Sunday 30 June 2019

Week to Jun 28th

Powell tempers rate cut enthusiasm, G20 hopes, V-shaped week

Mon Jun 24
Markets were slightly down today after new Iran sanctions were announced, and Gold hit a new 5-year high of $1419. Only FTSE posted a green candle on Brexit-based GBP weakness. The dollar was only very slightly off (DXY -0.09%), but nevertheless touched a three-month low of 96.00, with moves up from all except GBP and JPY, which were more or less flat, as was Oil. Yields were down 4bp in line with the risk-off and dollar.

Tuesday June 25
Fed Chair Powell defended his independence today saying the Fed is “insulated from short-term political pressures”. Coupled with noted Fed dove James Bullard saying a 50bp cut (still 25% priced in) would be “overdone”, this was enough to add 0.18% to DXY and push SPX down 0.9%. Other indices followed suit, and of course all currencies fell. GBP suffered worst, resulting in another green day for FTSE. Oil had a second flat day, and yields (risk off only not USD this time) fell another 3bp to dip below 2%. Gold came off the highs.

Wednesday June 26
President Trump’s retort to Powell today was typical. He said he was doing a “bad job” and suggested (not seriously) that ECB President Draghi should take the role! Also TreasSec Mnuchin told CNBC the China deal was 90% complete, and the Capital Goods print beat at 1230 beat comfortably. This caused a short-lived rally which was enough to put Europe (which closes at 1530) in the green, but it faded in the US afternoon session to post another red day on Wall Street.

Surprisingly the dollar ended completely flat today, as a JPY fade was matched by a small advance in EUR and a bigger one in CAD following Oil which was sharply up on the very strong beats from both the API (Tuesday night) and EIA Oil reports. Like last week, the 2% level on 10-year yields appears to be support, and they rose 7bp to 2.06%. NZD (not part of DXY) was particularly strong after the RBNZ held rates at 0200. Gold was down again, back to last Friday’s level.

Thursday June 27
Equity markets were up today on hopes of a G20 Trump/Xi breakthrough, after a report in the South China Post that the two sides were near to a truce. Also the 1230 GDP print of 3.1% was in line with estimates, but the simultaneous PCE (inflation proxy) print beat lifted the mood.

Another very quiet day on currencies, with a slight fade in GBP (again), and a further CAD advances leading to a miniscule 0.04% uptick in DXY. Gold was also flat, and Oil was only marginally up, but yields were surprising active, moving down all day to close 5bp lower.

Friday June 28
The end of the half-year (and obviously quarter, month, and week) brought some strong stats. For example SPX was up 0.6%, all of which was in the last 30 minutes of trading, closing the best June since 1955, and the best half-year since 1997. The timing of the price/action suggests this was definitely date-related, as there was no specific G-20 news in the last hours. The table shows the 2019 ‘half time scores’ for various asset classes.

DXY continued to hover around 96, and was down 0.09% on the day, largely due to a small recovery in GBP. Other currencies and even the newly volatile Gold ended flat. The Canadian GDP beat at 1230 had surprisingly little effect on CAD, but of course it had been rallying all week. Bond yields rallied briefly but ended the day 1bp down. Oil had been flat all day, but futures suddenly dropped 2% in an hour after the close of open outcry at 1830. This may well have been a mixture of G20 and OPEC uncertainty, added to period end balancing.

Unusual to see all the US indices down and the non-US ones up. The weakest was NDX, a marker for risk. It’s a while since we’ve seen a move over 2.5% in a currency pair, but that’s what happened with NZDJPY (+2.51%) this week. Another strong rally in BTC saw it  add 22% on Wednesday alone, and even after pullback book another strong gain. We seem to be getting a pattern on FAANG where one stock has much more volatility than the rest. This week it was GOOGL’s turn.

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)

  • Independence Day short week
  • Non-farm Payrolls
  • AUD rate cut expected
  • Possible Brexit machinations

Monday July 01
The new week, month, and quarter should open positively after encouraging tweets from Trump at the G20 Summit. He said although tariffs will not be reduced, they will not be increased whilst negotiations continue. The OPEC meeting is expected to confirm continuing oil cuts, and indeed weekend news suggests this will definitely happen. Markets are closed in Colombia, Hong Kong, Canada, Egypt, Botswana, Rwanda, Panama, Bangladesh and the Cayman Islands.

00:00 WTI OPEC Meeting (all day)
01:45 CNY China Caixin Manufacturing PMI (e50.0 p50.2)
06:45 EUR ECB De Guindos speech
07:55 EUR Germany Unemployment
07:55 EUR Germany Markit Manufacturing PMI
08:30 GBP UK Markit Manufacturing PMI
09:00 EUR Eurozone Unemployment Rate
10:15 EUR ECB Lane speech
13:45 USD US Markit Manufacturing PMI
14:00 USD ISM Manufacturing PMI (e51.0 p52.1)

Tuesday July 02
The RBA did not cut rates last month, but is expected to do so today. This 30-day future vs spot rate calculation gives a 70% probability. (This formula can be used for any currency).

The Estimates Day debates in the UK parliament are significant, as they may give British MPs a procedural mechanism to stop a no-deal Brexit. Final comments are due to the USTR today on the tariffs on $300Bn Chinese imports. This schedules a final decision for about July 14th.

04:30 AUD RBA Rate Decision/Statement (e1.00% p1.25%)
06:00 EUR Germany Retail Sales (MoM)
08:30 GBP UK Markit Construction PMI
09:30 AUD RBA Governor Lowe speech
13:30 CAD Canada Markit Manufacturing PMI
14:00 NZD NZ GDT Milk Index
20:30 WTI API Oil Stock

Wednesday July 03
US Markets close at 1700 for the pre-holiday half day, so the ADP report will be the only chance traders get to position theirselves for the NFP report on Friday, which will be important as it is the penultimate major data release (the last in CPI on Jul 11) before the Fed rate decision on Jul 31.

Also keep an eye open for any talk on Mario Draghi’s replacement. The ECB President’s term ends in October, and his successor will be announced imminently. There are rate decisions on SEK and PLN.

01:30 AUD Aus Imports/Exports/TB
01:45 CNY China Caixin Services PMI
08:00 EUR Eurozone Markit PMI Composite
08:30 GBP UK Markit Services PMI
12:15 USD US ADP Employment Change (e150k p27k)
12:30 USD US Trade Balance
12:30 USD US Jobless Claims
12:30 CAD Canada International Merchandise Trade
13:15 GBP BoE Broadbent speech
13:45 USD US Markit Composite/Services PMI
14:00 USD US ISM Non-Manufacturing PMI (e56.0 p56.9)

Thursday July 04
Markets are closed for Independence Day in the US, and so equity volatility should be very low. Index futures are of course still traded on Globex. There is a rate decision on RON. Rwanda is closed.

01:30 AUD Aus Retail Sales s.a. (MoM)
07:00 EUR ECB Lane speech
09:00 EUR Eurozone Retail Sales (YoY)
09:10 EUR ECB De Guindos speech
23:30 JPY Japan Overall Household Spending (YoY)

Friday July 05
The NFP estimate is well down on the usual 190-200k, after last month’s very low print, and in line with the ADP figure. The AHE estimate is 3.2%. As usual, with a simultaneous Canadian report, expect USDCAD volatility. Markets are closed in Indonesia, Czech Republic, Slovakia and Venezuela. There is a general election in Greece on Sunday.

05:00 JPY Japan Leading Economic Index
06:00 EUR Germany Factory Orders s.a. (MoM)
12:30 USD US NFP/AHE/Unemp. (NFP e158k p75k) 
12:30 CAD Canada NFP/AHE/Unemp. (NFP e8.0k p27.7k)
14:00 CAD Canada Ivey PMI

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