Sunday 9 February 2020

Week to Feb 7th

Iowa Caucus surprise, Impeachment Acquittal, Virus fears subside

In a week where coronavirus fears subsided, former frontrunner Biden came fourth in the Iowa Caucus, and President Trump’s impeachment ended in an immediate acquittal, both equities and the dollar strongly rebounded upwards, the former to new all-time highs. Only a blowout NFP, reducing the possibility of rate cuts, and a late statement by the Fed on the coronavirus capped the enthusiasm slightly.

Next week sees Fed Chair Powell give his semi-annual ‘Humphrey-Hawkins’ testimony to the House and Senate, and we will be publishing our usual fractal. Also on the agenda is US inflation and retail sales, and a rate decision in New Zealand.

Mon Feb 3
In the absence of any further escalation of the coronavirus, the surprise beat in the ISM Manufacturing PMI at 1500 pushed the market up sharply, reversing some of Friday’s sell-off. TSLA, for no known reason jumped 20%, which was attributed to short-covering. World indices followed. USD also reversed from Friday’s selloff, and all currencies and Gold were down. Bonds were also down in line with the risk-on mood. Oil however pulled back sharply.

Tuesday February 4
News that the PBoC is loosening the Chinese economy, by cutting bank reserves requirements, and ‘fear fatigue’ send markets soaring with SPX up 1.5% and NDX up 2.1%. Airlines, which had been hit hard, rose even further, as did risk darling AAPL, as you can see in the table. The effect was also seen in Europe and Japan. Again the dollar rallied across the board, except for AUD. The yen, gold and bonds were down, in line with equities. However, oil fell again. closing below the psychologically $50 level.

Notably, TSLA rose a further 13%, and at one point hit $968 (24.23% up). This amazing performance, following ten green weeks, when the stock was $329, has been put down to short covering. President Trump delivered an upbeat State of the Union address to Congress.

Wednesday February 5
Another huge day saw DJIA up 1.68% and SPX up 1.13%, erasing the coronavirus losses completely. The mood was best expressed by NDX didn’t fare as well, only up 0.43% as the TSLA bubble burst, falling 17.2%. This was largely momentum, started in Europe with PMI beats, and continued at 1500 with a beat on the ISM Services PMI. Like stocks, the dollar rallied for a third day, although gold outperformed, as did its proxy AUD again, as the currency is strongly linked to coronavirus, and is still 5% down this year. Oil also turned up from the $50 psychological and technical support. Bonds continued to fall in line.

After the market had closed, the Senate acquitted President Trump in his impeachment, as universally expected, after they had voted down the process of calling witnesses. Some commentators say this had an effect of prolonging the rally for another day.

Thursday February 6
After the delayed Iowa Caucus results gave a narrow victory to outsider Pete Buttigieg (who is interpreted as unlikely to beat Trump), a fourth green day saw the rally top out at new all-time highs. The fact that Sanders came second and former favorite Joe Biden trailed in fourth place did not seem to worry markets.

It is notable this week how closely correlated Europe and Japan are. New highs were reached but intraday highs were made early. Oil rose in line. Another clean sweep for the dollar, with all currencies down. However both Gold and bonds reversed and rose, another sign of the rally ending.

Friday February 7
After four solid days in the same direction, today’s NFP, a blowout 225k (vs 156k estimate), but in line with the ADP print, resulted in a pullback. This could be because of the “good is bad” factor, a good number reduced the change of rate cuts, and certainly this was reflected in USD which continued to rise, although not against JPY which rose along with bonds and Gold. Oil was also down in line. However, the CME Fedwatch cut probability did not move, as you can see from the FFR Futures chart.

The other factor was a warning from the Fed that coronavirus would have an effect on the US economy. This of course had been the reason for the drop last week, but it had not been formally stated before. The Canadian NFP also beat, so there was little volatility in USDCAD.

Partly due to the decline in EUR, DAX was the best performing index in a green week everywhere. My first ever tip, from last week, selling GBPAUD was not only accurate, but at 2.08%, the best forex trade of the week. The tip this week is to buy CADJPY. Cryptos were also up showing that they are not necessarily a risk-off asset, and FANGs outperformed the NDX index, with NFLX the best 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)

  • Humphrey-Hawkins week
  • New Fed nominees
  • US, China, Germany inflation
  • Kiwi Rate Decision

Monday February 10
No US news today, as we start a week dominated by CB speakers. Markets are closed in Japan for National Foundation Day.
01:30 CNY China CPI (e4.9% p4.5%)
13:15 USD Fed Bowman speech
13:15 CAD Canada Housing Starts
20:15 USD Fed Harker speech

Tuesday February 11
Not much news today, but lots of CB speakers, the main one of course being Chair Powell’s semi-annual Humphrey-Hawkins testimony. Today is the New Hampshire Democratic primary where Bernie Sanders is expected to win comfortably. Markets will be more focused on whether Joe Biden once again puts in a poor performance, and then start to do the math on a Sanders/Trump election.

09:30 GBP UK Manuf/Industrial Production
09:30 GBP UK 19Q4 Prelim GDP (e0.0% p0.4%)
10:00 EUR EC Economic Growth Forecasts
15:00 USD Fed Chair Powell House H-H Testimony
15:35 GBP BoE Gov Carney speech
17:00 GBP BoE Haskel speech
17:15 USD Fed Quarles speech
19:15 USD Fed Kashkari speech

Wednesday February 12
In Europe we have the UK government's Autumn Forecast statement, a German Bund auction, and as well as New Zealand, a rate decision in Sweden. SEK is 4.2% of the DXY basket. NDX heavyweight CSCO reports after the bell.

01:00 NZD RBNZ Rate Decision/Statement (e1.0% hold)
02:00 NZD RBNZ Press Conference
10:00 EUR Eurozone Industrial Production
13:30 USD Fed Harker speech
15:00 USD Fed Chair Powell Senate H-H Testimony
19:00 USD US Monthly Budget Statement
19:10 NZD RBNZ Governor Orr speech

Thursday February 13
The Senate holds hearings for new Fed nominees Shelton and Waller today. Judy Shelton is interesting, she is a rate hawk, an advocate of returning to the pre-1971 gold standard, and does not believe in Fed political independence. Trump will like the last view if not the first. Waller is a close associate of James Bullard at the St Louis Fed, and shares his dovish views. There is a rate decision today in Mexico. 

00:15 CAD BoC Gov Poloz speech
00:15 AUD RBA Gov Lowe speech
07:00 EUR Germany CPI (YoY e1.6% p1.6%)
13:30 USD US CPI (Core YoY e2.2% p2.3%)
13:30 USD US Jobless Claims
21:30 NZD Business NZ PMI

Friday February 14
Important GDP prints in Europe precede US Retail Sales. Today is the deadline for UK Labour Party leadership candidates to run. Lawyer Keir Starmer is the runaway lead candidate.

02:00 CNY China NBS Press Conference
02:00 CNY China Industrial Production/Retail Sales
07:00 EUR Germany 19Q1 Prelim GDP (QoQ e0.1% p0.1%)
10:00 EUR Eurozone 19Q1 Prelim GDP (QoQ e0.1% p0.1%)
13:30 USD US Retail Sales (MoM e0.4% p0.5%)
14:15 USD US Industrial Production
15:00 USD Michigan Prelim CSI (e99.7 p99.8)

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