Week to Jan 31st

Coronavirus dominates, Good tech earnings, GBP rally

MY CALL FOR NEXT WEEK : SELL GBPAUD 

Mon Jan 27

The coronavirus death toll rose over the weekend, and with China closed, European and US markets fell hard, with SPX and DJIA down 1.57% and risk-sensitive NDX down 1.57%. It was the first day in 74 that SPX fell over 1%, and the worst day of 2020. Airline shares fell particularly hard, as did Oil. The dollar fell in line, and of course Gold, Bonds and JPY were up.

Tuesday January 28

All indices were back up today, largely recovering from Monday’s drop after a beat on the Durable Goods print at 1330 and Home Price Indices 30 minutes later, and driven by tech shares, particularly AAPL in anticipation of earnings. The dollar picture was mixed with relatively small movement. Most pairs were flat, with only GBP slightly down. However, a rise in JPY along with Bonds showed the lingering worry about the virus. Gold however was firmly down and Oil was up in line with indices.

Wednesday January 29

AAPL did not disappoint and their shares rose further, although this only kept markets overall flat, with DJIA down a few points and NDX a little up, reflecting the relative weight of AAPL. There was little reaction to the Fed rate hold, but in general the market behaved like a risk-off day, with USD up against risk foreign currencies, but JPY up more, along with Gold and Bonds, and Oil was down.

Thursday January 30

Markets fell again today in early trading, leaving DAX and FTSE down, but a late rally after (despite declaring a global emergency), the WHO reported around 1930 that China had the coronavirus under control. This cause a sharp rally into the close and US markets ended up green. NKY futures were also up. This happens a lot, when there is a change in sentiment after 1630, DAX and FTSE futures tend to react, but there is not enough volume to move them to the same degree as SPX, however NKY futures (driven also by the JPY price) often does move as much as the US indices.

Currency and commodity market reaction largely followed equity risk mood. Gold, JPY and Bonds had been rising all day and then fell into the close. The former was comfortably down, the latter two flat, as was Oil which had followed the reverse profile. Otherwise it was generally an up day for USD, although DXY itself was down due to a sharp 1c rise in cable after the BoE hawkish hold (with only 2 members voting for a cut instead of 3 estimated).

Friday January 31

Today China confirmed there have been nearly 10,000 coronavirus cases with 210 dead. The Thursday rally collapsed very quickly, and DJIA plummeted over 2%, with similar sharp drops globally. Airlines fell further. The exception was AMZN up 7.4% after blowout earnings. In currencies, AUD and NZD fell as they have been doing all week (virus related), but otherwise it was a big down day for USD across the board and of course the haven trio were well up. Oil was also down in line.

WEEKLY PRICE MOVEMENT

All indices were down but GBP strength following the hawkish BoE meant FTSE was the biggest faller, and similarly GBPNZD was the top riser, up 3.2%, the first week in 2020 we have seen a 3% major forex move. Given that GBP and AUD are overextended, I think selling GBPAUD would be a good call next week.

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)

• New month
• Non-Farm Payrolls
• Iowa Caucus
• AUD rate decision

Monday February 3

A new month, and traditionally the third weakest month in the markets. All eyes will be on coronavirus updates. The last of the FANGs GOOGL reports after the bell. ECB speakers today are De Guindos at 0815, and Weidmann at 1815, and Fed Bostic (non-voter) is on later in the day. There are rate decisions on TRY and MXN, the first of many exotics this week.

01:45 CNY China Caixin Manuf PMI (e51.3 p51.5)

08:55 EUR Germany Markit Manuf PMI

09:30 GBP UK Markit Manuf PMI

14:30 CAD Canada Markit Manuf PMI

14:45 USD US Markit Manuf PMI (e48.5 p47.2)

15:00 USD ISM Manufacturing PMI (e48.5 p47.2)

Tuesday February 4

The big event of the day is the Australian rate decision. Also, today we will know the result of the Iowa Caucus. Biden (market-friendly) and Sanders (definitely not) are neck-and-neck so a noticeable lead by either may well move markets. Rising star DIS reports after the bell.

03:30 AUD RBA Rate Decision/Statement (e0.75% hold)

15:00 USD US Factory Orders (MoM) (Dec)

15:00 NZD NZ GDT Milk Index 

21:45 NZD NZ Emp Change/UnEmp (QoQ Emp e0.3% p0.2%)

Wednesday February 5

A large raft of PMI releases today, and the ADP ‘preview’ of jobs ahead of NFP on Friday. There are rate decisions on PLN, INR and BRL. Markets and closed in New Zealand and Mexico.

01:30 AUD RBA Governor Lowe speech

01:45 CNY China Caixin Services PMI

08:55 EUR Germany Markit Composite PMI

09:00 EUR Eurozone Markit Composite PMI

09:30 GBP UK Markit Services PMI

10:00 EUR Eurozone Retail Sales

13:15 USD US ADP Employment Change

13:30 USD US Imports/Exports/Trade Balance

13:30 CAD Canada Trade Balance

14:45 USD US Markit Services/Composite PMI

15:00 USD US ISM Non-Manufacturing PMI (e55.1 p55.0)

17:30 CAD BoC Wilkins speech

20:10 USD Fed Brainard speech

Thursday February 6

A quiet day on news. There is a rate decision on CZK.

00:30 AUD Aus I/E/Trade Balance

00:30 AUD Aus Retail Sales

07:00 EUR Germany Factory Orders

10:00 EUR EC Economic Growth Forecasts

13:30 USD US Jobless Claims

22:30 AUD RBA Governor Lowe speech

Friday February 7

NFP is the biggest day of the week, with a higher estimate than last month, but still below the long-term 190k level. There are rate decisions on RUB and RON.

00:30 AUD RBA MPC Statement

07:00 EUR Germany Trade Balance/Industrial Production

07:00 CNY China I/E/Trade Balance

13:30 USD US NFP/AHE/UnEmp (NFP e156k p145k)

13:30 CAD Canada NFP/AHE/UnEmp (NFP p35.2k)

15:00 CAD Canada Ivey PMI

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