Sunday 9 June 2019

Week to Jun 7th

‘Sell in May’ sentiment evaporates, Powell confirms rate cuts on the table.

Mon Jun 03
Almost like clockwork, the ‘Sell in May’ sentiment turned on a dime for the new month, but was spoiled by a report that the tech giants may be subject to anti-trust scrutiny. The market liked the Chinese PMI beat at 0145, and shrugged off the various US misses. As you know FB, GOOGL etc. have ‘natural monopolies’ but so did Standard Oil in 1911 (which ultimately became XOM and CVX). AMZN joined these two in tumbling, shaving over 2% off NDX, whereas DJIA was slightly up. Other world indices were comfortably ahead.

The dollar turned on Friday, and continued down (DXY -0.40%) today on Fed Bullard’s comments that a rate cut “may be warranted soon”.  Bullard is, of course the most dovish 2019 FOMC voter, but the remark was enough to send yields down and all other currencies (and Gold) up against US. Oil was up in line with industrials and the weaker dollar.

Tuesday June 04
Bullard is a dove, but Chair Powell by definition is centrist, and when he confirmed the potential cut theme today stocks soared (in all countries), with tech stocks recovering as well, as a rumor of antitrust was trumped by a certainty of fiscal easing (if needed).

USD was flatter today, with the dollar basket only down 0.1%, as JPY (and Gold) faded in line with the risk-on mood. EUR failed to benefit (ending flat) after the key Eurozone CPI miss at 0900, but the other currencies advanced. Oil was up slightly in line with stocks, and yields moved back up as bond money rotated into stocks. The AUD rate cut to 1.25% was widely expected and priced in, and AUDUSD joined the other currencies in advancing.

Wednesday June 05
Equities advanced again today, but more slowly. Positive comments from the Senate Finance committee about the Mexico tariff issues were overshadowed by a very weak ADP jobs report (27k vs 180k best), a nine-year low. The dollar was up slightly (DXY +0.18%) after the ISM PMI beat at 1400, evenly advancing across the board, although Gold and Bonds finished up after both spiking on the ADP report. Oil fell sharply on the EIA miss, and finished 2.31% on the day. It did however fall as low as 50.58, 4.37% down, a four month low, and crucially, a technical bear market (over 20% down from the Apr 23 high). 

Thursday June 06
Further reports on Mexican tariff delays gave US markets some more risk appetite, which was repeated elsewhere, the only laggard being DAX, held back by a sharp EUR increase, as ECB President Draghi, speaking at 1330, was dovish, but not as dovish as expected. DXY fell 0.32%, the only loser being JPY as you would expect. Gold rose in line. Oil bounced back, recovering Wednesday’s losses. Yields closed flat after dipping throughout the day.

Friday June 07
We have had a willingness to cut rates and a poor ADP report this week. It therefore followed that a poor NFP (which it was, 75k versus 185k estimated) would be seen as ‘bad news is good news’, ie, the poor report suggested a rate cut. The evidence was clear, a sharp and instant move down in yields and DXY (down 0.44% on the day), and an even move up in currencies and Gold. The standout was CAD, whose NFP figure beat. Equities in this situation always rise, and so it was seen today. Oil and Gold were both up on the weaker dollar.

‘Sell in May’ is over and markets rallied, with DJIA the overall winner. NZDUSD was the strongest currency. Cryptos had a pullback after several weeks of gains. A huge variation in the FANGS, with the ‘monopolies’ well down, but AAPL and NFLX well up.

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)

  • Four-day week for the DAX
  • Key US, China and Germany inflation reports
  • Fed blackout period starts
  • Low estimate for Michigan Sentiment

Monday June 10
The main news over the weekend was the suspension of Mexican tariffs, which should lift equities. The JOLTS jobs report is due at 1400. Markets are closed in Australia, Germany and much of Europe (although not the UK) for Whit Monday.

23:50 JPY Japan 19Q1 GDP (Sunday) (QoQ e0.4% p0.5%)
02:00 CNY China Imports/Exports/TB
08:30 GBP UK Industrial/Manuf Production (MoM)
08:30 GBP UK GDP (MoM)
17:00 GBP BoE Saunders speech

Tuesday June 11
The US PPI figure comes ahead of CPI this week and may give some indication. The most important news is the UK jobs report. The Average Hourly Earnings is expected to remain unchanged at 3.3%.

08:30 GBP UK AHE/UnEmpl (UnEmp e3.9% p3.8%)
12:30 USD US PPI
22:45 NZD NZ Electronic Card Retail Sales
23:25 AUD RBA Kent speech

Wednesday June 12
Chinese and US inflation prints make this the most important news day of the week. There is a rate decision on TRY at 1100 (est hold 24%). Markets are closed in Russia, Nigeria and the Phillippines.

00:30 AUD Aus Westpac Consumer Confidence
01:30 CNY China CPI (YoY e2.7% p2.5%)
08:15 EUR ECB President Draghi speech
09:00 AUD RBA Ellis speech
09:00 EUR ECB De Guindos speech
12:30 USD US CPI (Core YoY e2.1% p2.1%)
18:00 USD US Monthly Budget Statement

Thursday June 13
There is a rate decision on CHF (est hold -0.75%) at 0730 with a press conference half an hour later. Otherwise German inflation is the key print of the day.

00:00 EUR Eurogroup Meeting (all day)
00:00 AUD Aus Consumer Inflation Expectations
01:30 AUD NFP/Unemp (NFP e17.5k p28.4k)
06:00 EUR Germany CPI YoY (e1.3% p1.3%)
09:00 EUR Eurozone Industrial Production (MoM)
12:30 USD US Jobless Claims
22:30 NZD Business NZ PMI

Friday June 14
The Michigan CSI estimate is surprisingly moderate, after the last two stellar releases. There is a rate decision on RUB (est 25bp cut to 7.50%). 

02:00 CNY China Retail Sales/Industrial Production
02:00 CNY China NBS Press Conference
12:30 USD US Retail Sales (Control Group p0.0%)
13:15 USD US Industrial Production (MoM)
14:00 USD Michigan CSI (prelim) (e98.1 p100.00)

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