for months. NDX was only down 0.52% on the week. The performance of superstars AMZN and NFLX shows the FANG magic is fading.

AUDUSD 0.7049 (-2.41%)

EURGBP 0.8781 (-1.37%)

EURUSD 1.1519 (-0.72%)

GBPUSD 1.3112 (+0.64%)

NZDUSD 0.6436 (-2.71%)

USDCAD 1.2938 (+0.23%)

USDJPY 113.70 (+0.02%)

DAX     12115 (-0.95%)

FTSE     7318 (-2.39%)

NIFTY   10316 (-5.62%)

NKY     23791 (-2.16%)

SPX    2890.7 (-0.91%)

GOLD  1203.29 (+1.08%)

OIL     74.24 (+1.02%)

BTCUSD   6640 (+0.08%)

ETHUSD 228.53 (+2.98%)

FB     157.33 (-4.34%)

AAPL   224.29 (-0.64%)

AMZN  1889.65 (-5.66%)

NFLX   351.35 (-6.09%)

GOOGL 1167.83 (-3.25%)

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

NEXT WEEK (High volatility items are in bold)

Monday October 08

It is Columbus Day in the US. Bond markets  and some banks are closed but stock markets are open. Markets are closed in Canada for their Thanksgiving, and in Japan for Sports-Health Day. Expect reduced volatility. The Chinese markets open properly after the week’s holidays. SecState Pompeo is in North Korea for talks. The first round of presidential election is held in Brazil. There is a rate decision in Israel.

01:45 CNY Caixin China Services PMI

06:00 EUR Germany Industrial Production (YoY)

23:01 GBP UK BRC Like-For-Like Retail Sales (YoY)

Tuesday October 09

There is a possibility of further restrictions and investigations into Chinese trade practices this week. The US NFIB Small Business Optimism index is released at 10:00, very early in the day, otherwise there is very little news today.

06:00 EUR Germany Imports/Exports/Trade Balance

12:15 CAD Canada Housing Starts s.a (YoY)

23:30 AUD Australia Westpac Consumer Confidence

Wednesday October 10

Two Fed speakers today, Williams (centrist, 2018 and 2019 voter) speaks twice, and is followed by Atlanta Fed chief Bostic (centrist, 2018-only voter). The Core PPI print is the only important US release, otherwise the main even is UK GDP at 08:30.

07:00 EUR ECB Non-MPC Minutes

08:30 GBP Manufacturing/Industrial Production

08:30 GBP UK GDP (MoM)(prev 0.3%)

10:00 EUR Germany 10-y Bond Auction (time approx.)

12:30 USD US Core PPI

13:15 USD FOMC Member Williams speech

14:35 USD FOMC Member Williams speech

20:30 WTI API Stock

22:00 USD FOMC Member Bostic speech

22:30 AUD RBA Assistant Governor Ellis Speech

Thursday October 11

The all-important CPI release is the most important news item this week. The estimate is the same as last month, but we are comfortably above the Fed 2% target. Note how the NFP miss last week did not dampen the bond market (a proxy for rate hike expectations). As long as CPI stays above 2%, it is difficult to see a serious change. Nevertheless this print is part of the Fed’s (jobs/inflation) dual mandate, so USD volatility can be expected. Note also that this release is the one used to determine US social security inflation-linked payments (ie old age pensions). BoJ board member Mokoto Sakurai (not the Japan First politician of the same name) will meet with business leaders in Akita today. The EIA stock print is one day late because of Columbus Day. There is a rate decision in Peru.

01:00 AUD Australia Consumer Inflation Expectation

08:30 GBP BoE Credit Conditions Survey

11:30 EUR ECB MPC Minutes

12:30 USD US CPI (Core est 2.3% prev 2.3%)

12:30 CAD Canada New Housing Price Index

14:30 WTI EIA Stock

21:30 NZD Business NZ PMI

Friday October 12

The first major stock Q3 earnings are today, with three banks JPM, WFC and C all reporting. Next week sees much more earnings activity including NFLX on Tuesday. The trial of Pastor Brunson is held in Turkey. If he is released, expect TRY to soar, and by extension, relieve some EM pressure. The IMF begin their meeting in Bali. Note that there are elections on Oct 14 in Bavaria, where any rise in the far-right (anti-immigrant anti-EU) vote will be unwelcome by markets.

00:00 EUR IMF Meeting (all day, and Saturday)

00:30 AUD Australia Investment Lending for Homes/Home Loans

02:00 CNY China Imports/Exports/Trade Balance (time approx.)

02:15 CNY China FDI (time approx.)

06:00 EUR Germany CPI

09:00 EUR Eurozone Industrial Production

14:00 USD Michigan Consumer Sentiment Index (est 98.5 prev 100.1)

17:00 USD FOMC Member Bostic speech

18:00 WTI Baker Hughes US Oil Rig Count

18:00 USD US Monthly Budget Statement

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