Sunday 8 September 2019

Week to Sep 6th

NFP miss after ADP beatDollar reversal, Brexit doves win a round

Mon Sep 02
Today was Labor Day, a US holiday, so as you might expect the action was elsewhere. Asian indices fell as the new US tariffs on China came into place, and DAX and US Futures followed suit. The British parliament opened after summer, and immediate Brexit antagonism caused a sharp drop in GBP which allowed FTSE to rise. Other currencies were slightly down and DXY finished 0.24% up on the day. Gold, Oil and Bond futures were flat

Tuesday September 03
Equity markets carried on drifting downwards, after a series of trade release misses, most significantly the ISM Manufacturing PMI at 1400 which move below 50, ie into contraction for the first time in three years. The print of 49.1 from the estimate of 51 is equivalents to a -0.9% after a +1.0% estimate in other statistics. Oil was down, and Gold, JPY and Bonds were up in line. After briefly hitting a two-year high of 99.37, DXY was down 0.08%, with GBP up on hopes of frustrating a no-deal Brexit, and AUD following gold. However with EUR and CAD flat the move was minimal.

Wednesday September 04
The China Caixin Services PMI beat at 0145 set the mood, followed by PMI and Retail Sales beats in Europe. Equities snapped their losing streak, and SPX added 1.1% on the day. The dollar fell steadily all day, giving up 0.57% as Gold and all currencies except risk barometer JPY advanced. CAD was particularly strong after hawkish remarks from the BoC following the rate hold at 1400. Oil was up in line with equities, and 10-year bond yields were flat, but the 10/2 yield curve climbed back into positive territory. The four Fed speakers added little to what we already knew.

Thursday September 05
Today’s announcement of new high-level US-China trade talks, which of course have stalled recently, in addition to successful moves in the UK parliament to block a no-deal Brexit, and a beat on the ISM Non-Manufacturing PMI at 1400, was enough to continue the equities and Oil rally. SPX added 1.3%, its best day in three weeks. A relatively flat DXY (up 0.02%) disguised a rally in most currencies, but the inevitable pullback in JPY (and Gold). CAD gave back a little of Wednesday’s rally. Yields were sharply up on bond-stock rotation.

Friday September 06
Friday’s NFP was a miss (130k vs 158k) and as the rate decision is next week, the ‘bad is good’ effect applied. A low figure makes a rate cut more likely. However, as a 25bp rate cut is already 91.2% priced in, per the CME Fedwatch tool, there was no sudden move in equities, which did nevertheless all gain on the day, as did Oil. DXY was down 0.37% on the same principle, mainly due to a further CAD rally and pullback in JPY. Unusually, 0.3% of this move was in the last three minutes of trading. GBP and EUR gave back some of the week’s rally and yields were down in line with rotation and rate cut hopes.

Surprisingly, there was little reaction to Fed Chair Powell’s speech at 1630, in which he said he does not expect recession and the economy is in a “good place”. He reiterated that the Fed will not be swayed by politics (eg Trump pressure to cut rates).

The top performing index this week was, unusually, DJIA, and our top performing tracked share was AMZN. In currencies, the rarely traded AUDCAD pair, if shorted would have made the best return. Crypto, still quieter than it used to be, returned north.

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)

  • ECB dovishness expected
  • Chinese and German inflation
  • British Parliament prorogued
  • Three quiet scheduled news days

Monday September 09
Having passed a law on Friday to force PM Johnson to ask for a Brexit extension, the British Parliament may force further moves to prevent a no deal exit. GBP did not react positively to Friday’s move, volatility may occur today.

07:00 CNY China Imports/Exports/TB (Sunday)
23:50 JPY Japan GDP (Sunday) (QoQ e0.3% p0.4%)
06:00 EUR Germany Trade Balance s.a.
08:00 GBP BoE Vlieghe speech
08:30 GBP UK GDP (MoM)
22:45 NZD NZ Electronic Card Retail Sales (MoM)

Tuesday September 10
The UK parliament is suspended or prorogued this week, although the Brexit saga may continue in the courts. A second day of no significant American news. Markets in India are closed.

01:30 CNY China CPI (YoY e2.6% p2.8%)
07:00 CNY China FDI
08:30 GBP AHE/UnEmp (AHE e3.8% p3.9%, Unemp e3.9% p3.9%)

Wednesday September 11
An ominous date in history, but yet another quiet day on the news front. There is a rate decision on PLN.

12:30 USD US PPI
23:50 JPY Japan Machinery Orders

Thursday September 12
Today's ECB decision and press conference, the penultimate one for outgoing President Draghi is the most important event of the week, especially as the conference is concurrent with the US inflation print. A reduction to the deposit rate (not the base rate) may be on the cards. Watch out to see if President Trump tries to tweet the dollar down. There is a rate decision on TRY where a 3% cut is expected.

06:00 EUR Germany CPI (YoY e1.0% p1.0%)
09:00 EUR Eurozone Industrial Production (MoM)
11:45 EUR ECB Rate Decision/Statement (e0.% hold)
12:30 EUR ECB President Draghi Presser
12:30 USD Jobless Claims
12:30 USD US CPI (YoY e2.3% p2.2%)
18:00 USD US Monthly Budget Statement

Friday September 13
The Michigan Consumer Sentiment Index hit a three-year low last month, and recovery is assumed. Markets in China, Taiwan and Korea are closed.

00:00 EUR Eurogroup Meeting (all day)
12:30 USD US Retail Sales (Control Group Aug e0.3% p1.0%)
14:00 USD Michigan CSI (e90.5 p89.8)

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