Saturday 15 February 2020

Week to Feb 14th

New all-time highs, EURGBP close lowest for 43 month, UK Chancellor resigns

Markets shrugged off the coronavirus to make four new all-time highs, only faltering on Thursday as the death toll exceeded that of SARS, and a surprise replacement of the UK Chancellor of the Exchequer by an junior minister loyal to Johnson’s Trump-like spend, cut taxes, raise debt policy caused a sharp uptick in sterling, and NZD similar benefited by not following the global trend to cut rates, despite an overall strong dollar as Fed Chair Powell was less dovish than expected, reaffirming the data-driven approach to rate decisions.

The foreshortened coming week has no strong theme, sees British and Canadian inflation prints, and Wal-Mart leads the ‘retail phase’ of earnings season, although there is no key focus event, meaning that coronavirus sentiment is still the principal risk to the downside in a market up nearly 5% in two weeks.

Mon Feb 10
Last week’s rally continued all markets up today, particular in tech, with AMZN up 2.63%, and TSLA adding 3.1%, with no particular news, but crucially, no further coronavirus bad news. The dollar was similarly up overall, except against GBP and AUD which outperformed, both reversing from last week’s continual decline.

Gold and Oil were down in line with the stronger dollar. Yields were surprisingly slightly down.

Tuesday February 11
There was no stopping indices today, which again posted all-time highs, in the absence of US economic news. DXY had a Turnaround Tuesday after Fed Powell stressed that QE was back on the table, with currencies up, except the yen, which along with Gold and bonds pulled back in the risk-on environment, and Oil was also up in line. The only notable event today was a clear front-running of the UK GDP strong beat. The build-up in price prior to the event, lasting about 20 minutes and accelerating strongly suggest an information leak. This has happened before, and only occurs in the UK.

Wednesday February 12
A third positive day after reports that the number of new coronavirus cases had declined, and the dovish rhetoric continued from Fed Chair Powell on the second day of his Humphrey-Hawkins testimony. Markets were up across the board, but the situation was less clear on the dollar, with commodity currencies CAD and AUD firmly up as gold halted its decline and posted a flat day, as did GBP. EUR continued to fall meaning DXY was up on the day. Oil finally moved off its $50 floor and added 3% on the day.

Thursday February 13
A report that the coronavirus death toll had (symbolically) now exceeded that of SARS. Maverick Fed nominee Judy Shelton ran into scepticism in her Senate hearing, and is a long way from being selected. Despite the US inflation beat at 1330, markets took a breather and pulled back early, although they recovered later, with SPX and DAX nearly flat. NKY and FTSE were well down on currency strength, JPY rising along with Gold and bonds, and Oil falling, all in line with equities. GBP rallied sharply on news that that Chancellor (Finance Minister) Javid had resigned and been replaced by a junior minister more loyal to PM Johnson’s populist spending policies. Commodity currencies AUD and CAD were flat, but the further decline of EUR, which closed at a 33-month low meant a green day for DXY. EURGBP is at a 43-month low.

Friday February 14
The rally continued to falter today, after the Retail Sales miss at 1330. SPX had made new highs in futures, but fell back down in the cash session, nevertheless closing up slightly on the day, as did DAX. Once again NKY and FTSE were well down on currency sensitivity. Earnings this week were fairly good, but the dominant factor is the coronavirus sentiment. The haven trio were comfortably up, but otherwise currencies were subdued, with EUR holding a bottom around 1.0840, and none moving more than 0.15% against USD. Oil had another spurt upwards closing above $52.

This was still a risk-on week, so unsurprisingly NDX gave the best performance. The biggest currency mover was EURGBP down 2.3%. Our pick of the week buy CADJPY was only up 0.52%, but still up, the second accurate call (out of two, 100% so far). This week’s call is to buy EURNZD. ETH had a second parabolic week, adding 28.2% after 24.2% last week, an amazing 76.3% in three weeks, against a relatively pedestrian Bitcoin. FANGs had a fairly consistent week, all roughly following NDX.

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)

  • President’s Day 4-day OpEx week
  • UK, Canada and Eurozone inflation
  • WMT starts retail earnings
  • Large Fed roster

The foreshortened coming week has no strong theme, sees British, Eurozone and Canadian inflation prints, and Wal-Mart leads the ‘retail phase’ of earnings season, although there is no key focus event, meaning that coronavirus sentiment is still the principal risk to the downside in a market up nearly 5% in two weeks.

Monday February 17
Markets are closed in the US for Presidents Day, and in Canada for Family Day, and there is no significant news today, so markets should run on technicals.

23:50 JPY Japan 19Q4 Prelim GDP (QoQ e-0.9% p0.4%) (Sun)
11:00 EUR ECB Lane speech

Tuesday February 18
The key German sentiment report today should give us some idea about the effect of coronavirus on business confidence. WMT report before the bell, leading us into the retail part of earnings season. Retailers tend to report a couple of weeks after the other sectors.

00:30 AUD RBA Meeting Minutes
09:30 GBP UnEmp/AHE (UnEmp e3.8% p3.8%)
10:00 EUR Germany ZEW Economic Sentiment (e20.4 p26.7)
14:30 NZD NZ GDT Milk Index
23:50 JPY Japan Imports/Exports/TB

Wednesday February 19
Two inflation prints today, but little US news. However there are no less than five Fed speakers today,  Bostic, Barkin, Kashkari, Kaplan and Mester. Here is the useful hawk/dove chart courtesy of ITC Markets. There is a rate decision in Turkey.
09:30 GBP UK CPI
13:30 USD US Core PPI
13:30 CAD Canada CPI
19:00 USD FOMC Minutes

Thursday February 20
Another German confidence reports today, this time consumers, and it will be interesting to contrast it with Tuesday’s business confidence level. Fed Barkin speaks again today. As well as China, there are rate decisions in Indonesia and Egypt. Markets are closed in India for Maha Shivrati.

00:30 AUD Emp/UnEmp (Emp e31.0k p28.9k)
01:30 CNY PBoC Rate Decision/Statement (e4.05% p4.15%)
07:00 EUR Germany PPI/Gfk Consumer Confidence
09:30 GBP UK Retail Sales
10:30 EUR ECB De Guindos speech
12:30 EUR ECB MPC Minutes
13:30 USD Philly Fed Manuf Survey
13:30 USD US Jobless Claims
23:30 JPY Japan National CPI

Friday February 21
A rash of PMIs, and five Fed speakers again today, with vice-chair Clarida and board member Lael Brainard, along with a second showing of Bostic, Kaplan and Mester. Today is monthly option expiration date, so expect some heightened volatility. Markets will also be looking at polling for the Nevada Democratic caucus the next day. Nevada is much more diverse than Iowa or NH, and polls still show a Sanders win, with Joe Biden comfortably ahead of Pete Buttigieg.

08:30 EUR Germany Markit PMIs (Manuf e44.8 p45.3)
09:00 EUR Eurozone Markit PMIs (Composite e51.0 p51.3)
09:30 GBP UK Markit Services PMI (e53.4 p53.9)
10:00 EUR Eurozone CPI
12:00 EUR ECB Lane speech
13:30 CAD Canada Retail Sales (MoM e0.0% p0.9%)
14:45 USD US Markit PMIs
15:00 USD US Existing Home Sales
15:15 USD Fed Brainard speech
18:30 USD Fed Brainard speech

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