Sunday 23 June 2019

Week to Jun 21st

Fed sees case for cuts, Dollar tumbles, Gold at 5yr high, SPX new ATH

Mon Jun 17
Equities continued last week’s lacklustre movement today, with trade concerns balanced by expectations of dovishness from central banks in the US, UK and Japan. Indices rallied a little in the cash period but ended largely flat. USD for once had an absolutely flat day, with only AUD (not a DXY component) moving slightly down. Gold was also flat, but Oil faded a little, as did 10-year bond yields.

Tuesday June 18
The first confirmation of the dovishness anticipated came in a speech from ECB President Draghi at 1400, and this was enough to lift markets substantially, particularly of course DAX, up over 2%, and its best day since Jan 2. This is despite a horrible miss on the German ZEW Sentiment print at 0900 (-21.1 vs 0.5 est). President Trump also said he had a “very good meeting” with President Xi, but for once, the White House spin was not needed.

USD generally had a down day against all currencies except EUR, with AUD and NZD notably up. However the DXY basket finished slightly up (+0.11%) because of course EUR fell on the Draghi statement. Gold and Bonds (inverse to yields) were up in line with the weaker dollar, and Oil was up substantially (over 2%) in line with equities, and rumblings about Iran.

Wednesday June 19
Today’s FOMC was probably the most important one since December. Although the Fed held the rate for now, Chair Powell said that they saw “a stronger case for rate cuts”. That’s about as dovish as you can get, and the CME Fedwatch tool for the relatively near July decision moved to 100% likelihood of a cut, and (at the time of writing) a 28% possibility of a 50bp cut, not seen for over 10 years. The chart shows how a hold (2.5%) has moved from 75% a month ago, to 15% a week ago, to nil now.

There was an instant reaction in bonds (yields fell 7bp in an hour), JPY and Gold. Other currencies had been moving up all day, expecting this, and DXY finished down 0.42%. US equities had been flat or fading but rallied on the statement. European markets were down because of the currency moves, in particular GBP, which was up a whole cent. Oil was surprisingly only slightly up despite multiple reasons (Iran, the EIA beat at 1430, the weaker dollar and the equity rally). CAD was particularly ahead after the strong CPI beat (2.1% v 1.2% best) at 1230.

Thursday June 20
The rate cut expectation rally continued today, and SPX topped its Apr 30 level to hit a new all-time high, as did DJIA, although NDX is still 1.4% away. Other markets were much flatter, due, as yesterday to currency moves. Oil was up sharply for the reasons stated yesterday.

Currencies often react the day after a Fed move, given that London, the world’s primary forex centre is closed when the FOMC release is issued. Today DXY fell 0.56%, its largest one-day drop since Jan 25. All currencies were substantially up (JPY the most, reacting to both dovishness and risk-on). However, the BoE and BoJ rate holds got lost in the FOMC noise.

Gold had its best day since Brexit day three years ago, and added 2% to briefly push through $1,390, a level not seen for over five years. A rare example today of a Gold/JPY rally when markets are up, and possibly unique for Gold to rise 2% on a day that SPX hits an ATH. Bond yields ended flat after the big move the night before, however, they briefly dipped below 2%, a level not seen since the Trump election.

Friday June 21
Markets took a breather today on the longest day of the year, and were slightly down, but still recorded impressive gains for the week. President Trumps’ cancellation of an Iran air strike (in response to Iran downing a US drone) did not really move markets. SPX nevertheless briefly inched out a new intraday high. DAX and FTSE fared worse as their denominated currencies rose again. Oil stalled its gains and closed flat.

The Fed-inspired dollar rout continued, with DXY down another 0.54%, the sharpest 2-day drop, and worst week since Jan 2018. This was mainly driven by EUR, up 0.89%. JPY and CAD were down, the latter after the Canadian Retail Sales miss at 1230. Gold’s momentum continued, pushing through $1,400 for the first time in five years, and posting its best week since Feb 16. Yields recovered slightly, adding 3.8bp but still down on the week.

A very strange week. I can’t think when we have ever seen simultaneous highs in SPX and Gold (up 4.29%). Risk-on, for sure, so the strongest index was NDX as you might expect, with NFLX the top FANG. After being last week’s biggest loser, NZDUSD was this week’s top gainer. And crypto surged hugely again, with BTC topping $10,000 for the first time since March 2018.

Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on UUP. The equity and index prices are now based on the cash close each day.

NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)

Monday June 24
The beginning of Summer (in the Northern Hemisphere) has quiet start to the week as is often the case on Mondays. Markets are closed in Colombia and Latvia.

23:30 AUD RBA Governor Lowe speech (Sunday)
05:00 JPY Japan Leading Economic Index
08:00 EUR Germany IFO Sentiment Reports
12:00 EUR ECB Lautenschläger speech
12:30 USD Chicago Fed National Activity Index 
22:45 NZD NZ Imports/Exports/TB
23:50 JPY BoJ MPC Minutes

Tuesday June 25
Fed Chair Powell speaks today, but it is more likely to be a ‘big picture’ talk, rather than anything that will move markets. Markets are closed in Slovenia and Croatia. There is a rate decision on HUF.

00:00 USD OPEC Meeting (all day)
07:05 AUD RBA Bullock speech
08:15 EUR ECB De Guindos speech
13:00 USD US Home Price Indices
14:00 USD US Consumer Confidence/New Home Sales
16:00 USD Fed Bostic speech
17:00 USD Fed Chair Powell speech
20:30 WTI API Oil Stock
18:15 EUR ECB Coeuré speech

Wednesday June 26
The RBNZ follows the other major central banks this month with an expected hold, but all eyes will be on Governor Orr to see if he echoes the strong dovishness shown around the world. There are also rate decisions on ISK and CZK.

02:00 NZD RBNZ Rate Decision/Statement (e1.5% hold)
03:00 NZD RBNZ Press Conference
06:00 EUR Germany Gfk Consumer Confidence Survey
10:00 EUR ECB Mersch speech
12:30 USD US ND Capital Goods (May) (e0.1% p-1.0%)
14:30 WTI EIA Oil Stock
23:50 JPY Japan Retail Sales

Thursday June 27
The final US GDP print is due today, but as two preliminaries have already been released, the effect is not expected to be great. There is a rate decision on MXN.

09:00 EUR Eurozone Business Climate
12:00 EUR Germany CPI (e1.4% p1.3%)
12:30 USD US Jobless Claims
12:30 USD US 19Q1 GDP (final) (e3.1% p3.1%)
12:30 USD US PCE QoQ
14:00 USD US Pending Home Sales (MoM)
23:01 GBP UK GfK Consumer Confidence
23:30 JPY Japan Jobs/Unemp
23:50 JPY Tokyo CPI (e0.9% p1.1%)

Friday June 28
The G20 Summit opens in Japan, where Presidents Trump and Xi may well meet, although substantive news is more likely over the weekend. Today is the last day of the week, month and quarter, so expect additional volatility for rebalancing. There is a rate decision of COP. Markets are closed in Ukraine.

00:00 EUR G20 Meeting (all day)
08:30 GBP UK 19Q1 GDP QoQ (final) (e0.2% p0.5%)
09:00 EUR Eurozone CPI (prelim) (Core YoY e1.0% p0.8%)
12:30 USD Personal Spending/PCE MoM & YoY
12:30 CAD Canada GDP (MoM)
13:45 USD Chicago PMI
14:00 USD Michigan CSI
14:30 CAD BoC Business Outlook Survey

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