Sunday 11 August 2019

Week to Aug 9th

Worst day of 2019 on Monday, Surprise NZD 50bp cut, GBP and FTSE both fade

Mon Aug 05
Today was the worst day of 2019 for indices, SPX was down 3% at the close, and carried on falling throughout the Tuesday Asian session, the largest 24 hour drop since the 5/6 Feb 2018 collapse. It touched a low in Asia of 5.43% down on Friday’s close. This was generally blamed on the Trump tariff tweet of last week coming immediately after the rate cut, although not helped by the bad miss on the US Non-Manuf PMI at 14:00 (53.7 vs 55.1). Services are supposed to be strong in the US (tech etc.)

DXY was similarly affected, down 0.71% at the close (the worst day since Jan 25 2019), and a low of 0.92% in the Asian session. EUR and JPY were around 1% up, but CAD and GBP hardly moved, and AUD fell 0.6% even against the weaker dollar. Gold was up in line with the dollar, Oil down in line with equities, and yields down in line with both.

Tuesday August 06
After such a large drop on Monday, indices rebounded about a quarter of the drop, as did DXY although only CAD was notably down, following Oil which continued to slide. EUR, GBP, AUD were more or less flat, and risk-off markers Gold, JPY and bond prices (inverse to yields) were up again. The AUD rate hold had no effect.

Wednesday August 07
A quieter day today as volatility receded, with SPX and DJIA more or less flat, but an advance for NDX and European indices. The dollar (and yields) were fairly flat as well with a slight advances in JPY balancing a pullback in Oil-linked CAD. Oil was at one point down 5.5%, but found June support around $51 and rebounded. 

The big news was the 50bp rate cut in New Zealand, when only 25bp was expected, which triggered an immediate 2.5% drop in the kiwi, and a sympathetic 1.5% fade in AUD. The Aussie recovered to close flat. The Antipodean currencies are not, of course, part of the DXY basket.

Thursday August 08
The recovering SPX and DJIA passed into last weekend’s gap territory. This is known as an ‘air pocket’, ie there is no resistance. The indices advanced evenly and closed the gap by the end of the day. Foreign indices followed suit. Some attributed this to the Chinese Trade Balance beat, although the move only really took off when the US cash session opened. Also today the PBoC allowed USDCNY to rise above 7.0, a significant roundpoint, marking an 11-year low for the renminbi.

A small aside, renminbi or “people’s currency” is the currency, yuan is the unit of account. Most other countries use the same word for both, the nearest example is sterling and pound in the UK. So you wouldn’t say ‘a thousand renminbi’, but you could say ‘the yuan is weak’.

Yet another dollar indecision day, with a slight move down (in yields as well) with the heavily DXY-weighted euro balancing moves up in JPY and CAD. AUD performed surprisingly well up 0.73%, possibly due to Gold pushing through the $1500 barrier for the first time in six years. 

Friday August 09
President Trump told reporters he was not ready to make a deal with China yet, and indices pulled back again today, although there was a partial recovery towards the US close. Of course, like all week, movement has been also a technical whipsaw following the enormous move on Monday. The dollar was well down (DXY -0.55%), and would have been more if GBP had not cratered again, as PM Johnson and allies rhetoric increases fears of a no-deal Brexit, and GBP keeps sliding towards 1.20 ‘Brexit floor’ and important psychological points, as it also tends to EURGBP parity. This ended the week with DXY down 1.09%, The yen was of course up, but despite all this, other risk indicators were contrarian: Gold was down, and yields and Oil were both up.

The Monday rout recovered to various degrees, but Brexit-troubled FTSE for once did not benefit from sterling weakness, and fell the most. Buying EURNZD would have been the best forex trade. BTC continued to rise, although not joined by ETH. FANGs are more volatile than NDX and therefore fell more, with NFLX the worst performer.

Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on DXY. 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)
  • All eyes still on China
  • US and UK inflation
  • More European GDP
  • Retail earnings, retail sales

Monday August 12
There are several possible USTR announcements in the tariff saga this week, but there are no exact schedules. Markets are closed in India and Turkey. Scheduled news is light, as is often the case on Mondays. 

22:45 NZD NZ Electronic Card Retail Sales (Sunday)
18:00 USD US Monthly Budget Statement
22:00 AUD RBA Kent speech

Tuesday August 13
US and Germany inflation are the key prints today. Otherwise, we continue to listen for trade war remarks or tweets.

06:00 EUR Germany CPI (YoY e1.1% p1.1%)
08:30 GBP UK AHE (e3.7% p3.4%)/UnEmpl (e3.8% p3.8%)
09:00 EUR Germany/EU ZEW Economic Sentiment (Germany e-22.3 p-24.5)
12:30 USD US CPI (MoM Core e0.2% p0.3%)

Wednesday August 14
Eurozone and German GDP will inevitably weigh on EUR today, but UK inflation probably more so, given GBP recent volatility to the downside. NDX heavyweight CSCO reports after the bell.

00:30 AUD Aus Westpac Consumer Confidence
01:30 AUD Aus Wage Price Index (QoQ)
02:00 CNY China Retail Sales/Industrial Production
02:00 CNY China NBS Press Conference
06:00 EUR Germany 19Q2 Preliminary GDP (QoQ e-0.1% p0.4%)
07:30 AUD RBA Debelle speech
08:30 GBP UK CPI (YoY e2.0% p2.0%)
09:00 EUR Eurozone 19Q2 Preliminary GDP (e0.2% p0.2%) 
15:30 WTI EIA Oil Stock
23:00 AUD RBA Debelle speech

Thursday August 15
The day starts with DJIA component WMT earnings, and Bitcoin mining chip maker NVDA reports after the bell. There are rate decisions on NOK and MXN. Markets are closed in some European countries for Assumption Day (but not the UK and Germany), and also in India and South Korea.

01:30 AUD Aus NFP/UnEmp (NFP e26.8k p0.5k)
08:30 GBP UK Retail Sales
12:30 USD US Retail Sales (Control Group e0.3% p0.7%)
12:30 USD US Jobless Claims/Unit Labor Costs/Productivity
12:30 USD Philly Fed Manufacturing Survey
13:15 USD US Industrial Production (MoM)
22:30 NZD NZ Business PMI

Friday August 16
Today is monthly OpEx, so expect heightened volatility. The main event is the increasingly important semi-monthly Michigan Consumer Sentiment report.

07:00 CNY China FDI
12:30 USD US Building Permits/Housing Starts
14:00 USD Michigan CSI (e97.7 p98.4)

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