Sunday 26 April 2020

Week to Apr 24th

Oil collapses, negative futures, Inside week, GILD COVID drug trial fails

In a week dominated, for once, by the collapse of the oil market, and the first time ever that a contract traded at a negative price in the hours prior to expiration, the earnings picture, although mixed overall, was far from disastrous, and as oil recovered, so did equities, and started to form a shallow V-shaped inside week. This was halted mid-session on Thursday with a report that, contrary to expectations, the GILD drug remdesivir had not been successful in COVID-19 trials.

Haven assets also lost volatility, especially USDJPY which was virtually flat, although the ECB move (following the Fed) to buy lower-rated bonds caused a clear move out of EUR, resulting in an second week of uptick in DXY.

Next week sees the scheduled Fed rate decision, but with a rare 100% hold priced in, and of course the recent tendency of the Fed to abandon scheduled decisions, it is probably the least important meeting for years. US preliminary QoQ GDP (-4%) and ISM PMI (36.7) are sure to be dire, and the new jobless claims estimate at ‘only’ 3.5m (previous 4.4m) is the only reversal expected. The most important week of earnings season has over 660 companies reporting. It delivers the rest of the FAANGs and MSFT, and Dow giants BA, V, MCD and CVX. Plenty of results and guidance to possibly resolve the apparent disconnect between price recovery and the continuing pessimistic clinical outlook on the COVID-19 crisis.

SPX was fairly flat and posted an inside week last week and it is interesting that actual earnings did not move the variance from pre-COVID prices very much. The final columns effectively chart the movement in P/E ratio, generally down, but for example AXP now seems overpriced.

Mon Apr 20
The big news today was something that has never happened before in all history, the May contract for WTI crude (which expired the next day) actually went negative, closing at minus $37.63 a barrel. The press buzzed with explanations of what this meant. Oil stocks plunged, but outside that sector, things were fairly calm, and indices were around 2% down, depending on their Oil exposure, for example oil-free DAX was up 0.47%. FTSE was up but by less than amount GBP was down. CAD, an oil proxy was sharply down but with a flat Euro, DXY only advanced a modest 0.33%  Gold and bonds were in demand and advanced.

Tuesday April 21
Another down day as pressure moved onto the June oil contract, which fell over 70% to a low of $6.50, triggering circuit breakers, before recovering slightly into the close. Trading in the USO ETF was halted after its worst day in history. Monday night’s poor results from IBM, with profits down 61% also cast a pall, and indices fell 3-4%, this time with NDX and DAX faring worst. In currencies, money move out of commodity currencies, although as EUR and JPY hardly moved, the DXY gain was again muted. Bonds advanced again, although Gold gave back Monday’s gains, showing once again that it is an unreliable haven.

Wednesday April 22
Strong results from lockdown immune NFLX and SNAP the night before, and more significantly a huge 19% recovery in the June contract price (which does not show in USO in our table) halted the slide, and markets were up across the board. After an early pullback, USD advanced again, mainly because EUR capitulated after two flat days. Bonds were down in line with the recovery, but once again, Gold followed the equity markets rather the inverse.

Thursday April 23

The V-shaped week for equities was doing fine until a report on the GILD drug remdesivir did not actually help with COVID-19 after all. SPX quickly dropped by 80 handles, and closed Thursday less than two points apart from the previous Thursday’s close before the GILD bump up, giving a flat day overall.  It was a similar situation with the dollar, which had also been rising rapidly and also felt the same dip, and only a similar dip in EUR kept DXY flat. Oil continued to rally and this was reflected in CAD. Bonds were flat, and Gold was once again up.

Friday April 24
The last day of the week started badly in futures, but then quickly accelerated as oil stopped falling. Tech shares outperformed with NDX up 1.68% against 1.11% for DJIA. This still led to a red week overall in all indices.  The dollar was generally down with only CAD underperforming. Bonds were again flat, and Gold was down in line with equities.

The weakest indices were NKY, then DAX but this mainly reflected their inability due to timing, to participate in Friday’s rally. GBPAUD was the weakest currency down 1.42%. Cryptos started to show a little bit more volatility, whereas FANGS were lacklustre with the exception of FB, up over 6%.

My call to sell EURCAD failed. I had not expected Oil to crash for a second week, and I was still doing well until Friday. The pair was down 0.21%, so twelve weeks, five wins and a running total of 3.52%. This week I am selling NZDJPY.

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. Recoveries in line were seen in most FANGs, but not NFLX, which has not really fallen like the others.

NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)

  • Most important earnings week
  • Rate decisions in US, EU and Japan
  • Lockdown end discussed
  • Post-COVID GDP and CPI reports

For the third week, we offer a table of major earnings estimates against current prices. As you can see, unlike Week 1, quite a few companies have now recovered more than their earnings suggest.

Monday April 27
Entering the final week of the month, with no sign of new COVID case reduction in the US, markets will be looking for economic lockdown mitigation strategy. Watch out all week for another oil collapse. DAX giant Bayer reports today. Markets are closed in South Africa.

14:30 USD Dallas Fed Manuf Business Index (Apr)
23:30 JPY Japan Jobs Applicants Ratio/Unemployment Rate(Mar)

Tuesday April 28
We have not heard much from Japan in relation to the COVID crisis, and so today’s BoJ scheduled decision provides a opportunity to possibly hear something different. However, earnings will dominate today, with CAT, MMM and MRK (together 9.88% of DJIA) before the bell, followed by NDX giant GOOGL, along with AMD after the bell. There are rate decisions in Hungary and Sweden. SEK is 4.2% of the DXY basket.

03:00 JPY BoJ Rate Decision/Statement (e0.1% hold)
06:00 JPY BoJ Press Conference
08:00 EUR ECB Bank Lending Survey
13:00 USD US S&P/Case-Shiller Home Price Indices
14:00 USD US Consumer Confidence
22:45 NZD NZ Imports/Exports/TB

Wednesday April 29
The Fed decision today, where for the first time in years, a hold is 100% priced in, will probably be of little interest, especially given that central banks have more of less abandoned keeping news to scheduled dates during this crisis. So it will be an earnings day with troubled aviation giant BA before the bell, once top of the table it now languished at 11th position. After the bell, top NDX stock (11.71% alone of the index) MSFT reports, along with FB, TSLA, QCOM, and a host of smaller companies (EBAY. ALGN, VRTX, BMRN, ADP, QCOM) to make a total of 20.46% of NDX by weight. Markets are today in Japan.

01:30 AUD Australia CPI (RBA Mean QoQ e0.4% p0.4%)
09:00 EUR Eurozone Business Climate
12:00 EUR Germany CPI (YoY e0.6% p1.3%)
12:30 USD US 20Q1 Prelim GDP (e-4.0% p2.1%)
14:00 USD Pending Home Sales
14:30 USD EIA Crude Oil Stocks Change (Apr 24)
18:00 USD Fed Rate Decision/Statement (e0.25% hold)
18:30 USD FOMC Press Conference
23:50 JPY Japan Industrial Production

Thursday April 30
The early focus on European macro issues, with the ECB statement and presser following a triple Eurozone report (GDP, inflation and unemployment all in one go). The ECB is already set to spend $1trn on asset purchases this year, will that be enough, is the question President Lagarde is sure to face.

Earnings before the bell include two large airlines AAL and UAL, and Dow #4 position MCD (5.31% of the index). But once again, the big news is at the end of the day with AAPL and AMZN both reporting, along with recently newsworthy GILD, and smaller NDX companies (KHC, WDC, ILMN  and SGEN), to make a total of 24% of NDX reporting simultaneously. Markets are closed today in South Korea and Hong Kong.

01:00 CNY China PMIs
06:00 EUR Germany Retail Sales (MoM)(Mar)
07:55 EUR Germany Unemployment Rate/Change (e70k/5.2%, p1k/5.0%)
09:00 EUR Eurozone CPI (Core YoY e0.7% p1.0%)
09:00 EUR Eurozone UnEmp (e7.7% p7.3%)
09:00 EUR Eurozone 20Q1 Prelim GDP (QoQ e-3.3% p0.1%)
11:45 EUR ECB Rate Decision/Statement (e0.0% hold)
12:30 USD US PCE/Personal Income
12:30 USD US Initial Jobless Claims (Apr 24) (e3.5M, p4.4M)
12:30 EUR ECB Lagarde Presser
12:30 CAD Canada GDP MoM
13:45 USD Chicago PMI
23:50 JPY Tokyo CPI (YoY e0.1% p0.4%)

Friday May 1
Markets are closed for Labour Day in China, and most of Europe (including Germany) although not in Japan, the UK or the US. The only significant earnings today are three oil giants XOM, CVX and PSX all reporting before the bell, which may bring Oil back into focus. The all-important ISM PMI is predicted to print the lowest level since 2009, a dip below 35.47 would mean the worst figure since 1980. It is of course also the first day of May, the traditional time when markets sell off for summer. They did so precisely on May 1 last year, it remains to be see whether they will do so again.

08:30 GBP Markit Manuf PMI(Apr)
13:30 CAD Markit Manuf PMI(Apr)
13:45 USD Markit Manuf PMI(Apr)
14:00 USD ISM Manuf PMI (e36.7 p49.1)

Monday 20 April 2020

Week to Apr 17th

COVID growth stabilising, Mixed bag of earnings, Oil collapses again

This week, some light was seen at the end of tunnel, with some flattening of the infection curve, and promising results from the remdesivir drug from GILD. However, the macroeconomic data continued to be dire, such as the lowest Retail Sales print on record, and the Philly Fed survey’s worst result since 1980. Nevertheless, markets reached their highest level from a month, and have now recovered half the drop from the March crash. Earnings were generally misses, although of course a lot of this is priced in.

Next week will probably bring more coronavirus progress, and traders will be looking for any sign of a lockdown exit plan. Earnings season continues with bellwether IBM, lockdown beneficiary NFLX, tech giant INTC, and staple KO. US macro data is lighter, with only the Capital Goods (a manufacturing proxy) and of course the Initial Jobless claims being significant.

Last week we published an earnings table, showing how there was little correspondence between the earnings estimates and the drop in stock prices. At the time, in all cases the drop was more than the lower estimate suggested. Here are the results of earnings reports, and as you can see in most cases, although the variance (and thus the price/earnings ratio) is still considerable, there has been some reversion to mean post-results.

Mon Apr 13
The COVID-19 rollercoaster continued today, although volatility is clearly falling off. After last week’s rally, DJIA was down 1.39%, partly through CAT falling 9% after a downgrade, the other US indices less so. European markets were closed, and DAX futures were flat. The dollar was generally down, although the Euro fell even further. Gold and JPY were up, and Oil was down in line with equities, although bonds were slightly down. 

Tuesday April 14
After news that the New York virus deaths were levelling off, we saw Turnaround Tuesday in equities, with SPX up 3%, following outstanding earnings for JNJ. Another down day for the dollar, although NZD and CAD were flat. Gold was up again, continuing its partial disconnect with other markets, and bonds once again went in the same direction as equities, although both Monday and Tuesday’s move were small. Oil fell again, on general over-supply fears.

Wednesday April 15
The worst Retail Sales and Empire State Manufacturing releases in history turned the market down again today, and BAC missed on earnings. Markets turned down again, but only by about 2%, a relatively small move by current standards. A safe haven flight to the dollar pushed DXY sharply up over 1%, although JPY was the least affected. Bonds were up in line, and Oil fell sharply by nearly 5%, after the big miss on EIA stocks. God ignored equities again, and fell in line with the stronger dollar.

Thursday April 16
Equities were back up today, but only slightly, with SPX adding 0.6%. Competing forces of politicians being upbeat about coronavirus control and a flattening of the curve were in stark contrast to the ever worsening data (which lags behind of course). Today’s new Jobless Claims was 5.245 million, and remember this is new claims, in addition to the 16 million already filed in the last three weeks. The pre-COVID levels are less than a million a month. We are starting to see serious decor relation of individual stocks, today’s lockdown winners included NFLX and AMZN, both hitting all-time highs.

USD was also mixed and the DXY basket was slightly up, mainly due to a noticeable move down in EUR. Where equities are following news to some extent, it is very difficult to find the reasons for currency moves at the moment. Gold and bonds were nearly flat, and Oil’s drop of 2% 

Friday April 17
The rally continued today, with SPX pushing through the 50% retrace barrier. The trigger came in NDX as GILD (1.19% of NDX) rose 16% overnight on reports that their drug remdesivir was very helpful for COVID-19 patients (GILD ended the day 9.73% up. That only added 0.12% to NDX but sentiment is the thing, and indices were up 3%. USD took a dip today, down again all currencies and Gold, so for once all other other asset classes (bonds, Gold JPY down, Oil up) were in line.

And finally, if you are in any doubt that the current market is entirely driven by sentiment, look at this chart of Google searchs for "coronoavirus" correlated with the inverted price of SPX.

A quieter week with the NDX 6% rise being the strongest move. For the first time in weeks, a cross was the strongest mover with NZDJPY down 1.57%, also quieter than before. Bitcoin hardly moved, whereas ETH added to last week’s gains. FANGs did very well, particularly AMZN which returned to new highs.

My USDCAD sell call lost 0.33%. Eleven weeks, five wins, and a running total of 3.73%. This week I am selling EURCAD. CAD is going to break out soon.

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. Recoveries in line were seen in most FANGs, but not NFLX, which has not really fallen like the others.

NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)

  • Possible light at end of tunnel
  • Sentiment-driven market
  • Earnings season continues
  • UK and Canada inflation

Earnings are the key variable again as we enter the second week of the season. Like last week, we have done a table for next week’s earning and as you can see, the reduced estimates vs prices are all over the place. We will update the table next week with actual figures.

Monday April 20
Light on news today, as we enter another week of lockdown. Earnings today include bellwether IBM and oil services contractor HAL.

22:45 NZD NZ CPI (YoY e1.8% p1.9%) (Sun)
23:50 JPY Japan Imports/Exports/TB
01:30 CNY PBoC Interest Rate Decision (p4.05%)
06:00 EUR Germany PPI
12:30 USD Chicago Fed National Activity Index

Tuesday April 21
Today’s earnings give us some profile outside the banks, with DJIA staple KO before the bell, and lockdown winners NFLX and SNAP after the bell. The first post-lockdown unemployment figures come out in the UK, and we will see if Canada’s Retail Sales are as bad as last week’s US figures. Markets are closed in Brazil.

01:30 AUD RBA Meeting Minutes
05:00 AUD RBA's Governor Lowe speech
06:00 GBP UK Unemp/AHE/Claimant Count Change (Unemp e3.8% p3.9%)
09:00 EUR Germany ZEW Economic Sentiment (e-43.0 p-49.5)
12:30 CAD Canada Retail Sales (e0.0% p0.4%)
14:00 USD US Existing Home Sales
14:30 NZD NZ GDT Milk Index

Wednesday April 22
DAL the first airline to report comes before the bell, together with theoretically unaffected T. Casino LVS reporting after the bell will give us some insight into how bad the leisure industry has taken the crisis. Again, putting some numbers on the problem. Watch out for EIA oil stocks which seem to be growing every week. There is a rate decision in Turkey.

06:00 GBP UK CPI/RPI/PPI (YoY CPI e1.7% p1.7%) 
12:30 CAD Canada CPI (BoC Core YoY e1.8% p1.8%)
13:00 USD US Housing Price Index
14:30 WTI EIA Oil Stocks
23:00 AUD Aus Commonwealth Bank Manuf PMI

Thursday April 23
A fifth week of virus-era Jobless Claims may show some tailing off in claims, or not, as the case may be. The European PMIs are already at dire level. INTC after the bell is the most significant earnings release today. Markets are closed in Turkey.

06:00 GBP UK PSBR/Retail Sales
06:00 EUR Germany Gfk Consumer Confidence Survey(May)
07:15 EUR Italy Markit Prelim PMIs
07:30 EUR Germany Markit Prelim PMIs (Manuf e39.6 p45.4)
08:00 EUR Eurozone Markit Prelim PMIs (Composite e38.8 p29.7)
08:30 GBP UK Markit Prelim PMIs (Composite e38.8 p29.7)
12:30 USD Initial Jobless Claims (p5245k)
13:45 USD US Markit Prelim PMIs
14:00 USD US New Home Sales (MoM)(Mar)
15:00 USD Kansas Fed Manuf Activity
23:30 JPY National CPI

Friday April 24
The inelegantly named Non-Defence Capital Goods excluding Aircraft report is the main macro print of the day. Earnings include telecoms provider VZ and bank AXP.

06:00 GBP UK Retail Sales
08:00 EUR IFO - Business Climate/Assessment/Expectations
12:30 USD Durable/Capital Goods (e-0.4% p-0.9%)
14:00 USD Michigan CSI

This report is published every week as an email by - you can sign up to receive it here. This blog is supported solely by advertising, so if any of the ads interest you, please click on them. If you want notification when the blog is updated, please follow me on TwitterFacebookStocktwitsTradingView or Linkedin (all open in separate windows). Details of how I compile the report are here.

Sunday 12 April 2020

Week to Apr 10th

Virus deaths pass 100k, Nevertheless markets up, dollar down, Bernie drops out

A four-day week where we saw equity markets surged on a slowing down of new COVID-19 cases in the US, a positive view from adviser Anthony Fauci, and more significantly in European countries ahead of the US curve, followed by further Fed stimulus up to $2.3 trillion to keep the economy on track. The stimulus of course had an effect on the dollar, down across the board. Yields initially rose with the Monday 7.5% rally but were capped by dollar weakness. OPEC duly cut production by 10%, but this was already priced in, and traders deems it to be insufficient, given the projected economic contraction due to the virus, and the Oil price collapsed again.

Next week is a new chapter. The long weekend will provide three more days (four in Europe) of new case data, probably confirming the continued decline of new cases, and the US experience can be extrapolated from this. Sometimes there are advantages to being last, and we can probably echo Winston Churchill in saying this is not the end, not even the beginning of the end, it is however, the end of the beginning. 

Save any upsets good or bad in the medical situation, price action this week is likely to be primarily determined by earnings, with a good cross-sector sample (DAL, JNJ, UNH, AMD) in addition to the banks. Bank stocks have fallen much more than their earnings estimates would suggest, and the degree of PE ratio reversion will give a strong indication of medium-term market sentiment.

Mon Apr 6
Markets surged today after the doldrums, with SPX recording its sixth best day this century (two of the better days were in March). This was on increasingly clear evidence that the early countries in the curve were definitely seeing a tail-off in new cases, and that the US was sufficiently equipped to handle their curve. There was also a technical aspect in that the 38.2% retracement was breached, leaving the next barrier at 50%. SPX was up 7.5% on the day, its sixth best day of the century, and third best during this current crisis. The dollar had a quiet day, with only AUD and NZD notably reversing from their lows. Oil was sharply down after the postponement of the OPEC meeting, wiping out some of Friday’s gains. Gold continued to be counter-intuitive and was up 2.33% on the day. Bonds and JPY were however in line with the equity surge, both fell.

Tuesday April 7
Today was fairly flat as indices held onto Mondays gains. The virus stats were slightly positive, as the US reported a drop in new cases. USD however was sharply down as traders considered the effect of the Fed’s unprecedented loosening, with EUR leading the gains as new cases in Italy and Spain continued to fall. Gold reversed slightly, as did bonds, but Oil fell sharply again as traders were concerned about the OPEC delay, suggesting agreements had not been reached.

Wednesday April 8
Markets today welcomed left-wing Senator Sanders dropping out of the Democratic Presidential race, leaving the field clear for Joe Biden. Today was the turn of USD to be flatter, with a slight move down in EUR matched by a move up in GBP. We can’t really assign any reasons to this, other than technicals. Gold and bonds were down again, as was JPY reflecting the holding of Monday gains. Oil was sharply up, despite the EIA stock being worse than expected.

Thursday April 9
On the final day of the short Easter week, the Fed announced yet further stimulus to prop up the economy, and additional $2,300Bn including $1,200Bn in the so-called junk bond market. This inevitably boosted stocks, although only by about 1.5%, although this was enough to close as the best pre-Easter week since 1974. The muted response was not helped by another 6.6 million new Jobless Claims, and the Michigan Consumer Sentiment index falling to 71, a level last seen in the 2012 Euro crisis.

The easing caused an immediate and sharp drop in USD across the board, and the depression in 10-year yields had more effect than bond-stock rotation. CAD was down on the all-time low of -1.01 million new jobs, an amazing number equivalent to 2.7% of the population. Gold was up on the weaker dollar. Separately, OPEC announced cuts of 10mbpd (approximately 10% of output), but this was seen as not enough given the reduced demand from the crisis, and Oil crashed again.

Friday April 10
Equity, bond and commodity markets were totally closed, including futures, the only exception being NKY which rose slightly. Forex as expected was very quiet, the largest move being USDCAD, down 0.26%. Next week, European and Australian markets will be closed on Sunday. Earnings season starts on Tuesday with the big banks reporting, which may quantify some of the projected damage from the virus crisis.

DJIA was up 12.67% this week, its second best week since 1938 (the best was two weeks ago). The best forex trade was to buy AUDUSD, up 5.88%. Bitcoin hardly moved, and ETH moved less than the Dow. My call to buy GBPJPY paid off, up 1.57%. The running total after ten weeks (and five wins) is 4.06%. This week I am selling USDCAD based on the technicals, and also the weekend oil deal.

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. Recoveries in line were seen in most FANGs, but not NFLX, which has not really fallen like the others.

NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)
  • COVID focus moves to US
  • Most important earnings season in decades opens
  • China GDP will indicate longer-term effects
  • OpEx Week
Everything is about earnings this week, so we have done a table of the major earnings releases this week, highlighting the reduced forecasts, and the current price. The final column shows how much more the price has dropped than the earnings estimates suggests it should have. As you can see from the final column, most companies have dropped further, ie their P/E ratios have fallen.

This is immediately visible in a column chart

We will fill in the actual moves this week and report next weekend, together with the following week’s earnings releases.

Monday April 13
Over the weekend, a new oil cut deal was announced, so expect volatility in the Oil price, as well as CAD and oil producers. Most countries except Japan and the US are closed today for Easter Monday. There is a rate decision in Romania (who celebrate Easter a week later). There is no significant news, but watch out for COVID-19 updates
02:00 CNY China FDI (time approx)

Tuesday April 14
Two DJIA giants open earnings season today, JNJ and JPM report, along with WFC and small bank FRC. It’s a quiet news day, although Chinese stats are always interesting at the moment. There is a rate decision in Indonesia.

02:00 CNY China Imports/Exports/TB

Wednesday April 15
There could be some movement on CAD today with the rate decision and the Oil stocks print, but more important are the raft of banks reporting before the bell.

00:30 AUD Aus Westpac Consumer Confidence
12:30 USD US Retail Sales (Control Group Mar p0.0%)
13:15 USD US Industrial Production
14:00 CAD BoC Rate Decision/Statement (e0.25% hold)
14:30 WTI EIA Oil Stocks
15:15 CAD BoC Press Conference
19:00 USD US Fed Beige Book

Thursday April 16
After two weeks of over 6m Initial Jobless Claims, traders will be looking for the curve flattening on this statistic as well. However once again, earnings will probably be the most important factor in price today.

01:00 AUD Aus Consumer Inflation Expectations
01:30 AUD Aus NFP/UnEmp (NFP e-40k p26.7k)
04:30 JPY Japan All Industry Activity Index
06:00 EUR Germany CPI (YoY p1.3%)
09:00 EUR Eurozone Industrial Production
12:30 USD US Building Permits/Housing Starts
12:30 USD Philly Fed Manuf Survey
12:30 USD Initial Jobless Claims (p6.6m)

Friday April 17
Monthly options expire today, so expect additional volatility. A two-day IMF meeting starts today. Romanian markets are closed.

02:00 CNY China 19Q1 GDP (QoQ e-10% p1.5%)
04:30 JPY Japan Industrial Production
06:00 EUR Germany PPI
09:00 EUR Eurozone CPI

This report is published every week as an email by - you can sign up to receive it here. This blog is supported solely by advertising, so if any of the ads interest you, please click on them. If you want notification when the blog is updated, please follow me on TwitterFacebookStocktwitsTradingView or Linkedin (all open in separate windows). Details of how I compile the report are here.